Law:

Section:

Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of that income-tax Rules, 1962 and Article 19 of the Constitution of India - Business disallowance - Cash payment exceeding prescribed limits - Whether section 40A(3) which regulates business activities and prevents unaccounted money used for clandestine transactions cannot be said to curtail freedom of trade or business guaranteed under Article 19(1)(g) - Held, yes - Whether rule 6DD which specifies cases where section 40A(3) will not be applicable would not render rule discriminatory on ground that it has excluded other classes of persons not named therein - Held, yes - Whether measures taken under provisions of section 40A(3) and rule 6DD to check evasion of tax cannot be said to be ultra vires or beyond power conferred by Constitution - Held, yes FACTS The assessee-petitioners were merchants and commission against on behalf of agriculturist and put up produce at an auction for sale. The produce brought at such auction normally exceeded a sum of Rs. 2500. The assessees expressed their difficulty in having to pay by a crossed cheque or a crossed bank draft to the seller as required under section 40A(3). Therefore, the assessees filed writ petitions before the High Court challenging the validity of section 40A(3) and (4) on the grounds that (1) it was ultra vires the powers of Parliament under entry 82, List I of the Seventh Schedule to the Constitution; and (2) that it violated the fundamental right guaranteed under article 19(1)(g) of the Constitution. Further, rule 6DD was also challenged on the ground that it was beyond the competence of the rulemaking authority and repugnant to article 14 of the Constitution. It was the case of assessees that the mandatory requirement for payment by a crossed cheque or a crossed bank draft under the impugned provisions acts as a clog affecting their fundamental right to transact their business by making payments in cash; and that they confer vast and arbitrary power on the income-tax authorities to allow or disallow any expenditure incurred towards payments made in cash and it was an unreasonable restriction on their right to carry on trade or business. HELD…

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