Law:

Section:

Section 44AC, read with section 206C, of the Income-tax Act, 1961 read with articles 14 and 19(1)(g) and Entry 82 in List I of Schedule VII of Constitution of India - Special provision for computing profits and gains from business of trading in certain goods - Whether Parliament was within its legislative competence to enact sections 44AC and 206C - Held, yes - Whether as section 44AC fixed non-sustainable and arbitrary rates of profits arising out of trades in question, it is violative of articles 14 and 19(1)(g) - Held, yes - Whether, though section 44AC was violative of articles 14 and 19(1)(g), it ought not to be struck down, but should only be read down to state that it is merely an adjunct to and explanatory to the provision in section 206C with the result that a regular assessment has to be made in respect of the assessee in accordance with sections 28 to 43C, i.e., the non-obstante clause of section 44AC shall not be operative - Held, yes FACTS By virtue of section 44AC inserted by the Finance Act, 1988, a person dealing in alcohol meant for human consumption, timber, and forest produce, who obtained such goods by way of auction, tender or any other mode from specified sellers such as the Central or State Government, local authority, etc., was deemed to earn profits thereon at the rate of specified percentage of the purchase price and tax was to be collected from him by the seller at the time of sale and credited to the Government in terms of section 206C, also inserted by the Finance Act, 1988. These two provisions were enacted with a view to curbing tax evasion. By way of writ petitions this presumptive and pre-emptive levy of tax had been challenged by the petitioners on the grounds, (i) that what was sought to be taxed by force of section 44AC was not income and as such, the Parliament lacked legislative competence to enact it as well as section 206C, (ii)that section 44AC was discriminatory and arbitrary and hence violative of article 14, and (iii) that the rates fixed by section 44AC were confiscatory and the same had imposed unreasonable restrictions on the freedom to carry on trade or business and as such this section was violative of article…

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