KUNHAMMED KUTTY HAJI Vs. UNION OF INDIA

JUDGEMENT

(1.) Timber, tobacco and liquor have been subjected to discriminatory and oppressive taxation - is the chorus of the petitioners in this batch of writ petitions. A serious contention so urged, challenging the very constitutionality of a taxing statute, needs careful consideration.

(2.) The petitioners have one thing in common: they have been the victims of the amendment to the Income Tax Act, 1961 brought about by the Finance Act, 1988 which has introduced S.44 AC and 206 C to the Income Tax Act, 1961." Their contentions are substantially common: The impost of tax is inflexibly fixed under this provision. The income assessed depends, not on the actuality of the situation: it is fixed at a percentage of the purchase price of the commodities, be it an alcoholic beverage of the kind described, or the beedi leaves, or the timber bid in auctions held by the State from out of its forest reserves. The tax is really not on income, but on the purchase price: the tax really partakes the character of a sales tax; Sales tax cannot be levied, assessed or collected by the Union; that is a field open only to the State; that is the effect of Art.246(3) of the Constitution read with entry 54 of List II of the VIIth Schedule dealing with tax on sale, and entry 8 dealing with intoxicating liquors. The tax is levied on an artificial assumption, and is, therefore, not linked with a tax on real income. It is quite possible, that any of the ventures, may culminate in a calamitous end, and a massive loss. How could then the Legislature alter the actual and factual situation, create a fiction, name it income and levy the tax query the petitioners.

(3.) In a sense, the question raised is about the competence - legislative competence - of the Union, to levy the tax on these commodities in the manner provided by the Finance Act, 1988. .