MANOHAR RAM CHANDRA PATIL Vs. UNION OF INDIA

JUDGEMENT

(1.) IN this writ petition, an assessee under the INcome Tax Act, 1961 (hereinafter referred to as the "Act") challenges the constitutional validity of Section 44-AD of the INcome Tax Act, and on that basis seeks the issue of a writ of certiorari to quash the order of assessment made for the assessment year 1994-1995 and the demand made pursuant thereto. Admittedly, the assessee is a Sub-contractor of M/s. Tata Robin, Frasers Limited and during the assessment year, he had executed work as a sub-contractor under the Principal Contractor. Admittedly the petitioner did not maintain accounts relating to the sub-contractor works. IN that situation, the assessing officer invoked Section 44-AD of the Act and presumed the income of the assessee at 8% of the gross receipts payable to the assessee by the principal contractor during the previous year on account of the sub-contract business. It is in that context that the assessee has challenged the constitutional validity of Section 44-AD of the Act.

(2.) SECTION 44-AD of the Act contains a special provision for computing profits and gains of business of civil construction etc. The SECTION provides that notwithstanding anything to the contrary contained in SECTIONs 28 to 43-C of the Act, in the case of an assessee engaged in the business of civil construction or supply of labour for civil construction, a sum equal to 8% of the gross receipts paid or payable to the assessee in the previous year on account of such business or as the case may be, a sum higher than the amount at 8%, if it is so declared by the assessee in his return of income, shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and Gains of business or Profession". What is argued on behalf of the assessee is that SECTION 194-C of the Act provides for deduction at source at 2% of the amount paid or found payable to the contractor and 1 % of the amount payable to a sub-contractor and in view of the inconsistency between that provision and the presumptive income specified in SECTION 44-AD of the Act, it must be held that SECTION 44-AD is arbitrary and unreasonable. It is pointed out that under SECTION 194-C(2) the amount deductible in case of a sub-contractor is only 1% of the sum found payable by the contractor, and in the context of that stipulation the provision for presuming the income to be 8% must be held to be invalid, since it is arbitrary and violative of Article 14 of the Constitution of India. Counsel submits that in the light of the decision of the Supreme Court in East India Tobacco Co. etc. v. State of Andhra Pradesh and another, AIR 1962 SC 1733, it is open to the assessee to challenge the validity of the relevant provision under the Income Tax Act to be violative of the fundamental rights of the assessee. The arguments on behalf of the assessee are met by the learned Standing Counsel for the Income Tax Department by pointing out that SECTION 194-C of the Act operates in a different field and it has nothing to do with assessing a sub-contractor on the income he has received and SECTION 44-AD clearly indicates the income to be presumed in a case where the assessee is not in a position to produce the actual accounts and satisfy the assessing officer of the income received by him from such work. It is also pointed out that the presumption regarding the income contained in SECTION 44-AD of the Act applies only in a case where gross receipts paid or payable exceeded Rs. 40,00,000/-. It is therefore, submitted that there is nothing irrational or arbitrary in SECTION 44-AD of the Act.