JUDGMENT
1. The Tribunal, Allahabad has referred to following question of law under Section 256(1) of the IT Act, 1961 (hereinafter referred to as "the Act") for opinion of this Court:
Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that income in the case of trading in alcoholic liquor for human consumption (other than Indian made foreign liquor) is computable under Section 44AC of the IT Act @ 40 per cent of the amount paid or payable by the buyer as purchase price, without any reference to the actual book profits, and that the remaining income from such trading was not taxable under the provisions of Section 5, r/w Section 56, of the IT Act ?
2. The present reference relates to the asst. yr. 1990-91.
The brief facts are that the assessee-respondent (hereinafter referred to as "assessee"), an AOP filed the return on 29th Nov., 1990 declaring an income of Rs. 11,94,780. While computing the income, the AO observed that the assessee is a liquor contractor and the business of trading of alcoholic liquor carried out by the assessee is covered under the provisions of Section 44AC of the IT Act. From country liquor the assessee showed net profit as per P&L a/c at Rs. 19,20,305 but declared the net income in the return at Rs. 11,16,360 only which was taxable under Section 44AC being 40 per cent of the cost price and capsuling/ packing charges without including nirgam mulaya and excise duty. Thus the income of Rs. 8,03,945 (19,20,305-11,16,360) actually earned by the assessee as per P&L a/c was not disclosed in the return of income. In respect of country liquor the AO computed the difference of income returned and net profit as per P&L a/c at Rs. 12,61,658 (8,03,945+4,57,713 (TDS) debited to P&L a/c) under the provisions of Section 5(1) of the IT Act and taxed the same as income from other sources.
On appeal, the CIT(A) confirmed the said addition.
On second appeal, the Tribunal observed as under:
It may be mentioned that the provisions of Section 44AC which were introduced to curb the evasion of tax as a special measure in the case of trading in alcoholic liquors and certain other specified articles, override the provisions of Sections 28 to 43C for the computation and chargeability of income under the head 'Profits and gains of business or profession'. The main purpose of the said provision was to provide for an average rate of profit to be calculated on the purchase price, notwithstanding the other provisions relating to computation of income under the head 'Profits and gains of business or profession'. Further, it is observed from the provisions of Section 56 that income of every kind which is not chargeable to income-tax under any other head of income specified in Section 14 is chargeable to income-tax under the head 'Income from other sources'. In this case the assessee had income only from the purchase and sale of country liquor and rum which could obviously be charged only under the head 'Profits and gains of business or profession'. As such the balance of the income which has been charged to income-tax by the tax authorities under the head Income from other sources' is not correct. Further, it is observed from the provisions of Section 5, which deals with the scope of total income, that the total income of any previous year of a person, who is resident, is 'subject to the provisions of this Act.' The definition of 'total income' as given in Section 2(45) also refers to the total amount referred to in Section 5, computed in the manner laid down in this Act i.e. the IT Act. A careful reading of all the aforementioned provisions makes it clear that the intention of the legislature was that income in the case of trading in alcoholic liquor (for human consumption other than Indian made foreign liquor) should be calculated @ 40 per cent of the amount paid or payable by the buyer as the purchase price without any reference to the book profits, as once it is conceded that the book profits can be taken into account with reference to the higher income then it will be difficult not to concede that the book profits can also be taken into account where the income is a loss and that will nullify the intention underlying the introduction of provisions of Section 44AC. In view of this analysis we hold that the addition of Rs. 12,61,658 as income of the appellant held by the tax authorities as assessable under Section 5 of the IT Act is not correct and the same is deleted.
3. We have heard Sri A.N. Mahajan, learned standing counsel for the Revenue and Sri M.A. Zaidi has filed his appearance on behalf of the assessee-respondent.
4. We find the said controversy was decided in the case of Union of India and Anr. v. A. Sanyasi Rao and Ors. (1996) 132 CTR (SC) 81 : (1996) 219 1TR 330 (SC). Apex Court has held that presumption under Section 44AC is only for the purpose of calculating the tax at source under Section 206C of the Act and not for the purpose of determining the taxable income. In this view, Tribunal was not justified in taking the view that the 40 per cent of the amount payable by the assessee as purchase price is alone to be treated as net profit from the business.
5. We answer the question (referred to) us in negative, i.e. in favour of the Revenue and against the assessee. There shall be no order as to costs.