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P. Kunhammed Kutty Haji and ors. Vs. Union of India (Uoi) and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberOriginal Petition Nos. 8237, 8257, 8291, 8881, 8905, 8979, 8980, 8292, 9038, 9589, 9590, 9592, 10001
Reported in(1989)76CTR(Ker)139; [1989]176ITR481(Ker)
ActsIncome Tax Act, 1961 - Sections 44AC and 206C; Constitution of India
AppellantP. Kunhammed Kutty Haji and ors.
RespondentUnion of India (Uoi) and ors.
Appellant Advocate S.A. Nagendran,; T.D. Rajalakshmi,; A.A. Abdul Hassan
Respondent Advocate P.K. Ravindranath Menon, Senior Adv. and Senior Standing Counsel, Government of India (Taxes) and; N.R.K.
Cases ReferredPusphan v. State of Kerala
direct taxation - levy - sections 44ac and 206c of income tax act, 1961 and constitution of india - timber, tobacco and liquor subjected to discriminatory and oppressive taxation - competency of union to levy tax on these commodities under act of 1988 challenged - presumption of constitutionality difficult to penetrate ordinarily - judicial approach throughout allowed legislature flexibility at joints particularly when taxing statute under attack - vigour with which land tax act shot down not seen in later stages of constitutional decision-making as regards taxing statutes - guiding principles allow executive to have greater freedom in this area - apart from stating that it is undue burden and that provisions discriminatory petitioners not shown materials enough to make court feel that.....k. sukumaran, j.1. timber, tobacco and liquor have been subjected to discriminatory and oppressive taxation--this 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 an amendment to the income-tax act, 1961, brought about by the finance act, 1988, which has introduced sections 44ac and 206c to the income-tax act, 1961. their contentions are substantially common : the impost of the 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.....

K. Sukumaran, J.

1. Timber, tobacco and liquor have been subjected to discriminatory and oppressive taxation--this 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 an amendment to the Income-tax Act, 1961, brought about by the Finance Act, 1988, which has introduced Sections 44AC and 206C to the Income-tax Act, 1961. Their contentions are substantially common : The impost of the 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 beedi leaves or timber bid at 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 of 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 Article 246(3) of the Constitution read with entry 54 of List II of the Vllth 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 as 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.

4. Some are essential. Some are non-essential. Some are even luxury items; some enticingly good though with latent health hazards. Why pick up three among these articles and subject them to this harsh and hard treatment, by a very unbearable burden in the form of tax There is no rationale involved and no good effect achieved by such an adventurous venture on the part of a prime Parliament--is the additional contention. Violation of Article 14 will imperil the life and sustenance of an enactment, a tax enactment included. Strike down the enactment if it still shows signs of life--is the prayer of the petitioners.

5. The first contention may be dealt with first. The constitutional entry reads 'tax on income'. 'Income', a seemingly simple word, has created a world of confusing concepts. Lord McNaughten's speech about income-tax is classic and has remained thought-provoking in all climes and times :

'Income-tax, My Lords, if I may say so, with respect, is a tax on income.'

6. The bewildering connotation of the term 'income' came to be indicated and illustrated in long passages and a catena of judicial decisions rendered even thereafter.

7. Could it be said that without actual income, no income-tax is possible or positable That query which has been raised long ago has been clearly answered by the Supreme Tribunal of the land. In a variety of situations, income-tax has been fixed rigidly and artificially. Artificial fixation of house property income is demonstrated by the decision in Bhagwan Dass Jain v. Union of India : [1981]128ITR315(SC) . The exercise has been indulged in not merely by Parliament but also by the State Legislatures. The base of profession tax was given such an artificial structure by the Maharashtra and Gujarat States. Different standards could be selected for fixation of income irrespective of the actuality of the situation. Illustrations are the actual value of one's own building and the undistributed profits of a company in the context of taxation for income-tax purposes. It would be sufficient if the income figure is reached by standards which are sufficiently just.

8. Legislative entries should receive the widest interpretation--is a basic tenet put forward for sustaining such statutory fictions and schemes. Income is subjected to taxation whether it is actually received or has notionally accrued. (See CIT/CEPT v. Bhogilal Laherchand : [1954]25ITR50(SC) and CIT v. Lady Kanchanbai : [1970]77ITR123(SC) ). In a sense, the practice can be traced back even to the earlier decisions in Shaw Wallace and Co. v. CIT [1932] 6 ITC 178 and Navin-chandra Mafatlal v. CIT : [1954]26ITR758(SC) . Later decisions also are available illustrating the principles. Gross receipts, without giving deduction for expenditure, being treated as income was upheld in Travan-core Rubber and Tea Co. Ltd. v. State of Kerala : [1963]48ITR102(Bom) . Legal principles laid on similar lines are discernible from the decision in Punjab Distilling Industries Ltd. v. CIT : [1965]57ITR1(SC) . It is unnecessary to refer to the multiplicity of decisions on the point when the proposition is clear enough. It would then be sufficient to hold that irrespective of the actual receipt of an income or the factual situation in relation to the real income, it would be competent for Parliament to make a fictional computation of the income and tax it as such.

9. True, there have been extreme instances where attempts at taxation of receipts which had no connection with an income or income-earning activity, have been stifled by court decisions. Judicial thoughts in that area, and in that strain, can possibly be traced even to the time when Rowlatt J. observed in Leigh v. IRC [ 1928] 1 KB 73, that for tax purposes,

'receivability without receipt is nothing.'

10. It is, however, useful to refer to the observations of Stamp L. J. in the recent decision (Dunmore v. McGowan [1978] 2 All 85) that Rowlatt J.'s dictum was one which could be pressed too far. An argument based upon that dictum was actually rejected in the case. (See the comment by John Tiley : Receivability and Receipt: The Problem of Timing under Income-tax Legislation 1982, British Tax Review 23). The decisions relied on by counsel for the petitioners (CIT v. Harprasad and Co. (P.) Ltd. : [1975]99ITR118(SC) , CIT v. Birla Gwaiior (P.) Ltd. : [1973]89ITR266(SC) and Sunil Siddharthbhai v. CIT : [1985]156ITR509(SC) ), do not lay down anything contrary to the view leaning in favour of the wider interpretation and permissibility of the artificial definition of the term 'income'. The decision in State Bank of Travancore v. CIT : [1986]158ITR102(SC) , contains a corollary observation. At page 788, the Supreme Court observed :

'If real income arises, interpretation should not be such that the provisions of the Act are rendered useless.'

11. Viewed from the background of legal practice and judicial decisions, it will then be open to Parliament to deem a portion of the price of the commodity dealt with as income in the hands of the man dealing with them. The legal principles laid down by authoritative decisions holding the field do not in any way rule out such an impost. On the contrary, the practice has been well set and well-recognised and even well-accepted by asses-sees and authorities alike.

12. Looked at from a theoretical angle also, the position is not different.

13. Many have been the experiences and experiments with income-tax, after it was introduced as a temporary measure, in England, in pressing circumstances. It is unnecessary to refer to all those events and landmarks in the taxation's march to modern days. When rates became higher, the temptation to avoid and even to evade was stronger. Then it was a keen and competing race between the Revenue and the assessee. The big sharks quite often burst the net, when only minor fry was caught. That was unfair. Vigilant legislatures were alert enough to repair the meshes and tighten the ropes. The theorists and administrators made close observations about the loopholes and bestowed excruciating thoughts on the best ways to plug such holes. The long experience of the tax administrators revealed that in relation to some articles, evasion was easy. It was not merely a case of moonlighters as that term as is now referred to in taxation parlance. (A moonlighter is a person who has considerable income, some from known and disclosed sources and some substantial portion from undisclosed sources). Certain businesses have witnessed 'fly-by-night' operators, as referred to in the taxman's colloquium. In other words, there are businesses where accounts are hardly kept; where, even if accounts are kept, the opportunities for manipulations are vast and wide. Businesses are there, where, as soon as income is amassed, the income earner could vanish mysteriously giving the slip even to the watching tax-gatherer. There are businesses where a common alibi could be easily employed or where any one could be an easily available name-lender. Such trades, therefore, rightly, needed stringent and corrective approaches and additional vigilant watch.

14. It was Richard Musgrave who championed this device of presumptive taxation, in his well-known work on public finance. At considerable pains, and at length, he explained the merits of the system. The additional revenue which accrued were welcome advantages for the State, looking for chunks of money to carry out the very many welfare schemes. The Musgrave doctrine made out a case for a differential approach in less advanced countries. According to him :

'A more realistic approach is needed, using presumptive taxation, applied outside and in lieu of the regular framework of income and sales taxation, as well as estimated tax basis, applied within the context of the regular tax system.'

15. (The Economic Times dated 27-4-1988, page 2) Presumptive taxation has come to stay as Tahshir in Israel and Forfait in France. To Colombia in the sixties, and to Bolivia in the seventies, the Musgrave Mission on Fiscal Reform suggested the presumptive approach.

16. The theoreticians of fiscal administration have found in presumptive taxation much more than an effective check against evasion. It has the merit of promoting efficiency for the able enterpreneur : when there is a fixation of his income by statutory provision, anything he could make in excess of that norm, is a reward for his added activity. A dealer who falls short of the norm suffers the ill-effects. The person who exceeds it, could get the advantage. Fiscal theorists opine that this tax--termed as a lump sum tax--is the ideal form of taxation from the point of view of efficiency, China's recent economic reform, considered as successful by some, is cited by some academics as illustrative of a classic example of the success of the concept underlying presumptive taxation.

17. A very illuminating Article by Amaresh Bagchi commenting upon the effect and impact of Sections 44AC and 206C has assisted the court with valuable information on these aspects. (See the Economic Times dated April 27, 1988). His appraisal on the agricultural holdings tax also furnishes useful hints and thought processes on the theoretical--including legal and constitutional--aspects. (See Agricultural Holdings Tax: A Modified Scheme by Amaresh Bagchi--Economic and Political Weekly dated September 23, 1978). (Usefulness of his comments and views can be unhesitatingly acknowledged by the court which is to deal with the delicate and difficult problem). A caveat has been entered as regards some of his views in the editorial comment of the ''Economic Times' of the same date. The court is not directly concerned with the morality or hardship of the impost. Hardships could be there in any system of tax. That is essentially for Parliament to be concerned about. Even as a self-serving measure, Parliament may adopt a policy which would subserve the exaction of maximum benefit without killing the Golden goose. In a sense, Parliament has reacted to the grievance of hardship in relation to some matters. There had been a considerable, if not drastic, reduction in the rates as regards timber as is evident from the Direct Tax Laws (Amendment) Bill, 1988, which is intended to effect far reaching amendments to the existing provisions.

18. A basic objective of treating certain specific types of business for such presumptive taxation, is the peculiar characteristic of the income earner, engaged in those types of business having expansive opportunities to defeat the Revenue by manipulative operations. A presumptive taxation can thus be a substantial anti-evasion measure. The system has other merits also to its credit.

19. The objective of the taxation under attack is gatherable from the following passage occurring in the Budget Speech for the year 1988-89 of the Finance Minister (See [1988] 170 ITR 19) :

'As an anti-evasion measure, I propose to provide for assessment of income of persons engaged in certain trades, like liquor and forest contracts, at a reasonably fixed percentage of the amount payable by them while purchasing the goods.'

20. It is the experience of the courts of law that many of the persons who participate in the auctions, either in abkari articles or in forest produce, are 'fly-by-night' operators. The Administration Reports of the Excise and Forest Departments give an indication of such operations and the sizeable unrealised arrears of revenue in the Excise Department.

21. Some patterns are seen easily emerging. Someone participates in an auction, depositing a cash security of a comparatively small fraction of the bid amount. The rest of the security for the bid is in other forms. Quite often, the adequacy of the security is not effectively examined. Defaults are seen in the payment of kist, even in the first few months of the contract. Prompt and proper action by the officials of the Department to discourage defaults and to realise the arrears would appear to be a rare phenomenon, by and large. Ultimately, the year is out; the kist is unpaid and the State is saddened and saddled with the loss. It is not a case of an isolated event. What happens in Parasala (southern tip of the Kerala State) happens in Kasaragod, the northern border. Those are very familiar and intimate experiences for the courts in Kerala. It is not a case of such things happening in a single area. Years have come and years have gone ; but the burden of the song has remained the same. Parliament must have felt that the pattern is prevalent throughout the Indian territory.

22. If a presumptive tax is, therefore, a permissible exercise in the fiscal activity of a modern State, then the only further question to be probed into is whether those underlying assumptions are applicable to the three trading segments subjected to the special treatment under Sections 44AC and 206C of the Act. Of all the three articles already referred to, the foremost one is alcoholic liquor. Are there any specialities in relation to this trade which would justify its being subjective to a presumptive taxation

23. Tax on liquor is as old as civilisation itself. Excise duties on alcohol are among the oldest legislative forms of tax in the world as noted by S. Cnossen in his book 'Excise Systems'. He had pointed out how they had been used at the time of the Ran Dynasty in China and during the Mauryan period in India. By the 16th and 17th centuries, excise duties on alcohol became prominent in Europe. Those duties were a major source of tax revenue for the English Government in the 19th century. It is unnecessary to survey the theoretical aspects of the rationale for special taxes on alcohol. A very illuminating Article is available in 1983 British Law Review, at page 370, 'The Rationale for Special Taxes on Alcohol : A Critique' by John W, O' Hagan. He had separately dealt with the two broader reasons in economics literature for special taxes on alcohol: (1) the role as revenue raisers, (2) their control function, i.e., correcting for market imperfections. One distinct advantage in relation to excise duties on alcohol was the advantage of its being a secure source of revenue. The oretically, it has been computed that a person, on the average industrial wage and who drinks four pints a day on average, would pay 7.6 per cent. of his total income on alcohol excise duties alone. The ultimate conclusion is that revenue raising is the main reason for alcohol taxes. A relevant question may itch the thinking brain. O' Hagan poses it and answers it in the Article :

'The question then is why choose alcohol--why not coffee, butter, cream cakes, foreign holidays, fur coats, magazines, etc. The reason is that people would avoid these taxes, by reducing their consumption of them, i.e., these items are price elastic.' (page 373, ibid).

24. There is a supplement to his Article in 1984 British Tax Review under the caption 'The System of Taxing Alcohol; Some Issues.' (See 1984 British Tax Review, page 171).

25. These writ petitions are not directly linked with the theoretical propositions involved in the special taxes on alcohol. The established historical practice and the fact that alcohol is subjected to taxation as a distinct base are, however, clearly brought out by the survey undertaken above.

26. It is a matter of ordinary and intimate experience that in India, the liquor shops serve as places for speedy and secure collection of revenue.

27. One attractive aspect in relation to a presumptive tax on the liquor trade is the certainty of obtaining a correct figure of purchase price to form the base for taxation. It is likely that if private agencies intervene, opportunities of manipulation would be wide and varied. Not necessarily so, if it is exclusively a Governmental operation. Bidding at a public auction generally generates the highest income, by the nature of the very competition involved in the process. This is so even when due allowance is given for ring formation exercises among the bidders and other tactics usually resorted to by preconcerted operation among the bidders. The trader is not ordinarily likely to bid an unrealistically high figure ; it may spell his business doom, if the bid is not careful. That anxiety for self-preservation would make him, ordinarily, bid a rational figure. The Abkari laws of the States generally give the final word to the Government for the acceptance of the bids. The bid amount will not be too low or too illusory a figure because of the checks and control contained in the Abkari laws. Thus, a fair and reasonable basis for the real price could be found from the bid amount of a liquor trader. If a percentage of that bid amount is deemed to be income by the exercise of presumptive taxation, ordinarily, it will ensure that the levy is rational, scientific and fair.

28. The aforesaid discussion in relation to the peculiarities of the liquor trade would lead to the conclusion that the exercise of presumptive taxation in relation to the liquor trade is a perfectly permissible constitutional operation. The validity of the tax as introduced by Section 44AC could not then be doubted, disputed or denied by a court of law.

29. A subsidiary contention has been raised of a vicious discrimination practised, exempting the Indian made foreign liquors.

30. The sub-classification between the various types of liquors could be noticed from very early times. As O'Hagan observed :

'The burden of tax varied depending on what beverage type was consumed ...' (emphasis supplied).

(See The Rationale for Special Taxes on Alcohol: A Critique, 1983 British Tax Review, page 370 at 371).

31. The Budget introduced in the House of Commons in 1882, increased the duties on beer, while wine was left untouched. (See the Autobiography of Sir Edward Clarke, page 239).

32. There are very many reasons inferable in relation to the firm grip Parliament made on foreign liquors, arrack and toddy. If revenue reasons are the more appealing ones for the imposition of presumptive taxation on alcohol, then the statistical data would indicate that the bulk of the revenue is not derived from those who sip a peg or two of the 'Indian made foreign liquor', but from those who gulp damaging quantities of arrack, or large quantities of toddy. The bid figures in liquor auctions, and the revenue derived from Indian made foreign liquor, arrack and toddy, would demonstrate that the bulk of the liquor revenue is derived from arrack and toddy.

33. Liquors probably observe rigidly a hard and harsh 'caste' system. Whisky is rated high. There are some which proclaim royalty like Chevas Regal. 'King of Kings,' understandably enough, can expect a 'Royal Salute'. The 'Old Monk' can perform functions not only spirituous but spiritual. Many go with labels : the 'White Label' and the 'Red Label', Many have come to choose from the animal kingdom, 'Black Dog' and 'White Horse'. Excessive acquaintance with 'Black and White', can possibly make one even colour blind. As in other spheres, so in the liquor field : there are 'Old Smugglers', some of whom possibly travel in 'Cutty Sark'. It is little wonder that someone hummed those lovely lines :

'John KnoxLiked Whisky on the rocksHe hated GinLike the veritable sin.'

34. Whether that hatred was at least partly due to a brew name 'Beef eaters Gin', is not known. Quite often, gin can be mistaken for another but stronger of its tribe. That was so even in the pre-revolution days of Russia. A Law Minister's daughter of the time wrote :

'Vodka was drunk by the men, as cocktails are now drunk in Europe ; in colour and taste it could be compared only to gin, ten times stronger than gin.'

35. She has recalled how the revolutionary Lenin had a preference for 'Port'. The incident is narrated thus :

'I stretched my foot under the table to find the bell, and in due course the butler appeared. I ordered the port. There was another dreadful silence. At last it came. He looked at it suspiciously for what seemed an age and then he took a sip. At last he said, 'Capital port you have here. How odd that you serve it in a claret glass.' After that, Lenin had no terrors for me.'

36. Long John Silver of Treasure Island sang that sailor's song : 'yo-ho-ho and a bottle of rum'. If rum is the liquor of the royal navy, sherry is seen as the female's drink. And when the Queen of her own country and the affectionate Head of a Commonwealth, was presumed to have that drink, others aimed at aping her. The amusing scene is described thus :

'And it remains a source of amusement to the Queen that many people who would prefer a large scotch or a brandy always choose sherry at her parties : 'What a lot of sherry drinkers !' she says, holding her glass of tonic water elegantly.'

37. However, when she visited one of her Commonwealth countries :

'The Queen was offered and courageously accepted a drink of the local brew-'kava'-in a coconut shell, ...'

38. The French have perhaps a justified arrogance about their wines. A connoissuer, however, cautioned :

'There is nothing so fattening as champagne ; and however little brandy or whisky may be put into big glasses, the soda water that accompanies it is inclined to disturb the digestion, swell the figure, and ruin the complexion.'

39. The American seems to be proud of 'the only American invention as perfect as a sonnet.' History has recorded about drunkards of bewildering capacity :

'Sydney Carton, that idealist and most unpromising of men, was Stryver's great ally. What the two drank together, between Hilary term and Michaelmas, might have floated a king's ship.'

40. The ill-effects of excessive indulgence in drink were attempted to be countered in an organised way, even before the Sarvodaya leaders of India attempted that mission. The League of the Cross in London did much for the purpose of spreading the principles of total abstinence, and it accomplished in England something very much like the work which Father Mathew had achieved in Ireland. The English soldiers of the early empire building days were given strict instruction :

'On pain of fines and corporal punishment they were admonished not to drink more than half a pint of the country spirit arrack.'

41. Probably, it is useful to make abstinence from liquor a habit from early childhood. A helpful clue is obtained in the old and fervent Sunday School song :

'My drink is water bright, water bright, water bright.'

42. This discussion on liquors--based on books and not on bottles--is sufficient indication of the mysteries of the intoxicating world and in particular about the differential treatment accorded to different types of liquors. The differential treatment extends to tax exercises also.

43. The attempt at taxing the different liquors differently started with the exercises of a young Prime Minister, 24 years old, William Pitt. One of his first measures was the Wash Act (24 Geo. 3, Sess.2, c. 46). It changed the incidence of duty on spirits from the 'low wines or spirits of first extraction' to the 'fermented wort or wash'. The way in which taxing laws were administered in relation to intoxicating liquors was condemned by the poet-Exciseman, Robert Burns, of Scotland, in his poem on 'Scotch Drink'. The agony undergone by the victims by the way in which the tax law was administered is depicted in the lines :

'Thae curst horse-leeches o' the Excise Wha mak the Whisky stills their prize.'

44. The distinction kept for taxation purposes between different forms and different stages of intoxicating liquors is thus evident from the very early days.

45. If these aspects have been taken note of by Parliament and the taxing device is suitably adapted to tap the maximum from one particular source, that attempt cannot be characterised as a vitiating discrimination.

46. Incidentally, it may also be interesting to note that the Scotch Distillery Act (26 Geo. 3, c. 64), taxed whisky stills on the basis of their assumed capacity rather than their output. Could not somebody pry into it to see the embryonic concept of presumptive taxation developed by Richard Musgrave ?

47. Why should beedi leaves be perilously brought near a fiery type of taxation--is the further contention to be considered. The contention has been raised by persons and firms dealing in tobacco leaves, but who have no involvement in manufacturing processes.

48. Here again, a brief survey of the antecedents of the commodity may be of great utility. It was indeed, a long time ago, that habituated and attractive smoking became fashionable in parlours and drawing rooms. The big brothers of beedi, like the cigars of Havana or the cigarette stuffed with superior tobacco (of the unroasted and roasted varieties) may be left out of examination in this context. Some geographical facts and historical transactions in relation to beedi leaves are available even from the decisions of the Supreme Court when it dealt with legal and constitutional issues connected with that trade. The tendu leaves cases decided by the Supreme Court in the context of constitutional guarantees (which are important landmarks in the interpretation of the freedom of trade), mostly came from the States of Orissa, Gujarat and Madhya Pradesh. The long stretches of forest where beedi leaves are grown, the lease transactions and auction practices, the controversies and allegations arising from executive action in relation to such extensive transactions, are all gatherable from the aforesaid decisions.

49. The beedi industry presents attractive and thought-provoking pictures in other areas too. The Minimum Wages Committee reports concerning beedi industry, the legislative exercises preceding the enactment of statutes dealing with the beedi and cigar industry, all contain rich materials about the industry and the millions of people who sustain it. The beedi worker is a familiar figure for the people of the Kerala State. He has rolled many millions of beedies to the smokers of the lower income group. In the infancy of the trade union movement, it was he, who had shouted the slogan exhorting the workers all over the world to unite. Even while scissoring through the leaves, he was hoping for a future without cuts and pains. Even while he was rolling the leaves, he had been unrolling many a knotty problem by the discussions with those around him, engaged in allied activities. Even when he was tying up the thread on the stuffed and rolled in beedi, he was scheming to tie up many a political problem. A prestigious co-operative is an achievement of the beedi industry of the State.

50. There are, however, States where the beedi rollers are having all the handicaps of the unorganised working sector. In some places, the women do the work almost as a cottage industry. Right from the transport of the beedi leaves and up to the distribution of the manufactured beedies, there are possibilities of clandestine transactions. Trade mark notices issued by established industrialists and organised co-operative societies, present only a part of the misdeeds indulged in by the unscrupulous. The transport of the beedi leaves, the handling of the tobacco and many other activities, could be rightly felt as areas where leakage of revenue could be attempted by interested parties. If Parliament felt so, and proceeded on that basis, its action cannot be characterised as irrational in any measure. Reasonable grounds do exist for justifiably treating the beedi sales as an object for presumptive taxation.

51. Timber transactions can have, ordinarily, an innocent look. The history in relation to extraction of timber from the forest would be an eye-opener in more ways than one. The proverb about the orphaned condition of the timber in the forest has continued relevance even in present times. Some of the timber merchants of even earlier periods, rightly earned notoriety for themselves. That was the saga of the destruction attempted in the Burmese forests and elsewhere about which much literature is available now. (Passages from reports and books would considerably add to the prolixity and is not, therefore, attempted.) Long before environmentalists came into the field and the environmental movement became a forceful organisation, the timber contractors had their bounteous opportunities for foul play with the nation's wealth and the people's wealth. This matter had been noted in one of the early decisions of the Madras High Court in Sivasubramanya v. Secretary of State for India in Council [ 1886] ILR 9 285.

52. Even when specific statutory provisions were made for preservation of large areas of private forests, timber used to be pirated recklessly and forests denuded mercilessly. Permits which used to be obtained for clearing up the forests were saddled with solemn stipulations : sometimes regeneration of the clear-felled area ; sometimes assurances that only selective felling would be done. It is common experience that quite often, such promises are observed only in their breach. For reasons which it is unnecessary to probe into in the present context, the State and its organisations had been indifferent to the resultant deleterious effects. In this context, it is sufficient to note that the timber industry did have very many points at which Revenue could be attempted to be defeated. By its very nature, it is extremely difficult to penetrate into dense forests and to find out the actualities in relation to the trees felled, the timber transported and the timber actually sold. Clandestine transport, conniving officials and inefficient supervisory mechanism, all have contributed to make the timber industry a haven where malpractices could be attempted on an extensive scale. Decided cases on confiscation of timber and conveyances smuggling forest produce out of reserve forests or transported without due documents would demonstrate the magnitude of the problem in all States where forests still remain. As for the State of Kerala, such cases involving forest transactions account for a big percentage of the total cases dealt with. (See Ouseph Devassi v. State [1958] KLT 53 and Sankara Menonv. District Collector [1958] KLT 691 ; and the observations in the judgment in Crl. Appeal Nos. 268 and 279 of 1981 dated April 14, 1983, 0. P. No. 2901 of 1986, M. F. A. No. 194 of 1980, 0. P. No. 4906 of 1986, 0. P. No. 5136 of 1985, O. P. No. 4837 of 1986, Pusphan v. State of Kerala [1984] KLT 1021 and W. A. No. 595 of 1985). These aspects doubtless establish that the timber industry is one in which presumptive taxation could be justifiably applied.

53. Here again, the only sure safeguard as regards the actual price of timber purchased could be the price paid to the Governmental agencies at the timber auctions. The phenomenal profit earned, once the timber is transported to the yard and sold to others, is also a fact of which judicial notice can rightly be taken. The circumstances brought out by literature and official reports are such that the special treatment of timber for presumptive taxation is clearly justified. The petitioners have contended that the gross profits disclosed by the assessments themselves had never crossed a 10 per cent. figure. Some materials indicating assessments at substantially higher percentages have been made available on behalf of the respondents. A decision applicable to the whole of the Indian Union cannot be based on the figures of a few individual assessees or a few selected areas. It is to be on an appraisal of all available information obtained from every part of the country. The Union Government, as noted earlier, is seen to have undertaken considerable exercises before it had brought into force the enactment in question. The Direct Tax Laws (Amendment) Bill, 1988, referred to earlier, is evidence enough of a continued exercise of mind by the authorities concerned. If adjustments are called for, they have to be made, not by the court, but by Parliament. Some cautions have been given by Richard Musgrave himself while attempting presumptive taxation. There is no reason to assume that if moved with convincing and supportive data, the authorities would not realistically react to reasonable grievances. In a sense, the Finance Minister's speech, the Notes on Clauses of the Bill, the press communique of the Central Board of Direct Taxes--all furnish enough indication about the approach and attitude of the Government. It is sufficient to note that those approaches do not present a closed mind nor an evil eye or an unequal hand, on the part of the Government.

54. The statute under attack has many a jacket to shield it. The presumption of constitutionality is a strong one difficult to penetrate ordinarily. The judicial approach throughout has been to allow the Legislature flexibility at the joints, particularly when a taxing statute is under attack, The vigour with which the Land Tax Act had been shot down is not seen in the later stages of constitutional decision-making as regards taxing statutes. Be that as it may, the guiding principles would allow the executive (which has a better experience of men and matters), to have a greater freedom in this area.

55. Apart from stating that it is an undue burden and that the provisions are discriminatory, the petitioners have not been able to marshal materials massive enough to make the court feel that a constitutional guarantee of a trader-citizen is under serious jeopardy or that he has been subjected to an evil and vicious discrimination. In that background, the attack has to fail and the petitioners have to seek solace elsewhere.

56. Some contentions about the impact of the tax, particularly in the area of liquor, were urged by the learned Advocate-General on behalf of the State of Kerala. If the legislative competence of the Union is established and if the attack on grounds of discrimination is dispelled, the surviving contention would be more only in the political arena than in the legal field. This court shall, ordinarily, keep off from such political thickets, unless compulsive situations demand its entry.

57. The writ petitions are dismissed. I do not, however, make any order as to costs.

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