C. W. P. No. 19718 of 2008 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. Case No. : C. W. P. No. 19718 of 2008 Date of Decision : November 20, 2008. M/s Rakesh Kumar and Company .... Petitioner Vs. Union of India and others .... Respondents CORAM : HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE L. N. MITTAL * * * Present : Mr. S. K. Mukhi, Advocate for the petitioner. * * * ADARSH KUMAR GOEL, J. (Oral) : 1. This petition seeks quashing of notice dated 17.10.2008 (Annexure P-1) requiring the petitioner to show cause why disallowance of expenses be not made under Section 40(a) (ia) under Income Tax Act, 1961 (in short, the Act) for its having deducted the TDS but failing to deposit the same as required under Section 200(1) of the Act. 2. Apart from challenging the impugned notice, the petitioner has also prayed that provisions of Section 40(a) (ia) of the Act be declared ultra vires, on the ground that the same are harsh and discriminatory. 3. The petitioner is a civil contractor engaged in construction of bridges with Department of Railways, inter alia, in the State of Jammu and Kashmir. 4. Contention raised is that default in making deposit of TDS was C. W. P. No. 19718 of 2008 2 not deliberate and, therefore, disproportionate punishment of disallowing the whole expenditure was discriminatory and violated Article 14 of the Constitution of India. Reliance has also been placed on an order passed by Single Bench of Madras High Court in Southern Agro Engine (P) Ltd. vs. Union of India and another – (2008) 4 DTR (Mad) 253, issuing notice on a petition raising the question of constitutionality of Section 40(a) (ia) of the Act, and staying penal action till the filing of the counter affidavit. 5. We have heard learned counsel for the petitioner and perused the record. 6. The relevant provision is reproduced below :- “40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”,- xx xx xx xx xx (ia) any interest, commission or brokerage, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year, C. W. P. No. 19718 of 2008 3 or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.” 7. It cannot be disputed that legislature, in exercise of its taxing power, not only can provide for levying tax, it can also provide for penal action for enforcing the charge, if there is any evasion of tax or statutory liability. In R. S. Joshi v. Ajit Mills Ltd., AIR 1977 SC 2279, a Bench of seven Judges of the Hon'ble Supreme Court approved the observations in earlier judgment in R. Abdul Quader and Co. v. Sales Tax Officer, 2nd circle, Hyderabad, AIR 1964 SC 922 :- “20. ..... All powers necessary for levy and collection of the tax concerned and for seeing that the tax is not evaded are comprised within the ambit of the legislative entry as ancillary or incidental.....” 8. No exception can be taken to incorporation of a provision which excludes right to seek permissible deduction in the event of failure of the assessee to deduct or to deposit the deducted tax. Moreover, the proviso relaxes the rigor. If even in the subsequent year, one makes the deduction or makes the deposit, one gets the benefit of deduction. The provision cannot be held to be harsh. We are not, at this stage, concerned with the plea that there was genuine justification for not complying with the provision of TDS, which is a matter to be examined by the competent authority. 9. We are unable to hold that there is inherent lack of jurisdiction, in the legislature, in enacting the provision providing for penalty for evasion of statutory liability. C. W. P. No. 19718 of 2008 4 10. Learned counsel for the petitioner also contended that much lesser penalties are provided in different situations and on that account, the impugned provision be declared to be discriminatory. 11. We are unable to accept this submission. No doubt, Article 14 is applicable to a taxing statute but greater latitude is permissible for the legislature in dealing with complex situations in fiscal matters. In State of West Bengal v. Kesoram Industries Ltd., AIR 2005 SC 1646, reiterating the earlier view, the Hon'ble Supreme Court quoted with approval following passage :- “32. ..... In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The Courts have only the power to destroy not to reconstruct. When these are added to the complexity or economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events, self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability.....” 12. In view of above, we do not find any ground to interfere at this stage. 13. The petition is dismissed. (ADARSH KUMAR GOEL) JUDGE November 20, 2008 ( L. N. MITTAL ) monika JUDGE