2003 (10) TMI 38 - HC - Income Tax

Interpretation of section 206C(6) non deduction of tax - petitioner-Mysore Sales International Ltd. is a Karnataka Government undertaking and is engaged in manufacture of arrack - Auctions were conducted periodically for the purpose of conferring lease of right of retail vend of arrack.

Issues Involved:
1. History of the legislation.
2. Law of interpretation and scope of section 206C(6).
3. Jurisdiction.
4. Fixation of retail price.
5. Concluding remarks/observations.
6. Relief.

Detailed Analysis:

1. History of the Legislation:
The Income-tax Act, 1961, provides for income-tax and super-tax. Section 44AC, introduced by the Direct Tax Laws (Amendment) Act of 1989, deals with computing profits from the business of trading in certain goods, including alcoholic liquor for human consumption. Section 206C, introduced by the Finance Act of 1988, provides for tax collection at source. The Supreme Court upheld these sections in Union of India v. A. Sanyasi Rao [1996] 219 ITR 330, stating they facilitate tax collection at the inception stage to prevent evasion.

2. Law of Interpretation and Scope of Section 206C(6):
Section 206C(6) mandates tax collection at source for specified goods, including alcoholic liquor. The petitioners argued that their buyers (excise contractors) do not obtain arrack through auction, thus exempting them from section 206C. However, the court found that the auction for the right to vend arrack and the subsequent purchase of arrack from the petitioners are part of a single integrated transaction. The court emphasized that the legislative intent behind section 206C is to prevent tax evasion and must be interpreted to achieve this objective.

3. Jurisdiction:
The petitioners contended that the authority issuing the order lacked jurisdiction. The court noted that the Chief Commissioner of Income-tax's notification dated July 6, 1998, provided jurisdiction. Section 206C imposes a duty on the petitioner to collect tax, and failure to do so renders them liable. The court found no merit in the jurisdictional challenge, emphasizing that the petitioners are duty-bound to collect tax as per the statute.

4. Fixation of Retail Price:
The petitioners argued that the price of arrack is fixed by the State, thus exempting them from section 206C. The court found that while the Excise Commissioner fixes a maximum price, there is no fixed sale price as per the statute. The court rejected the petitioners' reliance on various judgments, noting that the facts of those cases were distinguishable. The court concluded that the price fixation in the petitioners' case does not exempt them from section 206C.

5. Concluding Remarks/Observations:
The court criticized the Excise Commissioner's circular advising against tax deduction at source, stating it undermines the object of the Central legislation aimed at preventing tax evasion. The court emphasized that public authorities like the petitioners should not blindly follow such circulars without considering the statutory provisions.

6. Relief:
The court confirmed the orders of the authority but allowed the petitioners six weeks to provide material evidence of tax payments by excise contractors. The court directed the Department to consider such evidence for appropriate deductions. The court refrained from awarding costs, acknowledging the petitioners' bona fide impression based on the Excise Commissioner's circular.

Conclusion:
The petitions were rejected, and the orders were confirmed with directions for the petitioners to submit evidence of tax payments by excise contractors within six weeks. The court emphasized the importance of adhering to statutory provisions to prevent tax evasion and criticized the Excise Commissioner's circular for undermining this objective.

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