1997 (8) TMI 63 - HC - Income Tax

Summary

Issues Involved:
1. Levy and collection of tax at source under section 206C of the Income-tax Act.
2. Applicability of section 206C to lessees of country spirit shops under the Assam Excise Act and Rules.
3. Interpretation of the terms "buyer" and "seller" under section 206C.
4. Validity of the actions of the respondents in collecting tax at source.

Issue-wise Detailed Analysis:

1. Levy and Collection of Tax at Source under Section 206C of the Income-tax Act:
The primary issue revolves around the levy and collection of tax at source under section 206C of the Income-tax Act, specifically concerning profits and gains from trading in alcoholic liquor. The petitioners, lessees of country spirit shops under the Assam Excise Act, 1910, and the Assam Excise Rules, 1945, challenged the imposition of tax at source on their trade. The methodology for collecting income-tax at source was introduced by inserting sections 44AC and 206C in the Income-tax Act, effective from April 1, 1989. Section 44AC was later deleted, and section 206C was amended to include provisions for tax collection at source from specified goods, including alcoholic liquor.

2. Applicability of Section 206C to Lessees of Country Spirit Shops under the Assam Excise Act and Rules:
The petitioners contended that they do not fall within the purview of section 206C. They argued that the lessees of country spirit shops operate under a statutory licence and are bound by the conditions and restrictions imposed by the Assam Excise Act and Rules. The trade is regulated by the State Government, including the import, bottling, and sale of liquor, which are settled by a tender system. The lessees purchase bottled liquor from government-controlled warehouses and sell it to consumers at prices fixed by the State Government. The court examined the provisions of the Assam Excise Act and Rules, noting that the lessees are required to obtain a statutory licence, and their trade is strictly regulated by the State Government.

3. Interpretation of the Terms "Buyer" and "Seller" under Section 206C:
The court analyzed the definitions of "buyer" and "seller" under section 206C. The term "buyer" excludes public sector companies, buyers in further sales of such goods, and buyers where the goods are not obtained by auction and where the sale price is fixed by or under any State Act. The term "seller" includes the Central Government, State Governments, local authorities, corporations, companies, firms, and co-operative societies. The court referred to various circulars issued by the Central Board of Direct Taxes (CBDT) that clarified the scope of these terms. The court also considered precedents, including the Himachal Pradesh High Court's decision in Gian Chand Ashok Kumar and Co. v. Union of India [1991] 187 ITR 188, which held that certain licensees did not fall under the provisions of sections 44AC and 206C due to the regulated nature of their trade.

4. Validity of the Actions of the Respondents in Collecting Tax at Source:
The petitioners challenged the actions of the respondents in collecting tax at source under section 206C. They argued that the recovery of tax at source can only be made from persons specified in the Act. The court noted that the legislative provisions are clear and must be construed strictly. The fiscal measure in imposing tax liability must be understood in conformity with its natural meaning and commercial parlance. The court emphasized that a citizen cannot be taxed without a clear legislative mandate. After considering the provisions of the Assam Excise Act and Rules, along with section 206C of the Income-tax Act, the court concluded that the rigours of section 206C do not apply to the lessees of country spirit shops in Assam. Consequently, the impugned directions and communications from the respondents were quashed.

Conclusion:
The court allowed the writ petitions, holding that the lessees of country spirit shops in Assam are not liable for tax collection at source under section 206C of the Income-tax Act. The impugned communications directing the collection of tax at source were quashed. There was no order as to costs.