1997 (3) TMI 75 - HC - Income Tax

Issues Involved:
1. Whether the Chandigarh Industrial and Tourism Development Corporation Ltd. (CITCO) can deduct income-tax at source under section 206C of the Income-tax Act, 1961, from the petitioners.
2. Applicability of Circular No. 660, dated September 15, 1993, issued by the Central Board of Direct Taxes.
3. Interpretation of the term "subsequent sale" under section 206C of the Income-tax Act, 1961.
4. Legal standing of CITCO as a "seller" or "buyer" under section 206C.
5. Validity of deductions made by CITCO based on directives from the Income-tax Department.

Detailed Analysis:

1. Whether CITCO can deduct income-tax at source under section 206C of the Income-tax Act, 1961, from the petitioners:
The main issue revolves around whether CITCO, a public sector undertaking, is authorized to deduct tax at source from the petitioners under section 206C of the Income-tax Act, 1961. The court examined the statutory provisions and previous judgments to determine the legality of such deductions. It was found that CITCO, being a public sector undertaking, is not required to deduct tax at source under section 206C, as clarified by Circular No. 660.

2. Applicability of Circular No. 660, dated September 15, 1993, issued by the Central Board of Direct Taxes:
The petitioners argued that no tax is payable under section 206C of the Act, citing Circular No. 660, which exempts public sector undertakings and subsequent sales from tax deduction at source. The court agreed, noting that CITCO, as a public sector undertaking, falls within the exemptions provided in the circular. Therefore, the provisions of section 206C do not apply to CITCO.

3. Interpretation of the term "subsequent sale" under section 206C of the Income-tax Act, 1961:
The court examined whether the sale of liquor by CITCO to L-14 licensees constitutes a "subsequent sale." It was determined that CITCO purchases liquor from distilleries and sells it to L-14 licensees at prices fixed by the Excise Department. Given the statutory and auction conditions, the court concluded that these transactions qualify as subsequent sales. Therefore, the provisions of section 206C are not applicable to these transactions.

4. Legal standing of CITCO as a "seller" or "buyer" under section 206C:
Respondent No. 1 contended that CITCO should be treated as a "seller" under section 206C, making the petitioners the first buyers. However, the court found that CITCO, as an L-13 licensee, purchases liquor from distilleries and sells it to L-14 licensees. This makes CITCO a buyer in the first instance and a seller in subsequent transactions. Therefore, the provisions of section 206C, which apply only to first sales, do not apply to CITCO's sales to L-14 licensees.

5. Validity of deductions made by CITCO based on directives from the Income-tax Department:
The court noted that CITCO had been deducting tax at source based on instructions from the Income-tax Department. However, given the exemptions outlined in Circular No. 660 and the classification of CITCO's transactions as subsequent sales, the court declared these deductions illegal and without jurisdiction. Consequently, the court ordered the refund of any amounts already deducted, with interest if not refunded within two months.

Conclusion:
The court allowed the writ petitions, declaring the deductions made by CITCO illegal and quashing them. It ordered the refund of any deducted amounts within two months, failing which interest at 15% per annum would be applicable. The judgment reaffirmed that CITCO, as a public sector undertaking engaging in subsequent sales, is exempt from the provisions of section 206C of the Income-tax Act, 1961.

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