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Challenge to the constitutional validity of Section 206C of the Income-tax Act, 1961 regarding the collection of income tax and surcharge on bid amounts payable by forest contractors. Analysis: The petitioner, a forest contractor, challenged the collection of income tax at 15% and a surcharge at 10% on bid amounts payable by them under Section 206C of the Income-tax Act, 1961. The provision requires sellers to collect tax at source from buyers of specified goods. The Supreme Court stayed cases challenging the validity of Section 206C pending before various High Courts. Despite the pending challenge, Parliament deleted Section 44AC and amended Section 206C, maintaining the same tax collection scheme. The court refrained from ruling on the constitutional validity but noted that contractors could claim refunds if taxes were collected in excess. The court clarified that under Section 206C, only income tax at 15% could be collected, not a surcharge. The Finance Act, 1995, allowed a surcharge only for domestic companies. As the petitioner was not a company, the collection of a 10% surcharge was deemed inappropriate. Thus, the court restrained the respondents from collecting a surcharge from non-domestic companies. The petitioner was directed to deposit income tax as per the agreement but exempted from the surcharge collection, except for domestic companies. The court allowed the petition in part, pending the final decision of the Supreme Court on the matter. In conclusion, the court acknowledged the legislative mandate for tax collection under Section 206C but emphasized the right of contractors to claim refunds if taxes were over-collected. The judgment balanced the interests of the parties by allowing the collection of income tax while restraining the collection of a surcharge from non-domestic companies. The decision highlighted the importance of awaiting the Supreme Court's final ruling on the constitutional validity of Section 206C.
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