2011 (3) TMI 80 - HC - Income Tax

Collection of Tax at Soruce (TCS) - Purchase price for the purposes of section 206C - Licence fee - The assessee has not collected the tax at source on the licence fee i.e. the amount paid by the assessee to the State Government for parting with the privilege which exclusively belongs to the State Government, to the assessee - The said privilege is a permission to carry on the liquor business - There is no sale or purchase of that right as it does not relate to a merchandise goods - It is merely a sort of leave and licence to carry on the business in liquor - The aims and objects of the enactment of section 206C also supports this view - It has been enacted with a view to collect the tax at source on sale of alcoholic liquor for human consumption - The Tribunal has rightly held that no liability can be fastened on the assessees on the basic licence fee which was not part of purchase price in view of the fact that they were not sellers to retail contractors and basic licence fee was not part of the purchase price to be handed over to the distilleries - The distilleries after manufacture of liquor are required to supply the contracted quantity of liquor to the bonded warehouse which is owned by the State Government - The State Government remains in full control of the liquor placed in the bonded warehouse - The State Government sells the liquor by issuing the allotment to the licensees who pay the cost price of the liquor and the licence fee - Element of sale as conceptually understood is not involved while charging licence fees Hence, The Tribunal has rightly held that the basic licence fee is not purchase price for the purposes of section 206C of the Act - Decided against revenue.

Summary

Issues Involved:
1. Whether the basic license fee should be treated as purchase price for the purpose of Section 206C of the Income Tax Act, 1961.
2. Whether the District Excise Officer can be considered in default for not collecting tax at source under Section 206C(1) and interest under Section 206C(7).

Detailed Analysis:

Issue 1: Treatment of Basic License Fee as Purchase Price
The primary issue revolves around whether the basic license fee should be considered as part of the purchase price under Section 206C of the Income Tax Act. The Tribunal found that the basic license fee is not part of the purchase price. The State Government grants licenses to distilleries for manufacturing liquor, but the right to sell remains with the State. The State Government sells the liquor through the District Excise Officer, who acts as the seller. The Tribunal concluded that the basic license fee is a fee for the privilege of selling liquor and not part of the purchase price.

Issue 2: Default in Collecting Tax at Source
The Income Tax Department argued that the District Excise Officer should have collected tax at source on the basic license fee, treating it as part of the purchase price. The Department contended that the basic license fee is related to the purchase price of liquor. However, the Tribunal held that the basic license fee is a fee for the privilege granted by the State Government and not a sale of goods. Therefore, the District Excise Officer was not in default for not collecting tax at source on the basic license fee.

Background Facts:
The appeals involve District Excise Officers from Muzaffarnagar and Saharanpur for the assessment years 1989-90 to 1997-1998. The Income Tax Department scrutinized the returns and found that tax was collected only on the cost price of liquor, not on the basic license fee. The Income Tax Officer (TDS) created a demand for the shortfall in tax collection and interest under Sections 206C(1) and 206C(7).

Legal Provisions and Definitions:
- Section 206C: Introduced to collect tax at source from liquor contractors, scrap dealers, etc.
- Bid Money: Defined under U.P. Excise License (Tender-cum-Auction Rules) as the consideration for the exclusive privilege of selling liquor.
- License Fee: Part of the bid money payable on acceptance of the bid.
- Basic License Fee: Part of the bid money calculated on the minimum guaranteed quantity at notified rates.

Tribunal's Findings:
The Tribunal found that the basic license fee is not part of the purchase price but a fee for the privilege of selling liquor. The State Government retains control over the liquor and grants the right to sell through licenses. The basic license fee is not related to the sale or purchase of goods but is a fee for the privilege granted by the State.

Conclusion:
The Tribunal's decision was upheld, confirming that the basic license fee is not part of the purchase price for the purposes of Section 206C. The District Excise Officer was not in default for not collecting tax at source on the basic license fee. All appeals were dismissed with no order as to costs.