2010 (12) TMI 742 - HC - Income Tax

TCS u/s 206C - Obligation of state government to collect tax at source -large number of persons died on account of consumption of spurious country-made liquor - State Government was directed to take over the wholesale trade and business of country-made liquor - Protection under constitution of India - Held that - sub-article (2) of article 289 is equally inapplicable to the facts and circumstance of the present case because the same authorizes Parliament to enact laws for imposition of tax on properties on any trade or business carried on by the State Government. - TDS (TCS) in the present case was not taxation or levy on the income of the State of Bihar but was indeed an advance collection of tax to be done by the State of Bihar in the capacity of wholeseller in relation to the income of the retailers. - the provisions of article 289 of the Constitution are inapplicable to the facts and circumstances of the present case. - Revenue did suffer on account of inaction on the part of the petitioner to realize TDS (TCS) at the time of sales to the retailers. Furthermore even if part of the amount of income-tax was paid by a few of the retailers in contradistinction to thousands of retailers it will be open to the petitioner to apply for refund of the same in accordance with the prescribed procedure. - decided in favor of revenue.

Summary

Issues:
Challenge to assessment orders under section 206C of the Income-tax Act and attachment of bank accounts for recovery.

Analysis:
The State of Bihar challenged assessment orders under section 206C of the Income-tax Act, leading to the attachment of bank accounts for recovery. The petitioner failed to realize tax deducted at source (TDS) from retailers as required by law. The State Government did not provide necessary information, resulting in the quantification of TDS and interest by the authorities. The petitioner argued against double taxation and applicability of article 289 of the Constitution. The Revenue justified its actions based on statutory provisions and circulars. The court found the impugned actions valid, as the petitioner failed in its duty to collect TDS, leading to quantification by the authorities.

The petitioner contended that the assessment was not done within a reasonable time, but the court found no evidence of delay. The Revenue's actions were deemed fair and in compliance with natural justice principles. The court upheld the quantification of TDS based on facts provided by the petitioner. The petitioner's argument regarding double taxation was dismissed, as the Revenue suffered due to non-realization of TDS. The court highlighted the advance collection nature of TDS and its relation to retailer income.

Regarding the constitutional aspect, the court analyzed article 289 of the Constitution, concluding that it did not apply to the case as it pertained to State property and income exemption from Union taxation. The court clarified that TDS collection was not a tax on State income but a method of advance tax collection. The court rejected the petitioner's claim of double taxation, emphasizing the need for proper tax realization procedures. The court dismissed the writ petition, finding no merit in the petitioner's arguments and ruling in favor of the Revenue.