1990 (5) TMI 19 - HC - Income Tax

Summary

Issues Involved:
1. Application of section 44AC and section 206C of the Income-tax Act, 1961, to L-13 and L-14 licensees.
2. Deduction of tax at source from L-14 licensees.
3. Discrimination in tax exemption between different states.

Summary:

Issue 1: Application of Section 44AC and Section 206C to L-13 and L-14 Licensees
The petitioners, who are country liquor contractors holding L-14 and L-13 licenses under the Punjab Excise Act, challenged the application of section 44AC and section 206C of the Income-tax Act, 1961. They argued that due to the proviso introduced with effect from April 1, 1989, they are not liable to be assessed under section 44AC and to pay tax at source under section 206C. The petitioners claimed that country liquor is not obtained by them in auction and is purchased and sold at a price fixed by the State Government. The court noted that the constitutional validity of these sections had been upheld in previous writ petitions.

Issue 2: Deduction of Tax at Source from L-14 Licensees
The petitioners holding L-13 licenses, obtained through public auction, argued that the terms and conditions of their licenses, including the fixed number of bottles and prices set by excise authorities, exempt them from the provisions of section 44AC and section 206C. The court referred to the Himachal Pradesh High Court's decision in Gian Chand Ashok Kumar's case, which held that L-13 licensees are not liable to pay tax at the purchase point due to the proviso to section 44AC. The court endorsed this view, stating that L-13 licensees are not liable to pay tax at the stage of purchase of country liquor.

Issue 3: Discrimination in Tax Exemption Between Different States
In Civil Writ Petition No. 8337 of 1989, the petitioners sought a mandamus directing the respondents not to charge/deduct income-tax on excise duty and to collect income-tax from them at the purchase point. They cited a communication from the Government of India exempting Uttar Pradesh contractors from payment of tax on the issue price. The court noted that the respondents did not dispute this communication. The court held that the petitioners holding L-14 licenses should not be discriminated against and are entitled to the same relief as their counterparts in Uttar Pradesh.

Conclusion:
The court allowed the petitions, issuing a writ of prohibition directing the respondents not to deduct/charge income-tax from L-13 licensees in view of the proviso to section 44AC and to implement the circular dated June 26, 1989. The respondents were also directed not to charge/deduct income-tax on the excise duty payable by L-14 licensees. No costs were awarded. Civil Miscellaneous Nos. 39 of 1990 and 20963 of 1989 in CWP No. 7161 of 1989 were disposed of accordingly.