2013 (7) TMI 196 - HC - Income Tax

Tax Collection at Source (TCS) u/s 206-C of the Income Tax Act 1961 - Liquor trade - CL-2A licenses - The contention of the petitioners is that the petitioners have obtained the licenses under the U.P. Excise Act 1910 and the Maximum Retail Price has been fixed by the Excise Commissioner in exercise of powers conferred on him under Section 41 (e) (iii) of the U.P. Excise Act 1910. Therefore the provision of collecting tax shall not apply. - it is further contended that since the petitioners did not get a right to carry-on trade on the basis of auction and more particularly sale price has been fixed by the Excise Commissioner no tax can be collected at source by the opposite parties which is clearly in violation of Sub-Clause (iii) of Clause (a) of the Explanation to Section 206-C of the Income Tax Act 1961. Held that - Apex Court in Union of India and others versus Om Prakash S.S. & others 2001 (2) TMI 6 - SUPREME Court has observed that The reliance placed on the explanation to Sub-Section (ii) of Section 206-C is misplaced - Buyer would mean where a person by virtue of the payment gets a right to receive specific goods and not where he is merely allowed/permitted to carry on business in that trade. It is for this reason that we had earlier dismissed the Special Leave Petitions and any observations of the High Court not in consonance with this may be not strictly correct but the fact remains that on licences issued by the Government permitting the licensee to carry-on liquor trade the provisions of Section 206-C are not attracted as the licensee does not fall within the concept of buyer referred to in that Section. Buyer has to be buyer of goods and not merely a person who acquires a licence to carry on the business. In the instant case Maximum Retail Price was fixed by the Excise Commissioner in exercise of powers conferred on him under Section 41 (e) (iii) of the U.P. Excise Act 1910 petitioners are excluded from the provisions of Section 206-C in view of the Explanation (a) (iii) as petitioners cannot be termed as buyer . - In favor of Petitioner.

Summary

Issues:
Petitioners challenging deduction of Tax Collected at Source under Section 206-C of the Income Tax Act, 1961 by the opposite parties.

Analysis:
The petitioners, Retail Vendors holding valid licenses under the U.P. Excise Act, 1910, contested the deduction of Tax Collected at Source by the opposite parties at the time of purchasing country liquor. The petitioners argued that as they operate under licenses where the Maximum Retail Price is fixed by the Excise Commissioner, they are exempt from the provisions of Section 206-C of the Income Tax Act. They contended that since they do not acquire goods through auction and the sale price is fixed by the Excise Commissioner, they do not fall under the definition of 'buyer' as per Section 206-C.

The Court referred to legal precedents to support the petitioners' claims. In the case of Chandigarh Distillers and Bottlers Ltd. & others, it was held that license holders like the petitioners cannot be considered 'buyers' subject to tax deduction at source under Section 206-C. Similarly, in Sir Shadi Lal Enterprises Ltd. versus Union of India, it was established that the wholesale price fixed by the State becomes the minimum sale price for retailers, thereby negating the need for tax collection at source. The Apex Court's decision in Union of India and others versus Om Prakash S.S. & others emphasized that license holders engaged in liquor trade are not categorized as 'buyers' under Section 206-C.

The Court noted that the petitioners' assertions remained uncontroverted as no counter-affidavit was filed by the Union of India through the Commissioner of Income Tax. Relying on legal principles laid down by the Supreme Court, the Court treated the averments in the writ petitions as admitted due to lack of rebuttal. Additionally, the Court highlighted the powers of the Excise Commissioner under Section 41 of the U.P. Excise Act, which empower him to fix prices and quantities for liquor sales, further supporting the petitioners' position.

Consequently, the Court concluded that the demands made by the Assessing Authority against the petitioners for tax deduction at source were unsustainable. The opposite parties, including the distillery, were restrained from deducting any tax at source from the petitioners in accordance with the provisions of the Income Tax Act. All the writ petitions were disposed of finally based on the above observations and legal positions established in the judgment.