2019 (1) TMI 1946 - HC - Income Tax

Applicability of the provisions of Section 206C(1) in relation to certain instances of bulk sale of coal to other units - default in collection of TCS - HELD THAT - Admitted position is that the entire shareholding of the writ petitioner is owned by the State of Jharkhand. Thus the writ petitioner comes within the ambit of the expression public sector company . Provisions of Section 206C(1) of the Act cannot apply to the writ petitioner irrespective of the fact as to whether the writ petitioner is the end user of the coal purchased or it is a trader of coal. The Income Tax authority has solely relied on the aspect that the writ petitioner was not the end-user of coal, ignoring the fact that a public sector company was kept outside the purview of the expression buyer as specified in Section 206C(1) of the Act. In such circumstances, we are unable to sustain the order of the Income Tax authorities in which liability to collect tax at source from the buyer has been made applicable in the case of the writ petitioner. Writ petitioner being a wholly owned company of the State of Jharkhand cannot be subjected to the provisions of Section 206C(1) of the Act to the extent the said Section covers a buyer, having regard to the Explanation (aa) to the aforesaid provision read with Section 2(36A) of the Act. We accordingly direct the Income Tax authorities to refund the sum collected on account of TCS to CCL treating the writ petitioner as buyer under the aforesaid provision and CCL in turn shall refund the said sum to the writ petitioner. For the purpose of determining the exact quantum of sum collected, the Deputy Commissioner of Income Tax, TDS Circle, Ranchi shall give a hearing to both the writ petitioner and the CCL and this quantification exercise shall be completed within a period of 10 weeks from the date of communication of this order. Learned counsel for the Income Tax authorities wanted the regular refund course to be followed in this case. We, however, do not think such a course ought to be followed as ex facie there has been collection of income tax without the authority of law in the present case and the Hon'ble Supreme Court in the case of Corporation Bank 2008 (11) TMI 387 - SUPREME COURT had directed refund of the amount in a proceeding arising out of a writ petition. WP allowed.

Summary

Issues:
1. Applicability of Section 206C(1) of the Income Tax Act, 1961 on a Government Company.
2. Definition of "buyer" and "public sector company" under Section 206C and Section 2(36A) of the Act.
3. Locus standi of the Government Company to challenge the collection of Tax Collected at Source (TCS).
4. Exemption of public sector units from the provisions of Section 206C(1) of the Act.
5. Refund of the sum collected on account of TCS to the Government Company.

Analysis:
1. The judgment deals with the applicability of Section 206C(1) of the Income Tax Act, 1961 on a Government Company involved in bulk sale of coal to small and medium scale industries. The provision requires a seller to collect Tax Collected at Source (TCS) from the buyer of specified goods. The dispute arose over the interpretation of whether the Government Company falls under the definition of "buyer" and is liable to pay TCS.
2. The definition of "buyer" and "public sector company" under Section 206C and Section 2(36A) of the Act was crucial in determining the applicability of TCS on the Government Company. The judgment highlighted that a public sector company is excluded from the definition of buyer, and the Government Company, being wholly owned by the State, falls within the ambit of a public sector company.
3. The judgment addressed the issue of locus standi of the Government Company to challenge the collection of TCS. It was argued that since the collection was made from another entity, the Government Company lacked the standing to challenge the action. However, citing relevant legal precedents, the court upheld the Government Company's right to seek a refund of the TCS collected.
4. The court emphasized the exemption of public sector units from the provisions of Section 206C(1) of the Act. It was noted that the Income Tax authority failed to consider this exemption while determining the obligation of the Government Company to collect TCS. The court ruled that the Government Company, being a public sector entity, is not subject to the provisions of TCS as per the Act.
5. Finally, the judgment directed the Income Tax authorities to refund the sum collected on account of TCS to the Government Company. The court specified a process for determining the exact amount and outlined a timeline for the refund process. It rejected the suggestion for a regular refund course, emphasizing the need for immediate refund due to the unauthorized collection of income tax.

Overall, the judgment clarified the legal position regarding the applicability of TCS on a Government Company and upheld the exemption of public sector units from certain tax provisions under the Income Tax Act.