2006 (12) TMI 131 - HC - Income Tax

Assessee is a dealer in country liquor & holds L-13 licence, as wholesale dealer - demand raised for failure to collect tax as a whole-seller u/s 206C(6) - plea of assessee is that the tax had to be collected by the distillery from whom the assessee had made purchases and the assessee not being first seller, was not liable to deduct tax - ITAT was right in holding that the assessee being L-13 licensee is governed by proviso to section 44AC and, therefore, not liable to collect tax at source

Summary

Issues:
Interpretation of section 206C(6) of the Income Tax Act, 1961 regarding the liability to collect tax at source for a dealer holding an L-13 license.

Analysis:
1. The issue before the court was whether the assessee, a dealer in country liquor holding an L-13 license, was liable to collect tax at source under section 206C(6) of the Income Tax Act, 1961. The Assessing Officer had raised a demand against the assessee for failure to collect tax as a wholesaler. The appellate authority upheld the order, but the Tribunal, relying on a previous judgment, held that the tax had to be collected by the distillery from whom the assessee made purchases, as the assessee was not the first seller and therefore not liable to deduct tax.

2. The court referred to a previous judgment in Naresh Kumar and Co. and others v. Union of India, where it was observed that buyers in further sales of goods obtained from the initial sale were excluded from the provision of section 206C. As the assessee was a wholesaler purchasing liquor for human consumption from the distillery, and not the first buyer to acquire the liquor, they were not liable to deduct tax under section 206C of the Act.

3. The court also considered the judgment in K. K. Mittal & Co.'s case, where it was noted that the provisions of sections 44AC and 206C were unduly harsh and arbitrary in their application to cases involving L-13 licensees. The court concluded that L-13 licensees were not evading tax and should be exempt from the provisions of section 206C. This interpretation was further supported by the judgments in Chandigarh Distillers and Bottlers Limited v. Union of India and Saini and Co. v. Union of India.

4. Based on the settled legal position and the interpretations provided in previous judgments, the court answered the question referred against the revenue and in favor of the assessee. The reference was disposed of accordingly, affirming that the assessee, as a wholesaler holding an L-13 license, was not liable to collect tax at source under section 206C(6) of the Income Tax Act, 1961.