2019 (4) TMI 785 - HC - Income Tax

Constitutional validity of Section 206C - explanation of buyer as per Section 206C - statute does not breaches any constitutional provision - neither arbitrary nor any prejudice to petitioners - HELD THAT - The petitioners are involved in the business of trading in timber. As a trader, the petitioners partakes two characters. At a given point of time, the petitioners buy timber. As a buyer, it is obliged to pay tax to the seller of the timber. When the petitioners sell timber to a buyer, it is obliged to collect tax from the buyer. The petitioners come within the explanation of buyer as obtaining in Section 206C of the Act of 1961. What, when, whom and how much to tax is the domain of the legislature. A writ Court need not interfere therein unless it is substantiated that the statute breaches any constitutional provision. In the present case, Section 206C of the Act of 1961 obliges the petitioners, when they are buying timber to pay tax in advance and when selling to collect tax from the buyer. These, payments and collections are subject to the relevant assessment. None of the petitioners stand prejudiced in any manner. Requiring an assessee to collect tax on an incidence of taxation subject to final assessment cannot be said to be arbitrary. Circulars of Central Board for Direct Taxes will no doubt loose force on the statute undergoing subsequent amendments. The words used in Section 206C are clear. Therefore, there is no need to look into the legislative history or the marginal notes to interpret or understand Section 206C of the Act of 1961. K.P. Varghese (1981 (9) TMI 1 - SUPREME COURT) has no manner of application in the facts of the present case. It cannot be said that, it is beyond the legislative competence of the legislature to legislate amendments to Section 206C so as to widen its area of applicability or modulate its applicability to suit the emerging needs of the society.

Summary

Issues Involved:
1. Challenge to notices issued under Section 206C of the Income Tax Act, 1961.
2. Constitutional validity of the amendment to the definition of "buyer" under Section 206C by Section 81 of the Finance Act, 2012.

Detailed Analysis:

1. Challenge to Notices Issued Under Section 206C of the Income Tax Act, 1961:

The petitioners in W.P. No. 1806 of 2005 contested the notices issued under Section 206C of the Income Tax Act, 1961. The petitioners argued that they are not forest contractors and do not purchase timber directly from forests. They contended that the term "buyer" in Section 206C should be confined to those who purchase timber obtained from Indian forests and not to those who import timber. They relied on the legislative history and budget speeches to support their interpretation, suggesting that the tax collection at source should not apply to their transactions.

The court, however, found that the definition of "buyer" as per Section 206C includes anyone who obtains goods specified in the table, including timber, irrespective of whether it is imported or domestically sourced. The court emphasized that the legislative intent was to bring all transactions involving timber within the tax net, not just those involving forest contractors. Therefore, the notices issued under Section 206C were deemed valid.

2. Constitutional Validity of the Amendment to the Definition of "Buyer" Under Section 206C by Section 81 of the Finance Act, 2012:

The other writ petitioners challenged the constitutional validity of the amendment introduced by Section 81 of the Finance Act, 2012, which expanded the definition of "buyer" in Section 206C to include more entities. They argued that the amendment was contrary to the original legislative intent, created unjust discrimination, and violated Article 14 of the Constitution of India.

The court noted that fiscal statutes are not immune from challenges based on Article 14 but are accorded greater latitude. The court held that the amendment was within the legislative competence and aimed at broadening the tax base to include more transactions involving timber. The court found no hostile discrimination or violation of constitutional provisions. The petitioners' argument that the amendment created unlawful discrimination was rejected as they failed to prove any hostile unequal treatment.

The court also clarified that circulars from the Central Board of Direct Taxes (CBDT) cannot override statutory provisions. The amendments to Section 206C rendered previous CBDT circulars irrelevant. The court emphasized that the language of the statute was clear, and there was no need to delve into legislative history or marginal notes for interpretation.

Conclusion:

The court dismissed all eight writ petitions, upholding the validity of the notices issued under Section 206C and the constitutional validity of the amendment to the definition of "buyer" by Section 81 of the Finance Act, 2012. The court found that the petitioners were liable to comply with the tax collection at source provisions as per the amended Section 206C. No costs were awarded.