2000 (3) TMI 172 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Section 206C of the Income-tax Act, 1961 to the appellants.
2. Definition and scope of "buyer" and "seller" under Section 206C.
3. Nature of the licence fee and its inclusion in the "amount payable" under Section 206C.
4. Jurisdictional High Court's interpretation of Section 206C.

Issue-wise Detailed Analysis:

1. Applicability of Section 206C of the Income-tax Act, 1961 to the appellants:

The appellants challenged the orders passed by the Income-tax Officer (ITO) under Section 206C(6) of the Income-tax Act, 1961, which were confirmed by the Commissioner of Income-tax (Appeals) [CIT(A)]. The tax authorities contended that the appellants, representing the State Government of Haryana, were liable to deduct tax at source from retail vendors of country liquor holding L-14A licenses on amounts realized as license fees during auctions.

2. Definition and scope of "buyer" and "seller" under Section 206C:

The CIT(A) held that the appellants were "sellers" under the Explanation to Section 206C, and the L-14A licensees were "buyers" as they acquired a "right to receive any such goods" pursuant to the payment of license fees. The CIT(A) reasoned that the license fee was the price for the privilege to sell country liquor, which conferred a right to receive the specified goods, thus falling within the definition of "buyer."

3. Nature of the licence fee and its inclusion in the "amount payable" under Section 206C:

The CIT(A) opined that the license fee paid by L-14A licensees constituted the "amount payable" for the right to receive country liquor and was thus subject to tax collection at source under Section 206C. The appellants argued that the license fee was not for the sale of goods but for the right to sell country liquor, and hence, it should not be included in the "amount payable" for tax deduction purposes.

4. Jurisdictional High Court's interpretation of Section 206C:

The Punjab and Haryana High Court in Naresh Kumar & Co. [CPW No. 15583 of 1999 dated 22-2-2000] held that L-14A licensees were not "buyers" within the meaning of Section 206C. The High Court clarified that the Excise and Taxation Commissioner, who issued L-14A licenses, was not a "seller" of goods specified in the Table under Section 206C but sold licenses that granted the right to sell country liquor. The High Court concluded that the license fee was not part of the "amount payable" for the purchase of goods and thus not subject to tax collection at source.

Conclusion:

The Tribunal quashed the orders passed under Section 206C(6) of the Income-tax Act, 1961, holding that the appellants were not "sellers" and the license fee was not part of the "amount payable" for the purchase of goods. The appeals were allowed, and the registry was directed to issue the orders 'dasti' to the learned Departmental Representative (D.R.) and the assessees' Counsel.