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2006 (4) TMI 76 - HC - Income TaxWhether, the basic fee charged under the U.P. Excise Licences (Tender-cum-auction) Rules, 1991, is consideration for sale of liquor under the said rule and is taxable under section 206C of the Income-tax Act? - Income-tax Officer (TDS) came to know that the District Excise Officer had not collected tax on the basic licence fee (issue price) on sale of alcoholic liquor for human consumption (other than Indian made foreign) liquor - basic fee is not the price of goods but it is a consideration for parting with the privilege. We may notice here that rule 31 of the Rules provides that for lifting the intoxicants from the bonded warehouse the licensee, apart from paying the bid-money in the manner specified in sub-rule (2), rule 24, shall have to pay the price of the intoxicants as fixed by the Excise Commissioner or as prevalent at that time - it is clear that it is this money which is realised under rule 31 of the Rules being the price of the intoxicants which constitutes sale by the State Government or by the Excise Commissioner, and is taxable under section 206C of the Act and not the basic fee.
Issues Involved:
1. Whether the basic fee charged under the U.P. Excise Licences (Tender-cum-auction) Rules, 1991, is consideration for the sale of liquor and is taxable under section 206C of the Income-tax Act. Detailed Analysis: Background: The appellants filed multiple appeals against orders passed by the Income-tax Appellate Tribunal (ITAT), which quashed the Commissioner of Income-tax (Appeals) orders and held that the District Excise Officer was not an assessee in default under section 206C of the Income-tax Act, 1961. Core Legal Question: "Whether the basic fee charged under the U.P. Excise Licences (Tender-cum-auction) Rules, 1991, is consideration for the sale of liquor under the said rule and is taxable under section 206C of the Income-tax Act?" Examination of Facts: - The Income-tax Officer (TDS) found that the District Excise Officer had not collected tax on the basic licence fee for the sale of alcoholic liquor. - The District Excise Officer argued that the basic licence fee, as defined under rule 3(6) of the U.P. Excise Licences (Tender-cum-Auction) Rules, 1991, formed part of the bid money and was not liable to tax under section 206C(7) of the Act. Findings by the ITAT: - The ITAT held that the District Excise Officer was not liable to collect tax at source on the basic licence fee, as it did not form part of the purchase price. - The ITAT quashed the Commissioner of Income-tax (Appeals) orders, which had held the District Excise Officer liable to collect tax under section 206C of the Act. Legal Provisions Involved: - Section 206C of the Income-tax Act: Mandates the collection of tax at source on the sale of certain goods, including alcoholic liquor for human consumption. - U.P. Excise Licences (Tender-cum-Auction) Rules, 1991: Defines terms like 'basic licence fee' and 'bid-money' and provides the framework for the auction and licensing of liquor shops. Court's Analysis: - Interpretation of Section 206C: The court examined the legislative intent behind section 206C, which aims to facilitate tax collection at an anterior stage to prevent evasion. - Definitions of Buyer and Seller: The court noted that the definitions of 'buyer' and 'seller' in section 206C pertain to the actual sale of goods, not merely the granting of a licence. - Relevant Case Law: The court referenced several Supreme Court judgments, including Union of India v. A. Sanyasi Rao and Union of India v. Om Prakash S.S. and Co., which clarified that the licence fee is not the price of goods but a consideration for parting with the privilege. Conclusion: - Basic Licence Fee as Consideration: The court concluded that the basic licence fee is part of the bid money, which is consideration for the grant of a licence and not the price of the intoxicant. - Taxability under Section 206C: The court held that the basic licence fee is not taxable under section 206C of the Income-tax Act, as it is not the price of the goods but a consideration for parting with the privilege of selling liquor. - Rule 31 of the U.P. Excise Licences Rules: The court emphasized that the actual price of the intoxicants, which is taxable under section 206C, is realized under rule 31 when the licensee lifts the intoxicants from the bonded warehouse. Judgment: The court answered the legal question in favor of the assessee and against the Revenue, dismissing the appeals without any order as to costs.
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