2006 (3) TMI 94 - HC - Income Tax

Collection of the tax at source from the buyers of goods of arrack - Applicability of section 206C to the contractors/buyers regarding their liability that they were required in law to pay tax to the appellant-companies at source for the relevant period, - provisions of sections 44AC and 206C and the Explanation part to sub-section (11) to the above provisions by way of amendment inserting clause (a) buyer and sub-clauses (i) to (iii) of exemption clauses - Income-tax Department had rightly placed reliance upon section 120(4) of the Act.- contentions urged that the assessment orders passed are in violation of the principles of natural justice is required to be rejected as there is no merit in this contention

Issues Involved:
1. Applicability of Section 206C of the Income-tax Act to the appellants.
2. Jurisdiction of the Assessing Officer to initiate proceedings and pass assessment orders.
3. Compliance with principles of natural justice in the assessment orders.
4. Validity of the circulars issued by the Excise Commissioner.

Issue-wise Detailed Analysis:

1. Applicability of Section 206C of the Income-tax Act:
The appellants, Mysore Sales International Limited (MSIL) and Mysore Sugar Company Limited (MSCL), argued that they were not required to collect income-tax at source from contractors/buyers under Section 206C of the Income-tax Act for the assessment years 1995-96 to 2000-01. They contended that the circulars issued by the Excise Commissioner exempted them from this obligation. The court examined the statutory provisions of sections 44AC and 206C, including the Explanation to sub-section (11) which defines "buyer" and the exemption clauses (i) to (iii). It was concluded that the appellants were not exempt from collecting tax at source as the contractors/buyers obtained goods through public auction, making Section 206C applicable to them. The court noted that the appellants failed to demonstrate that the buyers did not acquire goods through auction, thus affirming the applicability of Section 206C.

2. Jurisdiction of the Assessing Officer:
The appellants challenged the jurisdiction of the Assessing Officer, arguing that the notification did not specifically mention Section 206C. The court rejected this contention, citing that the Chief Commissioner of Income-tax had conferred jurisdiction on the Assessing Officer under section 120(1) and (2) of the Act. The court emphasized that the appellants did not raise the issue of jurisdiction in their initial replies to the demand notices, making their plea in the writ petitions untenable. The court upheld the jurisdiction of the Assessing Officer to pass the assessment orders.

3. Compliance with Principles of Natural Justice:
The appellants argued that they were not given a fair opportunity to present their case before the assessment orders were passed. The court found this contention factually incorrect, noting that the appellants were given adequate opportunity to respond to the demand notices but failed to avail of it. The court held that the principles of natural justice were complied with, as the Assessing Officer considered their replies and passed the orders after due process.

4. Validity of the Circulars Issued by the Excise Commissioner:
The Excise Commissioner and the State Government contended that the circulars issued were legal and valid. However, the court held that the circulars were contrary to Section 206C of the Income-tax Act. The court emphasized that the Excise Commissioner acted arbitrarily and without legal authority in issuing the circulars, which misled the appellants into not collecting tax at source. The court affirmed the learned single judge's finding that the circulars were invalid and could not exempt the appellants from their statutory obligations under Section 206C.

Conclusion:
The court affirmed the orders of the Deputy Commissioner of Income-tax and the learned single judge, holding that the appellants were statutorily obligated to collect tax at source under Section 206C and that the assessment orders were valid. The court also provided that if the appellants could furnish proof that the buyers had paid the tax directly to the Department, appropriate adjustments should be made.

← Previous Next →