2017 (1) TMI 1039 - HC - Income Tax

Seeking recovery of the tax, interest and penalty under the provisions of Section 206C - Held that - A finding of fact is recorded by the Commissioner of Income Tax, that the tribals are engaged only as labourers to collect the forest produce that is secured by the Corporation. In any case, since a tribal individual cannot be included within the meaning of the term seller , the case of the petitioner that the tribal individual was the first seller and the petitioner-Corporation is the second seller and was, therefore, not liable to collect the tax at source is liable to be rejected. If the petitioner-Corporation was of the view that the provisions of Section 206C of the Income Tax Act were not applicable to the petitioner-Corporation, the Corporation should not have collected the tax at source at 5%. Admittedly, the petitioner-Corporation had collected the tax at source from the buyers at the auction but the same was collected at a lesser percentage than that is specified in the entry in column (3) of the table. Though the petitioner-Corporation was liable to collect tax at source at 15%, the petitioner-Corporation had collected the same at 5% only and that resulted in the imposition of interest and penalty on the petitioner-Corporation. We do not find any illegality in the action on the part of the Assistant Commissioner of Income Tax in directing the petitioner-Corporation to pay the interest and penalty on the short fall in the collection of tax at source.

Summary

Issues:
Challenge to recovery of tax, interest, and penalty under Section 206C of the Income Tax Act.

Analysis:
The petitioner, a state tribal development corporation, challenged the demand notices for interest and penalty due to short payment of tax collection at source under Section 206C of the Income Tax Act. The Assistant Commissioner found the petitioner had collected tax at a lower rate than prescribed, making them liable for interest and penalty. The petitioner appealed to the Commissioner of Income Tax under Section 264, but the revision was dismissed, leading to the current petition challenging the Commissioner's order.

The petitioner argued that as a second seller, they were not obligated to collect tax at source under Section 206C, citing a similar case before the Punjab and Haryana High Court. However, the department contended that the petitioner's interpretation was incorrect, as the term "seller" did not include individuals or tribal entities. The department supported the Assistant Commissioner's decision to seek interest and penalty from the petitioner.

The court delved into the provisions of Section 206C of the Income Tax Act, which mandate sellers to collect tax at source from buyers of specified goods. The definition of "seller" under the Act excludes individuals or tribal entities, aligning with the department's argument. The court rejected the petitioner's claim that tribal individuals were first sellers and the corporation second sellers, emphasizing that tribal individuals were laborers, not sellers under the Act.

The court upheld the imposition of interest and penalty on the petitioner for collecting tax at a lower rate than required. The judgment from the Punjab and Haryana High Court cited by the petitioner was deemed inapplicable to the current case. Consequently, the court dismissed the writ petition, finding no merit in challenging the Assistant Commissioner's actions or the Commissioner of Income Tax's order.

In conclusion, the court upheld the application of Section 206C to the petitioner, emphasizing the correct interpretation of the term "seller" under the Act. The petitioner's collection of tax at a lower rate resulted in the imposition of interest and penalty, which the court found justified. The petition was dismissed, with no costs awarded.