2017 (8) TMI 418 - HC - Income Tax

Liability to collect tax at source u/s 206C(1C) - octroi collected by the agent appointed by the assessee - Held that - Section 206C(1C) of the Act obliges every person who grants a contract/lease transferring his right to collect toll to also collect tax at source as specified at serial No.2 of the Table to Section 206C(1C) of the Act. However, Section 206C(1C) of the Act cannot be extended to oblige the Corporation to collect tax at source from its agent in respect of octroi collected. Section 206C(1C) only obliges a person to collect tax from its agents/licensee who collects a toll on its behalf. The obligation to collect tax under Section 206C(1C) of the Act cannot be extended to collection of octroi. The legislature when it brought in section 206C(1C) of the Act has not authorised the collection of tax at source in respect of octroi. It specifically restricted its obligation to only three categories namely parking, toll plaza, mining and quarrying. It is not open to the Revenue to extend the ambit and scope of section to also include contracts, license or lease for collection of items other then toll, parking fees and for mining and quarrying. Therefore, there is no legislative mandate to collect tax at source or the octroi collected under Section 206C(1C) of the Act. No fault can be found with the impugned order of the Tribunal. - Decided in favour of assessee and against Revenue.

Issues Involved:
1. Liability to collect tax at source under Section 206C(1C) of the Income Tax Act, 1961 in respect of octroi collected by the agent appointed by the assessee.
2. Distinction between "octroi" and "toll" under Section 206C(1C) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Liability to Collect Tax at Source under Section 206C(1C) of the Income Tax Act, 1961 in Respect of Octroi Collected by the Agent Appointed by the Assessee:

The High Court considered whether the respondent/assessee, a Municipal Corporation, was liable to collect tax at source (TCS) under Section 206C(1C) of the Income Tax Act, 1961, for octroi collected by an agent on its behalf. The respondent/assessee had entered into an Agency Agreement wherein the agent collected octroi at rates fixed by the respondent/assessee and remitted the entire amount to the respondent/assessee, earning a commission based on the quantum of octroi collected.

The Income Tax Officer, through an order dated 20th April 2007, held that the respondent/assessee was obliged to collect tax from its agent/licensee for the assessment years 2005-2006, 2006-2007, and 2007-2008, under Section 206C(1C) of the Act. This order demanded a total of ?1.09 Crores as TCS along with ?15.96 Lakhs as interest.

The Commissioner of Income Tax (Appeals) upheld this view, stating that octroi collected by the agent/licensee was covered by Section 206C(1C) of the Act, equating octroi with toll.

However, the Tribunal, on further appeal, allowed the respondent/assessee's appeal, ruling that Section 206C(1C) of the Act specifically obliges the collection of tax at source for parking lots, toll plazas, and mines or quarries, and does not extend to octroi. The Tribunal distinguished between toll and octroi, concluding that the obligation to collect TCS under Section 206C(1C) does not apply to octroi.

2. Distinction Between "Octroi" and "Toll" Under Section 206C(1C) of the Income Tax Act, 1961:

The High Court examined the distinction between "octroi" and "toll" as understood legally and popularly. The Seventh Schedule of the Constitution of India empowers the State to levy octroi (Entry 52 of List II) and collect tolls (Entry 59 of List II), indicating a constitutional difference between the two levies. Further, Section 127 of the Maharashtra Municipal Corporation Act, 1949, separately enumerates octroi and toll, reinforcing their distinct legal identities.

The Tribunal's order relied on various dictionary definitions, highlighting that toll is generally collected for the use of roads by animals and humans, while octroi is collected for goods entering corporation limits for use, consumption, or sale. Based on this distinction, the Tribunal held that Section 206C(1C) of the Act, which mandates TCS for toll collection, does not extend to octroi collection.

The High Court upheld this view, emphasizing the principle of strict construction of fiscal statutes. Citing precedents, the Court reiterated that taxing statutes must be interpreted based on their clear language without any intendment, equity, or presumption. The Court noted that the legislature, when enacting Section 206C(1C), specifically restricted the TCS obligation to parking lots, toll plazas, and mines or quarries, without including octroi.

Conclusion:

The High Court concluded that Section 206C(1C) of the Income Tax Act, 1961, does not mandate the collection of tax at source for octroi collected by an agent on behalf of the respondent/assessee. The Tribunal's order was upheld, and the appeals were dismissed, affirming that the respondent/assessee was not liable to collect TCS for octroi under the said section. The Court emphasized the importance of strict interpretation of fiscal statutes and the clear legislative intent in the language of the statute. The substantial questions of law were answered in favor of the respondent/assessee and against the appellant/Revenue. The appeal was dismissed with no order as to costs.

← Previous Next →