Collection of income-tax at source during the financial year 1988-89-Profits and gains from the business of trading in alcoholic liquor, forest produce, etc.-Instructions regarding - Income Tax - 525/1988

Collection of income-tax at source during the financial year 1988-89-Profits and gains from the business of trading in alcoholic liquor, forest produce, etc.-Instructions regarding Circular No. 525 Dated 24/11/1988 To All State Governments including Administrations of Union Territories. Subject: Collection of income-tax at source during the financial year 1988-89-Profits and gains from the business of trading in alcoholic liquor, forest produce, etc.-Instructions regarding. Considerable difficulty has been felt in the past in assessing income of persons who take contracts for sale of liquor, forest produce, etc. It has been the Department's experience that for taking such contracts, firms or associations of persons are specifically constituted and very often no trace is left of them or their members after the contract has been executed. Persons have also been found to have taken contracts in "benami" names by floating undertakings or associations for short periods. Since tax is payable in the assessment years on the incomes of the previous years, the time by which the incomes from such sources become assessable, such persons become untraceable. Moreover, at the time of assessment years in these cases, either the accounts are not available or they are mostly incorrect or incomplete. Thus, even if assessments could be made on ex parte basis, it becomes almost impossible to collect the tax found due, either because it becomes difficult to establish the identity of the persons and trace them or because of the fact that the persons in whose names contracts were taken are men of no means. With a view to combating large scale tax evasion by persons deriving incomes from such business, the Finance Act, 1988, has inserted a new section 44AC to provide for determination of income in such cases. Further, with a view to facilitating collection of taxes from such assessees, the Finance Act, 1988, has inserted a new section 206C to provide for collection of such tax at source. 2. Sections 44AC and 206C are reproduced below:- "44AC. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an assessee, being a person other than a public sector company (hereafter in this section referred to as the buyer), obtaining in any sale by way of auction, tender or any other mode, conducted by any other person or his agent (hereafter in this section referred to as the seller),- (a) any goods in the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor) a sum equal to forty per cent., of the amount paid or payable by the buyer as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head "Profits and gains of business or profession"; (b) the right to receive any goods of the nature specified in column (2) of the Table below, or such goods as the case may be, a sum equal to the percentage specified in the corresponding entry in column (3) of the said Table of the amount paid or payable by the buyer in respect of the sale of such right or as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head "Profits and gains of business or profession." Table Sl. No. Nature of goods Percentage (1) (2) (3) ( i ) Timber obtained under a forest lease Thirty-five per cent ( ii ) Timber obtained by any mode other than under a forest lease Fifteen per cent ( iii ) Any other forest produce not being timber Thirty-five per cent (2) For the removal of doubts, it is hereby declared that the provisions of sub-section (1) shall not apply to a buyer (other than a buyer who obtains any goods from any seller which is a public sector company) in the further sale of any goods obtained under or in pursuance of the sale under sub-section (1). (3) In a case where the business carried on by the assessee does not consist exclusively of trading in goods to which this section applies and where separate accounts are not maintained or are not available, the amount of expenses attributable to such other business shall be an amount which bears to the total expenses of the business carried on by the assessee the same proportion as the turnover of such other business bears to the total turnover of the business carried on by the assessee. Explanation.- For the purposes of this section, "seller" means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm". The provisions of this section will apply only to an assessee being a person other than a public sector company, referred to as "buyer" of any goods in the nature of alcoholic liquor for human consumption (other than Indian made foreign liquor) or such goods as are mentioned in clause (b) of sub-section (1) of section 44AC, at the point of first sale. The provisions of this section shall not apply to any buyer in the second or subsequent sale of such goods. This amendment will take effect from 1st April, 1989, and will accordingly apply to assessment year 1989-90 and subsequent years. "206C. (1) Every person, being a seller referred to in section 44AC, shall, at the time of debiting of the amount payable by the buyer referred to in that section to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax on income comprised therein. Table Sl. No. Nature of goods Percentage (1) (2) (3) ( i ) Alcoholic liquor for human consumption (other than Indian-made foreign liquor) Fifteen per cent ( ii ) Timber obtained under a forest lease Fifteen per cent ( iii ) Timber obtained by any mode other than under a forest lease Ten per cent ( iv ) Any other forest produce not being timber Fifteen per cent : Provided that where the Assessing Officer, on an application made by the buyer, gives a certificate in the prescribed form that to the best of his belief any of the goods referred to in the aforesaid table are to be utilised for the purposes of manufacturing, processing or producing articles or things and not for trading purposes, the provisions of this sub-section shall not apply so long as the certificate is in force. (2) The power to recover tax by collection under sub-section (1) shall be without prejudice to any other mode of recovery, (3) Any person collecting any amount under sub-section (1) shall pay within seven days the amount so collected to the credit of the Central Government or as the Board directs. (4) Any amount collected in accordance with the provisions of this section and paid under sub-section (3) shall be deemed as payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to him for the amount so collected on the production of the certificate furnished under sub-section (5) in the assessment made under this Act for the assessment year for which such income is assessable. (5) Every person collecting tax in accordance with the provisions of this section shall within ten days from the date of debit or receipt of the amount furnish to the buyer to whose account such amount is debited or from whom such payment is received, a certificate to the effect that tax has been collected, and specifying the sum so collected, the rate at which the tax has been collected and such other particulars as may be prescribed. (6) Any person responsible for collecting the tax who fails to collect the tax in accordance with the provisions of this section, shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government in accordance with the provisions of sub-section (3). (7) Without prejudice to the provisions of sub-section (6), if the seller does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest at the rate of two per cent. per month or part thereof on the amount of such tax from the date on which such tax was collectable to the date on which the tax was actually paid. (8) Where the tax has not been paid as aforesaid, after it is collected, the amount of tax together with the amount of simple interest thereon referred to in sub-section (7) shall be a charge upon all the assets of the seller". It may be noted that the sum collected at source in accordance with the provisions of section 206C should be increased by a surcharge for the purpose of the Union calculated on the income-tax at the rates in force. Tax is required to be collected from the buyer either at the time of debiting the said amount to the account of the buyer or at the time of receipt of that amount from the buyer, whichever is earlier. This mode of recovery of tax shall be without prejudice to any other mode of recovery. The tax so collected by the seller shall be paid to the credit of the Central Government or as the Board directs within 7 days from the date of collection. It will be treated as tax paid on behalf of the person from whom the tax had been collected and credit shall be given for such amount in the assessment made under the Income-tax Act on production of a certificate. This section also provides that if a seller does not collect or after collecting fails to pay the tax, he shall be deemed to be an assessee in default in respect of the tax and the amount of tax together with the amount of simple interest calculated at the rate of 2% per month or part thereof shall be a charge upon the assets of the seller. It may be noted that failure to pay the tax collected at source will attract the penal provisions of section 276BB according to which such a person will be punishable with rigorous imprisonment for a term between 3 months and 7 years and with fine. This amendment will be effective from 1st June, 1988. 3. The Board by notification No. S.O. 557(E), dated 9th June, 1988*, has made necessary amendments in the Income-tax Rules, 1962, in this regard. A copy of the notification with enclosures is enclosed-Annexure-II*. A new challan form** has been devised. A copy** is enclosed-Annexure-II(A) II(B). (4) These instructions may please be brought to the notice of all State Governments, Departments, Local Authorities, Corporations set up by the State Government or/under the control of the State Governments, etc. In case any assistance is required in this regard, the Income-tax Officer concerned and/or the Assessing Officer or the Local Public Relations Officer of the Income-tax Department may be approached for the same who will, if necessary, obtain the orders of the higher authorities in the matter. Copies of the Circular are available with the Director of Income-tax (RS PR), 6th Floor, Mayur Bhavan, Connaught Circus, New Delhi. (Sd.) B. Nagarajan, Director, Central Board of Direct Taxes. * See Income-tax (Fourth Amendment) Rules, 1988: [1988] 172 ITR (St.) 37. ** Challan Nos. 30 and 31 not printed here.