Tax collection at source on country liquor excludes separately payable excise duty and applies only to the cost price.

Section 206C tax collection on country liquor was confined to the liquor cost price and did not include excise duty paid separately under the Madhya Pradesh Excise Act, 1915. The Court treated section 206C as a self-contained provision after the omission of section 44AC, and held that the earlier circular-based approach was not controlling. Because excise duty was separately payable on removal of liquor from the warehouse and did not form part of the amount payable by the buyer for section 206C purposes, tax at source had to be computed only on the cost price. The assessee's challenge therefore succeeded.

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Issues: Whether tax collected at source under section 206C of the Income-tax Act, 1961 on country liquor was to be computed on the issue price including excise duty or only on the cost price excluding excise duty.

Analysis: The controversy turned on the meaning of the amount payable by the buyer under section 206C of the Income-tax Act, 1961 and the effect of the Madhya Pradesh Excise Act, 1915 on the price structure of liquor lifted from warehouses. The Court noted that the earlier view based on section 44AC and Circular No. 585 dated November 27, 1990 was not controlling, because section 44AC had been omitted and section 206C had become a self-contained provision. Reading the excise provisions governing removal of liquor from warehouses and the levy of duty on issue, the Court held that excise duty was separately payable under the excise law and did not form part of the cost price for purposes of collection of tax at source. The decisions taking the same view that collection under section 206C should be confined to the cost price were followed.

Conclusion: Tax at source under section 206C had to be collected only on the cost price of liquor and not on the excise duty component, and the challenge by the assessee succeeded.

Final Conclusion: The statutory collection mechanism for country liquor was confined to the liquor cost and did not extend to excise duty paid separately under the excise law.

Ratio Decidendi: Where excise duty is payable separately under the relevant excise enactment, it does not form part of the amount payable by the buyer for the purpose of tax collection at source on the liquor cost under section 206C of the Income-tax Act, 1961.

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