2003 (4) TMI 81 - HC - Income Tax

Court quashes tax liability under Income-tax Act, citing CBDT circular on maximum retail price.

The court allowed the writ petition, quashing the orders holding the petitioner liable under Section 206C of the Income-tax Act for not collecting tax at ... Tax collection at source – default in not collecting tax - In our opinion after the circular of the CBDT dated June 27, 2002, the controversy in this case really does not survive since under that circular the maximum retail price is treated to be the sale price as envisaged by sub-clause (iii) of clause (a) of the Explanation to section 206C which has come into effect from March 16, 2001, i.e., the date on which the notification for fixing the maximum retail price of country liquor for the State of Uttar Pradesh was issued. - In Collector of Central Excise v. Dhiren Chemical Industries it has been held that the circulars of the Department are binding on the tax authorities. In paragraph 11 of that judgment the Supreme Court has said that even if the court has taken a different interpretation yet the interpretation of the Central Board in its circular shall be binding on the Revenue. Although that decision was under the Central Excise Act in our opinion it will also, apply to the circulars issued by the Central Board of Direct Taxes under section 119 of the Income-tax Act. - Hence in view of the circular dated June 27, 2002, this writ petition is allowed. Issues Involved:1. Applicability of Section 206C of the Income-tax Act to the petitioner.2. Interpretation of the term 'buyer' under the Explanation to Section 206C.3. Validity of the orders dated March 22, 2002, and May 7, 2002, issued by the Income-tax authorities.4. Binding nature of circulars issued by the Central Board of Direct Taxes (CBDT).Detailed Analysis:1. Applicability of Section 206C of the Income-tax Act to the Petitioner:The petitioner, a company with distilleries in Uttar Pradesh, challenged the orders issued by the Income-tax Officer (TDS) and the Commissioner of Income-tax, which held the petitioner liable under Section 206C for not collecting tax at source. The petitioner argued that the excise duty payable to the State of U.P. could not constitute income or profits of the retailers or wholesalers, and thus, the provisions of Section 206C should not apply.2. Interpretation of the Term 'Buyer' under the Explanation to Section 206C:The petitioner contended that under sub-clause (iii) of the Explanation to Section 206C, they were not considered a 'buyer' since the sale price of the goods to be sold by them was fixed under a State Act. The term 'buyer' excludes those who do not obtain goods by auction and where the sale price is fixed by or under any State Act. The petitioner relied on various judicial precedents, including decisions from the Himachal Pradesh and Punjab and Haryana High Courts, which supported their interpretation.3. Validity of the Orders Dated March 22, 2002, and May 7, 2002:The orders issued by the Income-tax Officer and the Commissioner of Income-tax were challenged on the grounds of non-application of mind to the provisions of Section 206C. The petitioner argued that the orders failed to appreciate the statutory context and the binding nature of the fixed sale prices under the U.P. Excise Act. The respondents, however, argued that retail licensees purchased liquor at negotiated prices and that there was potential for tax evasion if tax was not collected at source.4. Binding Nature of Circulars Issued by the CBDT:The court noted the circular dated June 27, 2002, issued by the CBDT, which clarified that the maximum retail price fixed by the State Government should be treated as the sale price for the purposes of Section 206C. The court emphasized that departmental circulars are binding on tax authorities, citing the Supreme Court decision in Collector of Central Excise v. Dhiren Chemical Industries, which held that even if a court takes a different interpretation, the interpretation of the Central Board in its circular shall be binding on the Revenue.Conclusion:The court concluded that, in light of the CBDT circular dated June 27, 2002, the controversy was resolved, as the maximum retail price fixed by the State Government was to be treated as the sale price under Section 206C. Consequently, the writ petition was allowed, and the impugned orders dated March 22, 2002, and May 7, 2002, were quashed. The respondents were restrained from realizing any amount in pursuance of the impugned orders.