Subsequent sale under a liquor licence scheme falls outside tax collection at source, with refund ordered for unlawful collections.

A public sector undertaking's sale of liquor to L-14 licensees under a controlled statutory and auction regime was treated as a subsequent sale in the distribution chain, not the first sale contemplated by section 206C of the Income-tax Act, 1961, so tax collection at source was not authorised at that stage. The Board's circular on the limited application of section 206C to public sector companies reinforced that position, because the licensees could obtain supply only from the undertaking under fixed-price conditions. Collection of tax at source from the liquor licensees was therefore without authority of law, and refund of amounts already collected followed.

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Issues: (i) Whether the sale of liquor by CITCO to L-14 licensees was a subsequent sale outside the first-sale collection mechanism under section 206C of the Income-tax Act, 1961; (ii) whether CITCO, being a public sector undertaking, fell within the exclusion in the Board's circular and could be required to collect tax at source from the petitioners.

Issue (i): Whether the sale of liquor by CITCO to L-14 licensees was a subsequent sale outside the first-sale collection mechanism under section 206C of the Income-tax Act, 1961.

Analysis: The liquor was procured by CITCO from distilleries and sold onwards to L-14 licensees under a controlled statutory and auction regime. The license conditions and the Punjab Liquor Licences Rules, 1956 required the retail vendors to obtain their supply only from CITCO, while the sale price was fixed by the competent authority. In that setting, the transfer from CITCO to the petitioners was not the initial sale contemplated by section 206C, but a later sale in the chain of distribution.

Conclusion: The sale to the petitioners was a subsequent sale and did not attract collection under section 206C.

Issue (ii): Whether CITCO, being a public sector undertaking, fell within the exclusion in the Board's circular and could be required to collect tax at source from the petitioners.

Analysis: Circular No. 660 clarified that section 206C would not apply to a public sector company and would operate only at the point of first sale. CITCO was a public sector undertaking, and the petitioners obtained the goods only from CITCO under compulsion of the licence structure. On that basis, the circular reinforced the statutory conclusion that tax collection at source could not be imposed on the petitioners through CITCO.

Conclusion: CITCO was covered by the exclusion and could not be compelled to collect tax at source from the petitioners.

Final Conclusion: The tax collection made from the liquor licensees was without authority of law and the writ petitions succeeded, with refund granted for amounts already collected.

Ratio Decidendi: Where a public sector undertaking sells goods under a fixed-price, regulated licence scheme as a later stage in the distribution chain, the transaction is a subsequent sale and section 206C does not authorize collection of tax at source at that stage.

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