Tax collection at source by a State wholesaler upheld, with delay, Article 289 immunity, and double taxation objections rejected.

When the State operated as wholesaler of country-made liquor, it was treated as bound to collect tax at source from purchasers under section 206C, and the demand and recovery steps were upheld where defaults continued and the levy was quantified under the applicable statutory scheme, including section 44AC. Claims based on delay, article 289 immunity, and alleged double taxation were rejected: delay was not established on the facts, article 289 did not apply because the levy was an advance collection linked to retailers' income, and limited material on a few retailers was insufficient to displace the recovery.

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Issues: (i) whether the State was liable to collect tax at source under section 206C of the Income-tax Act, 1961 and whether the demand and attachment made under the Act were valid; (ii) whether the action was vitiated by delay, article 289 of the Constitution of India, or alleged double taxation.

Issue (i): Whether the State was liable to collect tax at source under section 206C of the Income-tax Act, 1961 and whether the demand and attachment made under the Act were valid.

Analysis: The wholesale trade in country-made liquor was taken over by the State during the relevant period, and the State acted as wholesaler. In that capacity, it was bound to collect tax at source from the purchasers in accordance with section 206C. The authorities quantified the amount on the basis of the facts and figures supplied by the State and in accordance with the special procedure applicable during the relevant period, including section 44AC. The notices and consequential recovery steps were taken after repeated defaults, and the demand was based on the statutory scheme.

Conclusion: The State failed to discharge its statutory obligation, and the demand and recovery action were valid.

Issue (ii): Whether the action was vitiated by delay, article 289 of the Constitution of India, or alleged double taxation.

Analysis: The plea of delay failed because reasonable time was held to run from knowledge, and no material showed that the Revenue had slept over the matter. Article 289 was held inapplicable because the levy was not on the State's property or income but was only an advance collection of tax relatable to the retailers' income. The contention of double taxation also failed because limited material relating to a few retailers could not establish that the entire demand was unwarranted or that the Revenue had suffered no loss.

Conclusion: These contentions were rejected.

Final Conclusion: The writ petition failed on all substantive grounds and the impugned tax collection and recovery action was upheld.

Ratio Decidendi: Where a State acts as a wholesaler and is statutorily obliged to collect tax at source, failure to do so permits the Revenue to quantify and recover the amount under the governing provisions; claims of delay, article 289 immunity, or double taxation do not defeat such recovery unless legally and factually established.

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