Tax collection at source on liquor purchases was excluded for a first buyer engaged in further resale.

A liquor purchaser holding an L-13 licence was not required to collect tax at source under section 206C because the proviso to section 44AC and the Explanation to section 206C, as previously interpreted by the Court, excluded a buyer engaged in further sale of goods obtained under the specified mode of sale. A wholesaler purchasing country liquor from the distillery was treated as the first buyer in that transaction, but where the liquor was further sold, the statutory TCS obligation did not attach to that purchaser. Liability to collect tax at source was therefore negatived.

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Issues: Whether an L-13 licence holder purchasing country liquor from a distillery was liable to collect tax at source under section 206C of the Income-tax Act, 1961, or whether the proviso to section 44AC excluded such liability.

Analysis: The question was already settled by earlier decisions of the Court interpreting clause (a)(ii) of the Explanation to section 206C and the proviso to section 44AC. Those decisions held that a buyer in the further sale of goods obtained under the specified mode of sale is excluded from the definition of buyer for the purpose of tax collection at source. A wholesaler who purchases liquor from the distillery is the first buyer in that transaction, and if the liquor is further sold, the statutory obligation to collect tax at source does not fall on such purchaser.

Conclusion: The assessee was not liable to collect tax at source, and the question was answered against the Revenue and in favour of the assessee.

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