TaxTMI 
TaxTMI 
2017 (2) TMI 1575
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....o answer the issues against the appellants holding ourselves in conformity with the view, opinion and findings of the learned Single Judge. 2. Two nascent provisions in the IT Act enacted by the Taxation Law Amendment Act fall for decoding by this Court in these appeals. The provisions are ss. 206C and 44AC, the latter of which how stands repelled by the Finance Act, 1992 w.e.f. 1st April, 1993. 3. These provisions which were engrafted in the Act together and were intended to act as a special purpose provision adjunctly for addressing and remedying certain mischief that was noticed by the legislature in its nomothetic wisdom. It is precisely the repealing of s. 44AC but allowing continuance of s. 206C that has prompted the appellants to raise questions as to the independent competence of s. 206C without its fraternal twin provision, in a manner of speaking, to operate as a tax collection mechanism. Since the provisions called into the question for cryptanalysis in these appeals are not one which are usually employed in application to quotidian fiscal areas but only in specialised and specific situations, as special purpose provisions and hence are not among the more familiar ....
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....e 1 2 3 (i) Alcoholic liquor for human consumption (other than Indian made foreign liquor) 15% (ii) Timber obtained under a forest lease 15% (iii) Timber obtained by any mode other than under a forest lease 15% (iv) Any other forest produce not being timber 15% (2) The power to recover tax by a collection under sub-s. (1) shall be without prejudice to any other mode of recovery. (3)...... (4) Any amount collected in accordance with the provisions of this section and paid under sub-s. (3) shall be deemed as payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to him for the amount so collected on the production of the certificate furnished under sub-s. (5) in the assessment made under this Act for the assessment year for which such income is assessable. (5)....... (5A)........ (6) Any person responsible for collecting the tax who fails to collect the tax in accordance with the provisions of this section, shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government in accordance with the provisi....
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....e buyer. The provisions of this section will apply only to an assessee, being a buyer of any goods in the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor) or any forest produce, scrap or waste, whether industrial or non-industrial, or such other goods, as may be notified by the Central Government, at the point of first sale. The word seller' connotes the Central Government, State Government, or any local authority or corporation or authority established by or under a Central Act or any company. The provisions of this section shall not apply to any buyer in the second or subsequent sale of such goods. This amendment will take effect from 1st April, 1989 and will, accordingly, apply to asst. yr. 1989-90 and subsequent years. Further, with a view to facilitate collection of taxes from such assessees, it is proposed to introduce a new s. 206C to provide that any person, being a seller, referred to in s. 44AC, shall collect income-tax of a sum equal to twenty per cent of the amount paid or payable by the buyer, as increased by a surcharge for purposes of the Union calculated on the income-tax at the rates in force. S....
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....ale of such goods. Once the income is determined at the hands of the buyer, s. 206C was introduced to collect tax of a sum equal to a particular percentage of the amount paid or payable by the buyer and the obligation to collect such tax was cast upon the seller. This obligation to collect tax was also qualified with a specific mandate that if the seller does not collect or after collecting fails to pay tax, he shall be deemed to be an assessee in default in respect of the tax and the amount of the tax with interest. 6. The validity of the provisions, namely, ss. 44AC and 206C of the Act were challenged before the Hon'ble Supreme Court in a series of litigations from various parts of the country on several grounds including legislative competence of the Parliament to enact them and violation of Arts. 14 and 19 of the Constitution of India. The Hon'ble Supreme Court was, therefore, drawn to analyse the provisions in extreme detail, specifically as to whether the twin provisions would amount to charging sections and whether s. 44AC, in particular, operates so as to levy a charge. This issue had pointedly been considered in the context of the legislative competence of the P....
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.... that the provisions are only machinery and are not charging in its amplitude. In fact, their Lordships went on to clarify the position further by saying that the 'charge for the levy of income is led by the charging section, namely, ss. 5 to 9 and not by virtue of ss. 44AC and 206C. There cannot be a more emphatic declaration on this point and we are, of course, bound completely by it. 8. Thus far, our path is lightened and irradiated by the judgment of the Hon'ble Supreme Court. 9. The genesis of the legal and factual disputations in these appeals is the Finance Act, 1992, which omitted s. 44AC w.e.f. 1st April, 1993. The reasons that compelled the said section to be omitted have been explained in the said Finance Act itself. A reading of the explanation would be of great benefit, since it would show as to what prompted the legislature to repeal s. 44AC while maintaining s. 206C in the statute itself. The explanation is extracted as under: "Sec. 44AC has been omitted w.e.f. 1st April, 1993 by the Finance Act, 1992, so as to remove the provisions for presumptive basis of computing profits and gains of persons engaged in the trading of country liquor, timber ....
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..... The appellants maintain that they import timber from outside India and that they sell the same to various retailers and other customers in Kerala. It appears that a survey under s. 133A of the IT Act was carried out in the premises of the appellants during the course of which it was noticed that they were not collecting tax at source, as obligated, under s. 206C of the Act from its buyers. The details of such sales made to retail traders were obtained during the survey and handed over to the Dy. CIT, Kozhikode. A show-cause notice was thereafter issued to the appellants as to why they should not be treated as assessees in default under s. 206C(6) in respect of non-deduction; why interest under s. 206C(7) should not be charged; and why penal action should not be initiated against them for having failed to collect tax at source under s. 206C(1) of the Act. 14. All the above appeals have, in their respective dominion, the same set of facts. The only difference in the case of Writ Appeal No. 981 of 2015 is that it relates to the years from 2011.-12 to 2013-14, whereas apropos of other four appeals the relevant assessment years are from 2009-10 to 2013-14. Since all the appeals hav....
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....o mean that it was intended only to ensure that while effecting sale of the timber so obtained from a forest lease or such other modes, the seller will be obliged to collect tax from the buyer because the actual quantity of timber sold and thus 'obtained' by the buyer could be determined only at the point of sale, since the timber has been sourced from standing trees, taken on contract by the seller as such and converted into timber later. 20. As regards the timber brought to India after import is concerned, it is the singular contention of the appellants that when timber is brought into India under a valid import, there is clear assessment by quantification and value by Central levy in the nature of customs duty at the proper rate. According to them, since the timber so imported is covered by a bill of entry and since the assessment under the Customs Act is made before the timber is permitted to brought into India, no question of evasion as to the quantity or value could ever been thought: of and hence it would be completely beyond the reach of s. 44AC or s. 206C. 21. There is no doubt that the entire foundational basis of the appellant's case is built on the bed....
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....sons for which the provisions were brought in as a composite system. 23. It is obvious from the Finance Act, 1992, even though s. 44AC stands repealed, it expressly provides for the continuation of s. 206C as an independent provision for collection of tax at source. Once s. 44AC has been repealed, obviously s. 206C was then intended to collect tax not on the income presumptively determined under s. 44AC but on that income that was charged under the relevant charging sections, namely ss. 5 to 9 of the IT Act. We have no doubt about this because the Hon'ble Supreme Court has in Sanyasi Rao (supra) held that the charge of levy of the income that accrued or arose is laid by the charging sections, namely ss. 5 to 9 and not by virtue of s. 44AC or s. 206C. Therefore, the only issue would then remain is the interpretation of s. 206C as to whether it is still bound within the confinements for the purpose for which it was originally enacted. However, the very fact that even when s. 44AC was consciously repealed, s. 206C was allowed to remain would indicate and show otherwise. 24. Normally, there would not have been, lexicographically or semantically, any doubt as to the meaning of....
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....nts, bringing into its fold various articles which were not included at the time when they were initially embedded into the statute. For example, the article 'scrap' was added as per Finance Act, 1992 w.e.f. 1st April, 1992 'minerals' as per Finance Act, 2012, w.e.f. 1st July, 2012. and in between other amendments were also brought in as per Finance Act 1996 and Finance Act, 2003. The rates of tax to be collected under s. 206C were also changed from time to time. Similar is the position with respect to the burden of tax imposed. The Finance Act, 1992 added an Explanation w.e.f. 1st April, 1992 removing the burden of tax from the buyer who purchased goods for further sale but as per the Finance Act, 2003, if the seller had sold the goods to the retailer, he was not liable to deduct tax at source. However, as per the Taxation Laws (Amendment) Act, 2003, which came into effect on 8th Sept., 2003, exemption from deduction of tax became permissible only where the buyer satisfies the condition that the goods were purchased by it for personal consumption. 28. It is, therefore, obvious that the section underwent changes from time to time and evolved itself in order to me....
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....re firm in our mind that s. 206C of the Act was intended as a tax collection mechanism all through and the intention of the Parliament to have it as such was clear from the fact that it was allowed to remain in the statute even after s. 44AC was repealed. The appellants have chosen not to deduct tax from their buyers even though they were fully aware that the section required and mandated them to do so. Their only defence appears to be that they were under the impression, on the basis of the interpretation made by themselves, that they were not required to do so since the articles sold by them would not come under the sweep of s. 44AC and hence they have exemption from the requirements under s. 206C. This appears to be completely untenable and without nomothetic or legal sanction. 31. We have already noticed that there is no fiscal or financial burden cast upon the seller under the provisions of s. 206C and that the entire compulsion to pay tax is upon the buyer. However, the statutory devoir of the seller to deduct tax at the rates shown therein is the only fiscal obligation that is placed on them and if they do not do so, obviously, the residuary provisions making them liable ....