1. Under challenge in all these appeals are the orders passed by the Income-tax Officer, TDS Wards, Sirsa, Jind and Kaithal under Section 206C(6) of the Income-tax Act, 1961 and the subsequent confirmation of said orders by the CIT(A), Rohtak on appeals filed by the appellants.
2. To appreciate the issue in proper perspective, we set out the relevant provisions of the Income-tax Act, 1961 as follows :- 206C(1) : Every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said table, of such amount as income-tax :Sr. No. Nature of goods Percentage 1 2 3(ii) Timber obtained under a forest Fifteen lease per cent(iv) Any other forest produce not being Fifteen timber or tendu leaves per cent (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 provisions of Sub-section (3)." (a) "buyer" means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the Table in Sub-section (1) or the right to receive any such goods but does not include- (ii) a buyer in the further sale of such goods obtained in pursuance of such sale, or (iii) a buyer where the goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any State Act; (b) "seller" means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society.
3. On a perusal of the orders passed by the ITOs and thereafter by the CIT(A), we find that these are more or less identically worded on facts, the position of law as understood by Revenue, the reasons and the ultimate conclusion asking the appellants representing the State Government of Haryana to pay huge amounts as income-tax to the credit of the Central Government on the ground that they were covered under the term "seller" in the Explanation and the L-14A Licensees were buyers as they acquired a "right to receive any such goods" pursuant to the payment of licence fee settled through auction. The tax authorities in other words took the view that the appellants were liable to deduct tax at source from the retail vendors of Country liquor holding L-14A Licences on the amounts realized by the State in the form of licence fee at the time of auction conducted by the State.
4. As before the tax authorities, it was the case before us on behalf of the appellants that receipts pursuant to auction of licences were not on account of any sale of goods by the State Government to the licensees or on account of sale of a right to receive any goods from the State. It was argued that a person to whom an L-14A licence had been issued for fee settled through auction, obtained a right to sell Country liquor from the vend for which such licence had been granted.
According to the learned Counsel, no Country liquor was physically sold in such an auction and only a right to sell Country liquor from the licensed vend was sold by way of auction.
5. The CIT(A) rejected the various arguments on the following main grounds : (i) Objects which were sought to be achieved by the insertion of Section 206C in the Statute book with effect from June 1, 1988 : 25. Considerable difficulty has been felt in the past in making assessment of incomes in the case of persons who take contracts for sale of liquor, scrap, forest products, etc. It has been the Department's experience that for taking such contracts, firms or association of persons are specifically constituted and very often no trace is left regarding them or their members after the contract has been executed. Persons have also been found to have taken contracts in benami names by floating undertakings or associations for short periods. Since tax is payable in the assessment years in respect of the incomes of the previous years, the time by which the incomes from such sources become assessable, such persons are not traceable. At the time of assessment in these cases, either the accounts are not available or they arc grossly incorrect or incomplete. Thus, even if assessments could be made on ex parte basis, it becomes almost impossible to collect the tax found due, either because it becomes difficult to establish the identity of the persons and trace them or because of the fact that the persons in whose names contracts are taken are men of no means.
(ii) Rights in regard to intoxicants belonged to the State and it was open to the Government to part with such rights for a consideration i.e. licence fee.
(iii) True nature of the term "licence fee" considered by the Supreme Court in the case of Har Shankar v. Dy. Excise & Taxation Commissioner AIR License fee" or 'fixed fee' is meant the price or consideration which the Government charges to the licensees for parting with its privileges and granting them to the licensees. As the State can carry on a trade or business, such a charge is the normal incident of a trading or business transaction.
(iv) With reference to the Explanation to Section 206C as inserted by Finance Act, 1992, the CIT(A) opined as follows :- In my opinion, it is clear that the Explanation creates two distinct types of buyer i.e. (i) a person who obtains the specified goods (i.e. country liquor in the present case) and (it) a person who obtains the right to receive any such goods. For the second type of buyer, there is no requirement of physical receipt of goods in the auction. The only requirement is that the person obtains right to receive the specified goods and to my mind, the conclusion is inescapable that such a right to receive the specified goods is duly conferred by the State to the licensees after realising the price/amount determined by way of open auction. In view of the law laid down by the Apex Court in Har Shankar's case (supra) the amount charged to the licensees is not a fee or tax, but is in the nature of price of a privilege which the purchaser has to pay in any trading or business transactions and it is evident what this primary condition needs to be fulfilled in order to obtain the country liquor from the distilleries. Therefore, in my opinion, in view of the Explanation to Section 206C, the State becomes seller vis-a-vis the licensee, the moment it confers a right on such "buyer" to receive the specified goods i.e. country liquor in the present case.
(v) That the words "right to receive any such goods" referred to all the four categories mentioned in the table and not to the last three categories comprising timber obtained under a forest lease or otherwise and any other forest produce other than timber or tendu leaves as canvassed by the appellants.
(vi) The expression "right to receive any such goods" had enlarged the scope of the word "buyer" and the amount charged by the State by way of licence fee from the vendors of Country liquor was in the nature of price of a privilege which the purchaser had to pay to acquire such a privilege and which in turn vested the purchaser with the right to receive the specified goods i.e. Country liquor and thus caught within the definition of a "buyer" as contained in Clause (a) of the Explanation to Section 206C.6. Coming to the arguments before us, the learned Counsel at the outset stated that most of the issues arising in the present appeals stood concluded in favour of the appellants by the recent judgment of the Hon'ble Punjab and Haryana High Court in the case of certain L-14A licensees i.e. Naresh Kumar & Co. [CPW No. 15583 of 1999 dated 22-2-2000]. The plea in other words was that the judgment impugned would take care of most of the grounds raised in the appeals and the end result would be favourable to the appellants but he made a request to us to consider certain issues which had not arisen before the Hon'ble High Court. However, before we deal with these, we would advert to the issues concluded by the judgment supra as follows :- The questions that arise for our consideration in this bunch of twenty four writ petitions arc whether the holder of L-14A licence issued under the Punjab Liquor Licence Rules, 1956 (for short the Rules) is a 'buyer' within the meaning of Section 206C of the Income-tax Act, 1961 (hereinafter referred to as the Act) and whether the Excise Department while auctioning such a licence is a 'seller' and as such required to collect from such a licencee 10% of the amount of licence fee as income-tax.
(B) Whether L-14A licensees were "buyers" within the meaning of Section 206C: A perusal of the aforesaid provisions makes it clear that every person who sells alcoholic liquor for human consumption other than Indian made foreign liquor is required, at the time of debiting the amount payable by the buyer to his account or at the time of receipt of such amount from the buyer in cash or by cheque or draft or by any other mode, to collect from the buyer a sum equal to 10% of the amount payable by the buyer as income-tax at source. The word 'buyer' has been defined in the Explanation to mean a person who obtains in any sale by way of auction, tender or any other mode, goods of the nature specified in the Table or the right to receive any such goods but does not include a buyer in the further sale of goods obtained in pursuance of such sale. Petitioners before us who are L-14A licensees to obtain Country liquor by purchase and on the basis of the licences obtained by them they get the right to receive those goods and are, therefore, covered by the first part of the definition of buyer as given in Clause (a) of the Explanation. There are the three clauses according to which certain classes of persons are excluded from the concept of buyers as defined in Section 206C with the result that persons who fall in any of these three clauses will not be covered by the definition even if they are covered by the first part. A buyer in the further sale of such goods is one of the classes of persons who stand excluded from the definition by virtue of Sub-clause (it) of Clause (a) of the Explanation being the subsequent buyers. Petitioners before us undoubtedly purchase country liquor from the wholesalers who are L-13 licensees and the latter and purchased the same from the distilleries (manufacturers).
The sale in favour of the petitioners is thus a second sale covered by the exclusion Clause (it) of Clause (a) of the Explanation. In this view of the matter, the petitioners are not buyers within the meaning of Section 206C of the Act.
(C) Judgments reported in State of Bihar v. CIT [1993] 202 ITR 535 (Pat.) and Ramjee Prasad Sahu v. Union of India [1993] 202 ITR 800 (Pat.): State of Bihar's case (supra) dealt with provisions of Sections 44AC and 206C as they then stood and not advancing Revenue's case whereas Ramjee Prasad Sahu's case (supra) dealt with the provisions of Section 206C as were introduced by the Finance Act, 1992 w.e.f.
1-4-1992 holding that 15% of the excise duty payable by the petitioners on account, of purchase of Country liquor could not be collected as income-tax under Section 206C. Their Lordships of the Punjab and Haryana High Court agreed with the view expressed in Ramjee Prasad Sahu's case (supra) which in turn had taken into account - State of Bihar's case (supra) observing that the provisions of Sections 44AC and 206C as they then stood were materially different.
Provisions of Section 206C would not apply to a second or subsequent sale of goods and the petitioners bought country liquor at a second sale, the first sale being from the distilleries to the wholesalers i.e. L-13 vends.
The aforesaid observations of the Hon'ble High Court pertain to the position of L-14A licensees but in so far as the State is concerned, this is what their Lordships observed while dealing with the question whether T.D.S. at 10% was required from the licence fee:- There is yet another aspect of the matter. The Deputy Commissioner of Income-tax has held that the Excise & Taxation Commissioner who issued L-14A licenses to the petitioners in an open auction is the seller within the meaning of Section 206C of the Act and was, therefore, required to collect 10% of the licence fee as income-tax at source. We arc of the opinion that this view of the Income-tax Department is wholly misconceived and not warranted from the provisions of Section 206C of the Act. A seller is required to collect 10% of the amount as income-tax at source only on the sale of goods of the nature specified in column No. 2 of the Table. What the Excise and Taxation Commissioner can be said to have sold to the petitioners are L-14A licences on the basis of which they can carry on their business of selling country liquor in retail. He has not sold any goods of the nature specified in column No. 2 of the Table.
He has not sold country liquor. The licences only give a right to the petitioners to receive the goods of the nature specified in column No. 2 of the Table and the requirement of Sub-section (1) of Section 206C is that 10% of the amount payable is to be collected by the seller from the buyer of the goods and not from the buyer of the right to receive the goods. Since no goods have been sold by the Excise and Taxation Commissioner, he cannot be described as a seller within the meaning of the Act.
The aforesaid view expressed by the jurisdictional High Court clearly resolves the main controversy in the present appeals i.e.
whether the State of Haryana becomes a 'seller' within the meaning of Clause (b) of Explanation to Section 206C. The answer is an emphatic "no". The High Court, has clearly held that what the Excise and Taxation Commissioner has sold are the L-14A licences and not any goods of the nature specified in the Table attracting T.D.S. provisions.
We may now examine the matter from another angle as well.
Sub-section (1) of Section 206C of the Act requires that every seller of alcoholic liquor for human consumption other than Indian made foreign liquor shall collect from the buyer 10% of the amount payable at the time of debiting the amount to the account of the buyer or at the time of receipt of any such amount in cash or by cheque or draft or by any other mode. It is thus clear that what is collectable is 1096 of the 'amount payable'. The amount payable is that amount which is payable at the time of debiting the amount to the account of the buyer or at the time of receiving money from him in cash or by cheque or by draft or by any other mode for the goods sold to him. That amount, in our opinion, is the purchase price which the buyer pays to the seller for the goods sold and in the cases before us the amount which the petitioners pay to the wholesalers after they have obtained a permit from the Excise Department by depositing the excise duty. The amount payable would only be the price which the buyer will pay to the seller. It cannot by any stretch of reasoning include licence fee which the buyer has to pay for the licence that he has obtained. The payment of this fee is wholly unrelated to the amount to be paid at the time of purchasing country liquor from the wholesalers. Even if L-14A licensee does not purchase any country liquor, the licence fee has nevertheless to be paid by him to the department and it will be preposterous to suggest that income-tax should still be recovered.
Licence fee is, therefore, not a part of the 'amount payable' at the time of the sale of country liquor. In this view of the matter, we have no hesitation in holding that the 'amount payable' in Section 206C of the Act does not include the licence fee which has to be paid by a licensee to the State Government.
It has been clearly held that licence fee shall not be included in the 'amount payable' for purposes of T.D.S. at 10% and further the payment of this fee is wholly unrelated to the amount to be paid at the time of purchasing liquor from the wholesalers. Their Lordships have also given the example of a L-14A licensee who does not purchase any liquor but merely holds a licence for which he pays a fee. Their Lordships have termed as "preposterous" a suggestion that even in such a case tax should be recovered. This takes care of the argument of the learned DR to the effect that the L-14 licensee in his books of account would treat the licence fee as an item of "purchase". We really do not appreciate the submissions on behalf of the Revenue vis-a-vis the avowed object of introducing Section 206C i.e. making assessments of persons who take contracts for sale of liquor and collecting tax. As the position of law now stands, payment of licence fee does not by itself give rise to any income generating transaction. It may be seen that the heading of sub-chapter BB of Chapter XVII in the Income-tax Act, 1961 under which Section 206C falls, gives the narration as "profits and gains from the business of trading in alcoholic liquor, forest produce, scrap etc." and it cannot cover transactions which generate no income.
7. The other argument of the learned D.R. to the effect that L-14 licensees are buyers in the first instance also falls to the ground in view of the decision taken by the jurisdictional High Court to hold otherwise. His other arguments with reference to CBDT circular No. 565 dated 11 -3-1990 are also found to be irrelevant and the reliance on the decision of the Hon'ble Himachal Pradesh High Court in the case of Gian Chartd Ashok Kumar v. Union of India [1991] 187 ITR 188 : 56 Taxman 282 is misconceived as the decision is distinguishable on facts as also on law.
8. We now come to the arguments advanced by the learned Counsel for the appellants and which according to him had not come up before the Hon'ble Punjab and Haryana High Court in the decision relied upon.
Before we come to the specific arguments, we find it necessary to highlight the salient features of Section 44AC since deleted and the provisions of Section 206C as they now stand.
9. It may be mentioned that under the provisions of Section 44AC, 40% of the amount paid or payable by the buyer of alcoholic liquor was deemed to be profits and gains of the buyer from the business of trading in such goods chargeable under the head 'profits and gains of business or profession'. Thus, the taxable event under those provisions related to the purchase price of liquor by the buyer. The expression 'purchase price' was defined to mean any amount paid or payable by the buyer to obtain the goods ie. alcoholic liquor but did not include the amount paid or payable by the buyer towards bid money in an auction or, as the case may be, the highest accepted offer in case of tender or any other mode. The said provisions were omitted by the Finance Act, 1992 w.e.f. 1-4-1993. As a result, the provisions of Section 206C were also suitably amended. It may be mentioned that under Section 206C, the liability is on the seller to collect the tax from the buyer of alcoholic liquor and certain other goods with reference to debiting of the amount payable by the buyer to the account of the buyer or receipt of such amount from the buyer in cash or by issue of a cheque, etc. The expressions 'buyer' and 'seller' have been defined in the Explanation below Section 206C. The 'buyer' means a person who obtains in any sale, by way of auction, tender or any other mode, the goods of the nature specified in the Table under Sub-section (1) or the right to receive any such goods but does not include a public sector company, a buyer in further sale of such goods and a buyer where the goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is fixed under any State Act. The 'seller' has been defined to mean the Central Government, a State Government or any local authority or corporation or any other company or firm or cooperative society. Ld. Counsel referred to the provisions of Section 44AC and pointed out that the words 'right to receive any such goods' occurred in Section 44AC(b) with reference to timber and other forest produce specified in the Table below Clause (b), as in those cases the Central Government or the State Government owned such goods and the right of exploiting the said goods was sold by them to the buyers and such Governments were treated as the sellers. He submitted that with reference to sale of alcoholic liquor, the said Governments could not be treated as sellers as they were not selling any goods to the licensees who obtained L-14 licences from the State Government for obtaining liquor in sale from the Government Distilleries or other agencies. He, therefore, urged that the Tribunal may also decide the issue that the Government cannot be treated as a seller of alcoholic liquor to L-14 licensees.
10. We have carefully considered those aspects, in the light of the amended provisions of Section 206C. We feel that the contentions of ld.Counsel have some force, inasmuch as, the words 'the right to receive any such goods' have crept into the definition of 'buyer' in the context of the goods, other than alcoholic liquor for human consumption. We feel that the definition of buyer given in the Explanation to Section 206C would only cover a person who obtained in any sale by way of auction, tender or any other mode, alcoholic liquor from the seller, as defined in Clause (b) of the Explanation. In this view of the matter, the Government cannot be treated as a seller only with reference to grant of licences to L-14 licensees. This view is in consonance with the decision of Hon'ble Punjab and Haryana High Court in the aforesaid writ petition.
11. We may also mention here the decision of the Hon'ble Himachal Pradesh High Court in the case of Rudra & Co. v. Union of India[\ 998] 233 ITR 66, wherein it has been held that Government Distilleries squarely came under the Explanation to Section 206C and it was obligatory on the part of Government Distilleries being sellers to collect income-tax from the buyers at the rates specified in Sub-section (1) of Section 206C. The said decision also lends support to the view that the definition of 'buyer' as given in Clause (a) of the Explanation would cover a person obtaining goods of the nature of alcoholic liquor from the Government or its agencies and not a person who only obtains a licence to trade in alcoholic liquor and correspondingly the seller would be the Government or its agencies or any other person who directly sells the liquor to the buyer in an auction or by any other mode.
12. In the final analysis, we quash the orders passed by the respondents under Section 206C(6) of the Income-tax Act, 1961.
13. In the result, the appeals are allowed. The registry is directed to issue the orders 'dasti' to the ld. D.R. and the assessees' Counsel.