Case Note & Summary
The petitioner, Maharashtra State Cooperative Tribal Development Corporation Ltd., challenged common orders of the Commissioner of Income Tax and Assistant Commissioner of Income Tax demanding interest and penalty for short payment of tax collection at source under Section 206C of the Income Tax Act, 1961. The petitioner purchased forest produce from tribals (first sellers) and sold the same by auction to third parties (second sale). The tax authorities contended that the petitioner should have collected tax at source at 15% instead of 5%. The petitioner argued that it was not a 'seller' under Explanation (a) to Section 206C, as it was a second seller, and clause (ii) of Explanation (a) excludes a buyer in a further sale from the definition of 'buyer'. The court agreed, holding that the petitioner was not liable to collect tax at source under Section 206C. The court allowed the petition, quashing the impugned orders and setting aside the demand for interest and penalty.
Headnote
A) Income Tax - Tax Collection at Source - Section 206C of the Income Tax Act, 1961 - Definition of 'Seller' - The petitioner, a cooperative corporation, purchased forest produce from tribals (first sellers) and sold it by auction to third parties (second sale). The court held that the petitioner was a 'second seller' and not a 'seller' under Explanation (a) to Section 206C, as clause (ii) of Explanation (a) excludes a buyer in a further sale from the definition of 'buyer'. Consequently, the petitioner was not liable to collect tax at source under Section 206C. The impugned orders demanding interest and penalty for short collection were set aside. (Paras 1-5)
Issue of Consideration
Whether the petitioner, a cooperative corporation purchasing forest produce from tribals and selling it by auction, is a 'seller' under Section 206C of the Income Tax Act, 1961, and thus liable to collect tax at source at the prescribed rate.
Final Decision
The petition is allowed. The impugned orders are quashed and set aside. The demand for interest and penalty is set aside.
Law Points
- Interpretation of 'seller' under Section 206C
- Second seller not liable to collect tax at source
- Applicability of Explanation (a) clause (ii) to Section 206C
Case Details
2017 LawText (BOM) (01) 127
Writ Petition No. 1576 of 2001
Smt. Vasanti A. Naik, V.M. Deshpande
Shri M.V. Samarth for petitioner, Shri Bhushan Mohta for respondents
Maharashtra State Cooperative Tribal Development Corporation Ltd.
Commissioner of Income Tax, Vidarbha, Nagpur and Assistant Commissioner of Income Tax, TDS Circle, Nagpur
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Nature of Litigation
Writ petition challenging orders demanding interest and penalty for short collection of tax at source under Section 206C of the Income Tax Act.
Remedy Sought
Petitioner sought quashing of the impugned orders and setting aside of the demand for interest and penalty.
Filing Reason
The petitioner was served with demand notices for interest and penalty for collecting tax at source at 5% instead of 15% under Section 206C.
Previous Decisions
The Commissioner of Income Tax dismissed the revision filed by the petitioner under Section 264, upholding the action of the Assistant Commissioner.
Issues
Whether the petitioner is a 'seller' under Section 206C of the Income Tax Act, 1961, and liable to collect tax at source.
Submissions/Arguments
Petitioner argued that it is not a 'seller' under Explanation (a) to Section 206C as it is a second seller, and clause (ii) of Explanation (a) excludes a buyer in a further sale from the definition of 'buyer'.
Ratio Decidendi
A second seller, who purchases goods from the first seller and sells them further, is not a 'seller' under Explanation (a) to Section 206C of the Income Tax Act, 1961, and is not liable to collect tax at source from the buyer in the further sale.
Judgment Excerpts
By this petition, the petitioner Maharashtra State Tribal Development Corporation has challenged the common orders seeking recovery of the tax, interest and penalty under the provisions of Section 206C of the Income Tax Act, 1961.
It is submitted that the petitioner Corporation is required to purchase certain forest produce and goods from the tribals and the individual tribal is the first seller and the petitioner Corporation that had sold the said produce by auction to third parties is the second seller.
In view of clause (ii) of Explanation (a), a buyer in the further sale of goods obtained in pursuance of a sale would not be included within the term 'buyer', as defined in Explanation (a).
Procedural History
The Assistant Commissioner of Income Tax issued demand notices for interest and penalty for short collection of tax at source under Section 206C. The petitioner filed a revision before the Commissioner of Income Tax under Section 264, which was dismissed. The petitioner then filed the present writ petition challenging the orders.
Acts & Sections
- Income Tax Act, 1961: 206C, 264
