Madhya Pradesh High Court
Government Of Madhya Pradesh vs Tax Recovery Officer And Ors. on 25 March, 2008
Equivalent citations: (2008)217CTR(MP)137
Author: Rajendra Menon
Bench: Rajendra Menon
JUDGMENT Rajendra Menon, J.
1. Shri V.K. Shukla, learned Dy. Advocate General for the petitioner/State.
2. Shri Rohit Arya, learned senior counsel with Shri S. Lal for the respondents.
3. Challenging the orders passed by the ITO and the action taken for recovery of tax, which was to be deducted at source by the State Government from persons who have been granted mining and quarry lease, this petition is filed by the State Government.
4. State Government had granted various quarry leases to private persons. The quarry leases have been granted in accordance to the Mines and Minerals (Development and Regulation) Act, 1957 and the M.P. Mining Mineral Rules, 1996, royalty as per statutory provision has been collected and in some cases the lease period has expired. Proceedings have been initiated by the IT Department on the ground that after introduction of Section 206, Sub-section (l)(c) [sic-s. 206C(1C)] in the IT Act, w.e.f. 1st Oct., 2004 by Finance Act, 2004 every person who grants lease or licence in respect of any mine or quarry to another person for the purpose of business is required to debit an amount equal to 2 per cent of the total amount payable by the licensee by way of tax and deposit the same with the IT Department, on the ground that tax from lease holders in accordance to the aforesaid provisions has not been collected, action is taken by the IT Department and therefore, the State Government has filed this petition challenging the action and demand notices issued and the coercive steps initiated for recovery of income-tax.
5. Even though the case is listed today for consideration of IA No. 2212/2008, application for dismissal of the petition filed by the respondent Department and IA No. 1027/2008 application for vacating stay, this petition is being finally heard and disposed of with consent of the parties.
6. Shri V.K. Shukla, learned Dy. Advocate General for the State made four submissions in support of the petition.
7. The first argument advanced by Shri Shukla, learned Dy. Advocate General for the State is that under Article 289 of the Constitution of India, income of State is exempt from any taxation by the Union and therefore, it is argued that the process initiated for collection of income-tax from the State Government is unsustainable in view of the aforesaid constitutional provision and on this ground action initiated is prayed to be quashed. Second argument advanced is that under Section 206C(1C) the liability to deduct tax at source and credit it to the Central Government is imposed on every person, who grants a lease or a licence or enters into a contract. Referring to definition of "person" as contained in Section 2(31) of the IT Act, 1961, Shri V.K. Shukla, learned Dy. Advocate General argued that the State Government does not fall within the purview of this definition and therefore, process initiated is unsustainable. The third limb of argument is that under Section 206C(1) only a seller is liable to collect tax at source and as the State Government is not a seller in the present case, it is argued that the action initiated by the respondents is unsustainable. It is finally argued that under the definition of "seller" which is appearing in conjunction and after the word "every person" in Section 206C(1) has been clearly defined to include the State Government and since the word seller is absent in Section 206C(1C), it is said that the word "person" in Section 206C(1C) does not include the State Government. These four contentions were advanced by the counsel for the State Government at the time of arguments.
8. Refuting the aforesaid contentions Shri Rohit Arya, learned senior counsel appearing for the Revenue argued that Article 289 exempts the State Government from paying any tax to the Union of India from the income earned by the State Government. In the present case the respondent Department is not taxing the income of the State Government but is only taking action for failure on the part of the State Government in deducting tax at source from the lease holders while making payment to them. Such action, it is argued by Shri Arya, is not covered under Article 289 of the Constitution of India and therefore, it is submitted that the first ground raised by the petitioner is wholly misconceived.
9. That apart inviting my attention to Sub-clause (2) of Article 289 Shri Arya submits that imposition of tax, authorized by Act of Parliament is permissible, as the tax is being recovered at source from the lease holders in the present case, it is argued that the respondents have not committed any error. Shri Arya further submits that the definition of any "person" appearing in Section 2(31) of the IT Act includes every "artificial juridical person" and as the State Government is a "artificial juridical person", the respondents are entitled to take action in the matter. That apart inviting my attention to the complete scheme as provided under Section 206C(1C), Shri Rohit Arya tried to demonstrate that "any person" referred to in the aforesaid scheme of Section 206C includes both the Central Government and the State Government or any other authority and therefore,-, argument advanced is said to be unsustainable.
10. As far as the State Government being not seller and applicability of Section 206C(1) is concerned, Shri Arya submits that in the present case Section 206C(1) is not applicable as it pertains to deducting tax at source with regard to profits and gains made from the business of trading in alcoholic, liquor, forest produce and scrap whereas Section 206C(1C) is applicable in this case, which pertains to mining and quarry and in the section the word "seller" is not used, Shri Arya accordingly submits that the argument advanced by Shri Shukla, learned Dy. Advocate General is misconceived and cannot be accepted.
11. Inviting-my attention to the Explanation to Section 206C and Clause (c) thereof Shri Arya, submits that seller in this Explanation includes both the Central Government and the State Government or any local authority and therefore, the entire arguments advanced are unsustainable. Shri Arya further submits that after realizing the mistake committed by the Department they have also issued a circular on 23rd Feb., 2008 directing for deduction of income at source from lease holders and this clearly indicates that the State Government has committed mistake on earlier occasion and now they are correcting the same. Accordingly, Shri Arya prays for dismissal of this petition.
12. I Have heard the learned Counsel for the parties and perused the record. From the record, it is seen that the State Government has issued various mining lease to persons for the purpose of carrying out mining and quarry operation for extraction of minerals. Royalty is charged in accordance to the statutory provisions i.e., Mines and Minerals (Development and Regulation) Act, 1957 and M.P. Mining Mineral Rules, 1996. Provision of Section 206C was incorporated vide Finance Act of 2004 w.e.f. 1st Oct., 2004. Under this section, provision is made for collection of tax at source. Section 206C(1) pertains to collection of tax with regard to profit and gains from the business of trading in alcoholic liquor, forest produce and scrap etc. and Section 206C(1C) pertains to collection of tax @ 2 per cent from contractors, licence holders or lease holders who have been granted work of parking lot, toll plaza or mining and quarrying operation. Aforesaid provisions of Section 206C(1]C) contemplates that every person, who grants a lease or a licence or enters into a contract or otherwise transfers any right or interest either in whole or in part in any parking lot or toll plaza or mine or quarry to another person, which is not a public sector company is liable to collect an amount indicated in Sub-section (1) as per table in the prescribed manner and credit it to the Central Government or the Board of Direct Taxes. In the present case, it is an admitted fact that the mining lease is granted for the purpose of carrying out mining and quarrying operations and under the aforesaid provisions tax @ 2 per cent is to be collected and credited to the Central Government. The question is as to whether the State Government would come within the purview "every person" granting lease as contemplated under this section and or the State Govt., is exempt on the grounds canvassed by Shri Shukla, learned Dy. Advocate General.
13. As far as the first argument of Shri Shukla, learned Dy. Advocate General is concerned it relates to exemption from payment of tax on income earned by the State Government as contemplated under Article 289 of the Constitution of India. This Article exempts property and income of the State Government from taxation by the Union of India. In the present case, the proposed action of the respondent Department or the Union of India is not to tax property or income of the State Government. What is being taxed in this case is income accrued by the lease holders to whom lease is granted by the State Government. It is therefore, taxing of the income earned by the lease holders on the basis of grant made by the State Government. Accordingly the provision of Article 289 of the Constitution of India will not apply, in the facts and circumstances of the present case as income or property of the State Government is not being taxed by the Impugned action.
14. As far as the second ground is concerned, "person" is defined in Section 2(31) of the IT Act and it includes an individual, an HUF, a company, a firm, an AOP or a BOI, whether incorporated or not, a local authority and every artificial juridical person, not falling within any of the preceding sub-clauses.
15. If the entire scheme of Section 206C is evaluated and the process of deducting tax at source, its accounting and submission of return is evaluated it would be seen that a person collecting tax is required to submit a return with regard to the tax deducted at source under these provisions. Sub-section (5A) contemplates that every person collecting tax as per the section is required to prepare return and deliver the tax collected to the prescribed IT authority. Sub-section (5B) contemplates a provision for submission of returns and the proviso to this section reads as under:
Provided that where the person collecting tax is a company or the Central Government or a State Government, such person shall, in accordance with the provisions of this section, deliver or cause to be delivered, within the prescribed time after the end of each financial year, such returns on computer media under the said scheme.
This proviso clearly indicates that where the person collecting tax as per the provisions of Sub-section (1C) of Section 206C is a company or the Central Government or the State Government, such person is required to deliver or cause to be delivered, within the prescribed time returns as contemplated there. Complete reading of these provisions indicate that the person collecting tax under Section 206C would include not only a company but also the Central Government and the State Government and therefore the word every person appearing in Section 206C would include both the Central Government and the State Government as these authorities are required to submit returns in accordance to this provision. Complete reading of this section along with definition of "person" clearly indicates that the State Government comes within the purview of "person" as contemplated under Section 206C and is liable to deduct tax at source from lease holders and deposit it with the Central Government in accordance to the provisions of Sub-section (3) of Section 206C(1C). That being so the argument advanced by Shri Shukla, learned Dy. Advocate General runs contrary to the legislative intent which is clear from a reading of the proviso to Sub-section (5B) of Section 206C.
16. m the case of State of Punjab v. O.G.B. Syndicate Ltd. , a question arose as to whether the word "any other person" appearing in Section 13 of the Displaced Persons (Debts Adjustment) Act, 1951 includes the Government i.e. State of Punjab. After evaluating the provisions of Article 300 of the Constitution of India and after considering the implication of Section 13 of the Act, the Supreme Court has considered the question in the following manner:
It would not be correct to say that the State is not a constitutional or even juristic entity for the reason that it does not partake the characteristics of or satisfy in whole, the definitions of a corporation. The State is an organized political institution which has several of the attributes of a corporation. Under Article 300 of the Constitution, the Government of the Union and the Government of a State are enabled to sue and be sued in the name of Union of India and of the Government of the State, as the case may be. It would not, therefore, be improper to speak of the Union and the State as constitutional entities which have attributes defined by the Constitution.
17. Thereafter considering the legislative intent and the purpose for which the Scheme was evaluated, it is held that the word "any person" appearing in the said Displaced Persons (Debts Adjustment) Act, 1951 would include the State Government.
18. Similarly in the case of Chief Conservator of Forests, Government of A.P. v. Collector and Ors. , the meaning of the word "juristic person" is concerned and the right of the Government to sue or be sued under Article 300 of the Constitution of India and Section 79 CPC is evaluated, it is held so by the Supreme Court in para 12 of the aforesaid judgment:
A Legal entity-a natural person or an artificial person-can sue or be sued in his/its own name in a Court of law or a Tribunal. It is not merely a procedural formality but is essentially a matter of substance and considerable significance. That is why there are special provisions in the Constitution and the CPC as to how the Central Government or the Government of a State may sue or be sued. So also there are special provisions in regard to other juristic persons specifying as to how they can sue or be sued.
19. A complete reading of the principles laid down by the Supreme Court in these two judgements would indicate that the State Government would be a juristic person when it comes to right of the State to institute proceedings or for instituting proceedings against the State. Similarly when the legislative intents for providing Scheme for deducting income-tax at source as contemplated under Section 206C of the IT Act is evaluated, it would be clear that every person including the State Government which is granting lease is liable to deduct income earned by any person under the lease and deposit it with the Central Government. That being so, the contentions advanced by Shri Shukla, learned Dy. Advocate General has to be rejected. The arguments with regard to word "every person" missing after the word "seller" is concerned, the words 'seller' and 'every person' under Sections 206C(1) and 206C(1C) are used with regard to different purposes. Mere absence of the word "every person" in the definition of "seller" as contained in Explanation Clause (c) to Section 206C cannot be construed to mean that the provisions of Section 206C do not apply to the State Government. The arguments advanced in this regard are misconceived. That apart once it is found by this Court that the State Government is required to deduct tax at source on income earned by lease holders as per the Scheme of the IT Act, it is not necessary now to go into other questions that have been canvassed at the time of hearing.
20. Accordingly, finding no error in the action initiated by the respondents warranting interference in this petition, petition stands dismissed.