Income Tax Appellate Tribunal - Pune
Income-Tax Officer (Tds) vs Shri Bhogavati Sah. Sakhar Karkhana ... on 23 August, 2005
Equivalent citations: [2006]101ITD302(PUNE), [2006]285ITR153(PUNE), (2006)105TTJ(PUNE)366
ORDER
Mukul Shrawat, Judicial Member
1. All these appeals have been filed by the revenue arising out of a common order of CIT(A), Kolhapur, dated 26-10-1998 pertaining to the financial years 1993-94, 1994-95, 1995-96, 1996-97 and the Cross Objections have been filed by the assessee in support of the view taken by the first appellate authority. Grounds raised by the revenue are identical, hence all these appeals have been consolidated, heard together and hereby decided as follows.
2. Initially, the grounds raised by the revenue were argumentative, running into several pages, hence directed to concise the grounds and now these appeals are hereby decided as per the concise grounds.
3. Ground Nos. 1 and 2 raises the identical issue, hence combined and dealt with as follows:
1. On the facts and in the circumstances of the case the CIT(A) erred in entertaining the assessee's appeal on the face of the fact that Section 206C does not figure in the list of appeals as indicated in Section 246 of the Income-tax Act, 1961.
2. On the facts and in the circumstances of the case the CIT(A) erred in holding that appeals lie against order under Section 206C under the provisions of Section 246(1)(a) of the Income-tax Act, 1961.
Through these grounds, a technical question has been raised by the revenue that whether an order passed under Section 206C is appealable under Section 246 of Income-tax Act before the first appellate authority. According to the argument of the Id. D.R. the provisions of Section 246 of Income-tax Act do not subscribe an appeal before CIT(A). According to him, no appeal lies against an order passed under Section 206C before CIT(A). He has argued that the only option available to a tax payer under such circumstances is under Section 264 of the Income-tax Act.
4. On behalf of the assessee, the learned A.R. has mentioned that this issue was dealt with in detail by the ld. CIT(A) after considering Section 246(1)(a) of the Income-tax Act. He has also mentioned that though in the remand report the Assessing Officer himself has dropped this objection as is clear vide para 5 of the impugned order of CIT(A), but again, the revenue has raised this technical objection which otherwise should not have been raised being admitted at the stage of first appeal. In short, he has argued that vide an order passed under Section 206C, a liability has been created by the Assessing Officer and being so, entitled for appeal under Section 246(1)(a) because Section 206C is an order against the assessee where the assessee denies his liability of tax. In support of his contention, he has cited following decisions:
1. CIT v. Prakash Cotton Mills (P.) Ltd.
2. CIT v. Kanpur Coal Syndicate
3. Mandal Ginning & Processing Co. Ltd. v. CIT [1973] 90 ITR 332 (Guj.).
5. We have carefully examined the relevant provisions of the Income-tax Act in the light of arguments of both the sides and the case laws cited. An order under Section 206C was passed and through which, a short collection of tax was determined and a liability was imposed of the said amount on assessee. The fundamental question is that "denial of liability" is whether appealable under Section 246(1) of the Income-tax Act. The expression "denial of liability" is comprehensive enough to take in not only the total denial of liability but also the liability to tax under particular circumstances. In either case, the denial is denial of liability to be assessed under the provisions of Act. If we scrutinize Section 246(1)(a), then it is evident that this section has two parts. The earlier part enables a person, who has been held liable to be assessed under the Act, to prefer an appeal against such order if he denies his liability to be assessed under the Act. The latter part provides a right of appeal against the assessment itself. Sub-section (6) of Section 206C states that 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). Further, Sub-section (8) states that where the tax has not been paid as aforesaid after it is collected, the amount of the tax together with the amount of simple interest thereon referred to in Sub-section (7) shall be a charge upon all of the assets of the seller. On careful reading of these sections and Sub-sections, it is clear that that Section 206C creates a liability on the seller being a tax payer and also create a charge if an assessee is held to be liable to pay the tax which he failed to collect in accordance with the provisions of Section 206C. So a conjoint reading of Sections 206C and 246(1)(a), it emerges that in case of denial of liability, an assessee has a right of appeal. It is also equally a well-settled proposition of law that if there is any provision conferring a right of appeal, it should be read in a reasonable, practical and liberal manner. No doubt, an order under Section 206C does not figure in the list of appealable orders referred in Section 246 of the Income-tax Act, however, it must be borne in mind that Clause (a) of Sub-section (1) covers such circumstances under which an appeal lies where the liability to be assessed under the Act is being denied. So, it is obvious that mere non-mentioning of Section 206C in Section 246 by itself do not deprive an appellant a right of appeal, hence we are not in agreement with the argument of the Id. D.R. in this regard. An argument has also been raised that in the strict sense, the appellant is not an "assessee" as no assessment order has been framed, therefore, not competent to file an appeal under Section 246 of the Income-tax Act. If we go further in detail, then the answer to this question is that the term "assessee" is defined in Section 2(7) of the Income-tax Act which includes every person who is deemed to be an assessee in default under any provision of this Act, per Section 2(7)(c) of Income-tax Act. As we have mentioned Sub-sections of Section 206C, according to which, assessee was deemed to be in default in respect of collection of tax and, if applicable, collection of interest thereon, hence definitely fall under the category of Section 2(7)(c) of the Income-tax Act. In general, procedure followed by the Assessing Officer is dispatch of notice of demand along with impugned order indicating specific section of the Act under which demand was created and treating the assessee a defaulter. In case of nonpayment, ensuing procedure is the recovery of the tax imposed. So beyond doubt, a liability has actually been fastened through the laid down procedure of Income-tax Act and the assessee denies that liability so fastened upon him. With this foregoing discussion, we have examined the precedents and have found that the Hon'ble Courts have unanimously held that the denial must be of the liability determined under the Act though meant merely under any particular sections of the Act mentioned in Section 246 of the Income-tax Act. It was held that when an assessee claims that he is not liable to be proceeded against an order, then, it means that he is denying his liability to be assessed under the Income-tax Act. For this proposition, reliance is placed on the decision of Hon'ble Gujarat High Court in the case of Mandal Ginning & Pressing Co. Ltd. v. CIT [1973] 90 ITR 332. In a landmark decision, the Hon'ble Apex Court in the case of Kanpur Coal Syndicate (supra) has held, quote, "The expression 'denial of liability' is comprehensive enough to take in not only the total denial of liability but also the liability to tax under particular circumstances. In either case the denial is a denial of liability to be assessed under the provisions of the Act. In one case the assessee says that he is not liable to be assessed to tax under the Act, and in the other case the assessee denies his liability to tax under the provisions of the Act if the option given to the appropriate officer under the provisions of the Act is judicially exercised. We, therefore, hold that such an assessee has a right of appeal under Section 30 of the Act against the order of the Income-tax Officer assessing the association of members instead of the members thereof individually unquote". The Hon'ble Court in the said order has further observed that the first appellate authority has plenary powers in disposing of an appeal, the scope of his powers is co-terminus with that of the ITO. He can do what the ITO can do and can also direct him to do what he has failed to do. These observations thus squarely support the view taken by the ld. CIT(A). Next, we have found that an interesting issue was raised before the Hon'ble Bombay High Court in respect of right of appeal against quantum of penal interest charged. A fine distinction has been made by the Hon'ble Court in the case of CIT v. Prakash Cotton Mills (P.) Ltd. as follows:
An assessee has no right of appeal to the Appellate Assistant Commissioner merely against the quantum of penal interest charged, that it to say, merely for the purpose of raising a contention that the interest charged is excessive or should be reduced or should have been waived altogether, but an appeal would lie to the Appellate Assistant Commissioner if he were to deny wholly his liability to pay such interest on the ground that he is not liable to pay advance tax at all or that the amount of advance tax determined as payable by the Income-tax Officer is not correct.
So, the Hon'ble Court has opined that where a tax payer denies his liability as a whole on the ground that he is not liable to pay the tax at all, then such denial is appealable. The ratio laid down in this precedent, can be applied in the present context because the assessee has altogether denied his liability of deduction or collection of tax at source. We have taken due note of the persuasive reasonings assigned by the ld. CIT(A) and thereafter arrive at the conclusion that the applicable provisions as discussed here-in-above are not ambiguous and harmonious interpretation leads to the conclusion that the impugned order passed under Section 206C was an appealable order which was rightly adjudicated upon by ld. CIT(A), hence, in view of the foregoing reasons, we affirm his findings in this regard, resultantly revenue's grounds are dismissed.
6. Ground Nos. 3 and 5 read as follow:
3. On the facts and in the circumstances of the case of CIT(A) erred in holding that the provisions of Section 206C cannot be invoked in the case of assessee in relation to the amounts payable by buyers in whose case assessments have become final, ignoring the legislatures intention to cast specific liability on assessee in such cases as spelt out under Section 206C of the Income-tax Act, 1961.
5. On the facts and in the circumstances of the case the C1T(A) erred in holding that on the component of Excise Duty included in the sale bills the provisions of Section 206C are not applicable.
The facts lie in a small compass in respect of this ground and they are as follows. The assessee is a distillery unit manufacturing country liquor. The premises surveyed under Section 133A. Thereupon, it was found that the provisions of Section 206C had not properly been complied. According to the impugned order, it was held that every person being a seller should collect tax from the buyer at the time of debiting 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 issue of cheque or any other mode whichever is earlier. It was found that the tax collector i.e., the assessee did not follow the proper method for collection of tax from the buyer. The explanation of the assessee was that the excise duties were paid by the buyers to the State Government directly, hence the assessee had not collected the income-tax on excise component. It was also explained that the excise duty did not figure in the purchase bills issued. According to the Assessing Officer, the excise duty payable by the buyer form part of the purchase price. So, he has held that there was short deduction. He has computed the short collection of tax at source plus interest thereon and the said tax liability was demanded.
7. The first appellate authority has examined factual as well as legal aspect in detail and after an elaborate discussion, arrived at the conclusion that the excise duty was paid directly by the buyers, hence it was not the subject-matter of collection under Section 206C. Few letters of CBDT dated 28-6-1995 and 4-9-1995 have also been referred. He has arrived at a conclusion that the tax, if any collectible, has to be worked out with reference to the debit actually made by the assessee in its ledger in the accounts of respective buyers/distributors. So, he has concluded that since the excise duty payment had been made directly by the buyers to the State Government, the same did not appear in the sale register or bill book. These findings have now been challenged by the revenue.
8. We have heard the submissions of both the sides and also perused the orders of authorities below in the light of compilation filed. At the outset, our attention was drawn on an affidavit/ declaration made by the distillery in-charge wherein it was slated and affirmed that the State Excise duty on the country liquor sold had not been included in the sale bills in view of an instruction issued by the Commissioner of State Excise, Maharashtra, Bombay. This instruction was regarding payment of excise duty directly by the distributors to the treasury. Further, few sales bills have also been placed in the compilation to demonstrate that though in the prescribed proforma, a column "Excise" was present on the sales bills, however, the said column remained vacant establishing the fact that no excise duty was collected. The sales bills have only reflected the price of the goods sold. Before the authorities below, the assessee has furnished copy of an order of Bombay High Court, Nagpur Bench, and the Xerox copies of assessment orders of the parties to whom this supply was made. To arrive at the right conclusion, we have further marshalled the facts of the case and have found that the assessee is the holder of C.L.-l Licence being manufacturer of country liquor, issued by the Government of Maharashtra and its customers/distributors were holding C.L.-II Licence. Up to 24-10-1993, the manufacturers of country liquor were reportedly responsible for payment of State Excise Duty on the country liquor sold. However, on 25-10-1993, a circular was issued by the Commissioner of State Excise, Maharashtra, allowing the distributors to pay the excise duty. The admitted position is that the distributors have availed this facility and deposited the excise duty accordingly. So, the admitted position as emerges out of the order of CIT(A) is that the C.L.-II Licence holder i.e., assessee, were directly paying excise duty on country liquor in the treasury before taking delivery of the country liquor from the appellant. This fact has not been disputed from the side of the revenue. As it emerges from a letter issued by the Chief Commissioner of Income-tax, Pune dated 21-9-1995, it was clarified that wherever the excise duty is paid by the distributors in Maharashtra, they should specify in the certificate of collection of tax at source in Form No. 27D issued to the distributors and in their biannual return submitted to ITO (TDS) in Form No. 27EA in respect of the sales made by them and directed to indicate in the said Form; 1. the excise duty has been paid by the distributors in Maharashtra and 2. the excise duty does not figure in the purchase bills issued by them. The said letter has further clarified that once the manufacturer makes the declaration as prescribed above, they will not be liable to collect under Section 206C on the excise components. A certificate has also been issued in this regard by an Inspector, State Excise, dated 17-9-1997 certifying that C.L.-IT licencce pays excise duty on country liquor directly in the treasury before taking delivery of country liquor from the manufacturer. He has certified that this procedure has been implemented since 25-10-1993. Before us, in the compilation, a few correspondence in this regard have also been placed. In the impugned order, ld. CIT(A) has also referred some correspondence and the instructions issued by concerned authorities. On the basis of all those evidences, the claim of the asscssee was that the State Excise Duty did not form part of the amount debited in the appellant's books in the distributors accounts towards "amounts payable by the buyers/distributors". Contentions in this regard of the assessee appears to be correct. Even if we examine the language of Section 206C, according to which, "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." So, the important wordings in this Section are "at the time of debiting of the amount payable by the buyer or at the time of receipt of such amount". In the present context, it is an undisputed fact that at the time of debiting of the amount, it had no component of excise duty. The sales bills were issued only in respect of the price of goods sold and there was no mention of State Excise duty either at the time of issuance of sales bills or even on receipt of such amount. On the contrary, the revenue has emphasized on the term "purchase price" means any amount paid or payable by the buyer to obtain the goods referred, accordingly, the excise duty paid or payable by the buyer was held as part of purchase price by the Assessing Officer. At this juncture, it suffices to say that this meaning of purchase price cannot be applied in the context of Section 206C because the section enjoins, "at the time of debiting of the amount payable". There is no reference of "purchase price". The tax collector is simply directed through this section to collect tax on the amount payable by the buyer. So, a liability has to be imposed as prescribed in the statute and the scope of the section cannot be enlarged. In this regard, it is also worth mentioning that the ld. CIT(A) has examined this aspect as well and thereupon given a finding that the said definition of "purchase price" was in respect of Section 44AC and nothing is connected with the section under consideration. Few case laws have also been relied upon namely, Bharat Prasad Chaudhary/Shambu Prasad v. Union of India , Ramjee Prasad Sahu v. Union of India and Union of India v. A. Sanyasi Rao . In one of the decision, the observation of the Hon'ble Court was that quote "In the above view of the matter, since the sellers are entitled to receive only the cost price from the retail vendors therefore neither it is incumbent nor permissible on their part to collect any amount by way of income-tax with reference to the excise duty payable by the buyers to the Government as a measure of tax or consideration for parting with the exclusive privilege. They will be statutorily liable to collect an amount as income-tax with reference to the cost price only." [Emphasis supplied] From the aforesaid decision, it is evident that no tax is collectible at source in respect of excise duty paid by the buyer. It is worth mentioning at this juncture that various country liquor vendors holding C.L.-II Licence filed a writ petition before the Hon'ble Nagpur Bench of Bombay High Court challenging the applicability of Section 206C. The writ was filed and the Hon'ble Bench has issued an interim order to the effect that the implementation of provision contained in Section 206C be stayed and the respondent i.e., the assessee was not to collect taxes at source until further orders of the Court. The stay was vacated by the Hon'ble Court in the month of October and November 1993. Accordingly, from the month of August 1993 to November 1993, no tax was collected under Section 206. The assessee has also not included the amount of excise duty being directly paid by the distributors and no tax was collected. This legal position was accepted by the CBDT and issued letter, copies placed; on record wherein it was clarified that once manufacturer states before the ITO that the excise duty is paid by distributor in Maharashtra and the excise duty does not figure in the purchase bill, the ITO following the Board's direction containing in the letter dated 28-6-1995, will exclude the excise duty from the computation of tax to be collected under Section 206C. In this manner, the issue appears to be settled in favour of the tax collector. Now before us, a decision of Hon'ble Madhya Pradesh High Court in the case of Harvansh & Sons v. Union of India has also been cited which is almost on identical facts wherein it was held that Section 44AC was omitted on 1st April, 1993 and Section 206C has become a self contained provision. On examining the Madhya Pradesh Excise Act, it was held that when liquor is purchased from a warehouse, payment of excise duty is to be made at the rate of duty enforced on the date of the issue. Excise duty is to be paid separately to the State. The Hon'ble Court, thus, concluded that the tax has to be collected at source on the cost price of liquor excluding the amount paid towards excise duty. In view of the elaborate discussion made here-in-above and on the basis of factual backdrop duly considered by us, Ex consequenti we find no reason to differ from the stand taken by the ld. CIT(A), thus, we hold that the asscssee has not defaulted under Section 206C of the Income-tax Act. Revenue's grounds are dismissed.
9. Ground No. 4 of the appeal reads as under:
4. On the facts and in the circumstances of the case the CIT(A) erred in directing to restrict the charging of interest under Section 201(1A) in the case of buyers in whose case the assessments have been finalized to the date of their assessment.
In respect of this ground, we have perused the impugned orders and heard both the sides. The ld. CIT(A) has recorded that the asscssee has provided assessment details such as GIR Nos. in respect of 22 buyers only. It has also been mentioned by the ld. CIT(A) that the Assessing Officer has verified those details and confirmed assessment position only in respect of 12 buyers/ distributors. Considering this fact, the ld. CIT(A) has directed that wherever assessment have become final and the resulted liability of the buyers stand discharged, then there could not be any liability under Section 206C(6) on the appellant. So, he has directed to take into account the assessee's sales in relation to which the assessments of the buyers have become final and restrict the levy of interest with reference to the actual liability as per the assessed income of the distributors. He has also directed to calculate interest payable from the date of which deduction should have been made and also to calculate the interest up to the date when the distributors have actually discharged from liabilities. For reference, para 45 is also reproduced below:
45. Coming to interest charged under Section 206C(7), as brought out in paragraph 42 above, the ITO is directed to restrict the levy with reference to the actual liability (as per assessed incomes) of the buyers/distributors. The ITO will calculate interest payable from the date on which deduction should have been made. The ITO will calculate interest up to the dale(s), when the buyers/distributors actually discharged their liabilities under the Act. The discharge by way of payments made under any of the sections in Chapter XVIII or under Section 140A or on the finalisation of assessment under Sections 143(1)(a) or 143(3) should be take into account date-wise. These directions apply to only those cases where the relevant assessments have become final in the buyers' cases. In other cases, the ITO shall re-compute interest under Section 201(1A) on the tax payable, if any worked out as per directions in paragraphs 43 and 44 above.
On careful examination, we find no infirmity in such directions and the revenue should not have any grievance in respect of calculation of interest as directed by the ld. CIT(A). Before we part with, in the present context, it is also worth mentioning that now before us an order of ITO(TDS), Kolhapur dated 28-8-2000 for the assessment year 1993-94 is placed on record which is an order giving effect to the order of CIT(A), according to which, the non-collection of tax charged and interest levied under Section 206C was reduced to Rs. 'Nil'. Due to this reason as well, we find no infirmity in the directions of ld. CIT(A) as the Assessing Officer is at liberty to re-compute the levy of interest, if any, after necessary verification. Resultantly, this ground is dismissed.
10. In the result, all these appeals of the revenue are hereby dismissed.
Cross Objection Nos. 10, 11, 12, 13/PN/2000 (assessment years 1993-94 to 1996-97) All these Cross Objections have arisen out of the afore-mentioned order of CIT(A) dated 26-10-1998. As many as three grounds have been raised, however, all through of them, the finding of ld. CIT(A) in respect of each issue have been supported. Ld. A.R. has staled that no independent or fresh issue has been raised through these Cross Objections. Since we have already dismissed the revenue's appeals, hence, Cross Objections of the assessee have become redundant.
11. Appeals of the revenue and the Cross Objections of the assessee are, therefore, decided pro tanto.