Income Tax Act, 1961 – Explanation(a)(iii) to section 206C – Karnataka Excise Act, 1965 – Karnataka Excise (Arrack Vend Special Conditions of Licenses) Rules, 1967 – Rule 4 – Karnataka Excise (Lease of the Right of Retail Vend of Liquors) Rules, 1969 – Karnataka Excise (Manufacture and Bottling of Arrack) Rules, 1987 – By the order dated 17.01.2001, the assessing officer held that the appellant is a “seller” and the liquor vendors are “buyers” in terms of Section 206C of the Income Tax Act and hence the appellant was under a legal obligation to collect income tax at source from the liquor vendors (contractors) – The challenge to the said order dated 17.01.2001 was negatived first by the Single Judge and then by the Division Bench of the High Court – Justified or not: Held: Explanation(a)(iii) to section 206C of the Income Tax Act, 1961 visualizes two conditions for a person to be excluded from the meaning of “buyer” as per the definition in Explanation(a) – The first condition is that the goods are not obtained by him by way of auction – The second condition is that the sale price of such goods to be sold by the buyer is fixed under a state enactment – These two conditions are joined by the word ‘and’ – The word ‘and’ is conjunctive to mean that both the conditions must be fulfilled; it is not either of the two – Therefore, to be excluded from the ambit of the definition of “buyer” as per Explanation(a)(iii), both the conditions must be satisfied – In the instant case, Mysore Sales is the licensee for the manufacture and bottling of arrack for specified area(s) – By a process of auction or tender or auction-cum-tender etc., excise contractors are shortlisted who are thereafter granted permits to vend arrack by retail in their respective area(s) – These retail vendors i.e. excise contractors have to procure the arrack from the warehouse or depot maintained by Mysore Sales on payment of the issue price fixed by the Excise Commissioner – The arrack is procured in sealed bottles or in sealed polythene sachets – So, there are two transactions, each distinct – The first transaction is shortlisting of excise contractors by a process of auction etc. for the right to retail vend – The second transaction, which is contingent upon the first transaction, is obtaining of arrack for retail vending by the excise contractors on the strength of the permits issued to them post successful shortlisting following auction – Therefore, it is evidently clear that arrack is not obtained by the excise contractors by way of auction – What is obtained by way of auction is the right to vend the arrack on retail on the strength of permits granted, following successful shortlisting on the basis of auction – Thus, the first condition under clause (iii) is satisfied – Rule
4 of the 1967 Rules enables the excise contractor to sell the arrack in retail at a price within the range of minimum floor price and maximum ceiling price which is fixed by the Excise Commissioner – The price of arrack to be sold in retail is not dependent on the market forces but pre-determined within a range – Therefore, though price range is provided for by the statute, it cannot be said that because there is a price range providing for a minimum and a maximum, the sale price is not fixed – The sale price is fixed by the statute but within a particular range beyond which price, either on the higher side or on the lower side, the arrack cannot be sold by the excise contractor in retail – Since both the conditions as mandated under Explanation(a)
(iii) are satisfied, the excise contractors or the liquor vendors selling arrack would not come within the ambit of “buyer” as defined under Explanation(a) to Section 206C of the Income Tax Act – Thus, the question framed in issue for consideration, is answered in the negative by holding that Section 206C of the Income Tax Act is not applicable in respect of Mysore Sales and that the liquor vendors(contractors) who bought the vending rights from the appellant on auction cannot be termed as “buyers” within the meaning of Explanation(a) to Section 206C of the Income Tax Act – Thus, the High Court was not justified in dismissing the writ petitions and consequently, the writ appeal challenging the orders dated 17.01.2001. [Paras 14.5, 15, 15.2, 16] Income Tax Act, 1961 – Karnataka Excise Act, 1965 – Karnataka Excise (Arrack Vend Special Conditions of Licenses) Rules, 1967 – Karnataka Excise (Lease of the Right of Retail Vend of Liquors) Rules, 1969 – Karnataka Excise (Manufacture and Bottling of Arrack) Rules, 1987 – Essentials of the Principle of Natural Justice to be followed:
Held: In the instant case, though show cause notice was issued to the assessee to which reply was also filed, the same would not be adequate having regard to the consequences that such an order passed under Section 206C(6) of the Income Tax Act would entail. Even though the statute may be silent regarding notice and hearing, the court would read into such provision the inherent requirement of notice and hearing before a prejudicial order is passed – Therefore, it is held that before an order is passed under Section 206C of the Income Tax Act, it is incumbent upon the assessing officer to put the person concerned to notice and afford him an adequate and reasonable opportunity of hearing, including a personal hearing. [Para 19]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Ankit Gyan. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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