DIRECT TAXES CIRCULAR

Section 206C l Profits And Gains From Business of Trading
In Alcoholic liquor, Forest Produce, etc.

1198. Instructions regarding deduction of tax at source on profits and gains from the business of trading in alcoholic liquor, forest produce, etc.

Clarification I

1. Considerable difficulty has been felt in the past in assessing income of persons who take contracts for sale of liquor, forest produce, etc. It has been the Department’s experience that for taking such contracts, firms or associations of persons are specifically constituted and very often no trace is left of 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 on the incomes of the previous years, the time by which the incomes from such sources become assessable, such persons become untraceable. Moreover, at the time of assessment years in these cases, either the accounts are not available or they are mostly 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 the persons in whose names contracts were taken are men of no means. With a view to combating large scale tax evasion by persons deriving incomes from such business, the Finance Act, 1988 has inserted a new section 44AC to provide for determination of income in such cases. Further, with a view to facilitating collection of taxes from such assessees, the Finance Act, 1988 has inserted a new section 206C to provide for collection of such tax at source.

2. Sections 44AC and 206C are reproduced below :—

“(1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in case of an assessee, being a person other than a public sector company (hereafter in this section referred to as the buyer), obtaining in any sale by way of auction, tender, or any other mode, conducted by any other person or his agent (hereafter in this section referred to as the seller),—

(a) any goods in the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor a sum equal to forty per cent of the amount paid or payable by the buyer as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head ‘Profits and gains of business or profession’;

(b) the right to receive any goods of the nature specified in column (2) of the Table below, or such goods as the case may be, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table of the amount paid or payable by the buyer in respect of the sale of such right or as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head ‘Profits and gains of business or profession’.

Table

Sl. No.	Nature of goods	Percentage
(1)	(2)	(3)
(i)	Timber obtained under a forest lease	Thirty-five per cent
(ii)	Timber obtained by any mode other than under a forest lease	Fifteen per cent
(iii)	Any other forest produce not being timber	Thirty-five per cent

(2) For the removal of doubts, it is hereby declared that the provisions of sub-section (1) shall not apply to a buyer (other than a buyer who obtains any goods from any seller which is a public sector company) in the further sale of any goods obtained under or in pursuance of the sale under sub-section (1).

(3) In a case where the business carried on by the assessee does not consist exclusively of trading in goods to which this section applies and where separate accounts are not maintained or are not available, the amount of expenses attributable to such other business shall be an amount which bears to the total expenses of the business carried on by the assessee the same proportion as the turnover of such other business bears to the total turnover of the business carried on by the assessee.

Explanation : For the purposes of this section, ‘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”.

The provisions of this section will apply only to an assessee being a person other than a public sector company, referred to as “buyer” of any goods in the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor) or such goods as are mentioned in clause (b) of sub-section (1) of section 44AC, at the point of first sale. The provisions of this section shall not apply to any buyer in the second or subsequent sale of such goods. This amendment will take effect from 1st April, 1989 and will accordingly apply to assessment year 1989-90 and subsequent years :

“(1) Every person, being a seller referred to in section 44AC, shall, at the time of debiting of the amount payable by the buyer referred to in that section 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 on income comprised therein :

Table

Sl. No.	Nature of goods	Percentage
(1)	(2)	(3)
(i)	Alcoholic liquor for human consumption (other than Indian-made foreign liquor)	Fifteen per cent
(ii)	Timber obtained under a forest lease	Fifteen per cent
(iii)	Timber obtained by any mode other than under a forest lease	Ten per cent
(iv)	Any other forest produce not being timber	Fifteen per cent :

Provided that where the Assessing Officer, on an application made by the buyer, gives a certificate in the prescribed form that to the best of his belief any of the goods referred to in the aforesaid table are to be utilised for the purposes of manufacturing, processing or producing articles or things and not for trading purposes, the provisions of this sub-section shall not apply so long as the certificate is in force.

(2) The power to recover tax by collection under sub-section (1) shall be without prejudice to any other mode of recovery.

(3) Any person collecting any amount under sub-section (1) shall pay within seven days the amount so collected to the credit of the Central Government or as the Board directs.

(4) Any amount collected in accordance with the provisions of this section and paid under sub-section (3) shall be deemed as payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to him for the amount so collected on the production of the certificate furnished under sub-section (5) in the assessment made under this Act for the assessment year for which such income is assessable.

(5) Every person collecting tax in accordance with the provisions of this section shall, within ten days from the date of debit or receipt of the amount, furnish to the buyer to whose account such amount is debited or from whom such payment is received, a certificate to the effect that tax has been collected, and specifying the sum so collected, the rate at which the tax has been collected and such other particulars as may be prescribed.

(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).

(7) Without prejudice to the provisions of sub-section (6), if the seller does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest at the rate of two per cent per month or part thereof on the amount of such tax from the date on which such tax was collectable to the date on which the tax was actually paid.

(8) Where the tax has not been paid as aforesaid, after it is collected, the amount of tax together with the amount of simple interest thereon referred to in sub-section (7) shall be charged upon all the assets of the seller.”

It may be noted that the sum collected at source in accordance with the provisions of section 206C should be increased by a surcharge for the purpose of the Union calculated on the income-tax at the rates in force. Tax is required to be collected from the buyer either at the time of debiting the said amount to the account of the buyer or at the time of receipt of that amount from the buyer, whichever is earlier. This mode of recovery of tax shall be without prejudice to any other mode of recovery. The tax so collected by the seller shall be paid to the credit of the Central Government or as the Board directs within 7 days from the date of collection. It will be treated as tax paid on behalf of the person from whom the tax had been collected and credit shall be given for such amount in the assessment made under the Income-tax Act on production of a certificate. This section also provides that if a seller does not collect or after collecting fails to pay the tax, he shall be deemed to be an assessee in default in respect of the tax and the amount of tax together with the amount of simple interest calculated at the rate of 2 per cent per month or part thereof shall be a charge upon the assets of the seller. It may be noted that failure to pay the tax collected at source will attract the penal provisions of section 276B according to which such a person will be punishable with rigorous imprisonment, for a term between 3 months and 7 years and with fine.

This amendment will be effective from 1st June, 1988.

The Board by Notification No. SO 557(E), dated 9th June, 1988 has made necessary amendments in the Income-tax Rules, 1962 in this regard. It may be noted that failure to pay tax collected at source, a new challan form has been devised.*

Circular : No. 525, dated 24-11-1988.

Clarification II

1. Attention is invited to this Department’s Circular No. 525, dated 24-11-1988 wherein the rates at which collection of income-tax have to be made at source during the financial year 1988-89 in respect of profits and gains from the business of trading in alcoholic liquor (other than Indian-made foreign liquor), timber and other forest produce were communicated.

2. Subsequent to the issue of the aforesaid circular, the Direct Tax Laws (Amendment) Act, 1989 substituted the words “Ten per cent” by words “Five per cent” occurring in column 3 against item (iii) of the table below sub-section (1) of section 206C of the Income-tax Act, thereby providing that in respect of the timber obtained by any mode other than forest lease, income-tax shall be collected at the rate of 5 per cent of the purchase price payable by the buyer. The said amendment has come into effect from 1-6-1988. The Direct Tax Laws (Amendment) Act has also inserted a new sub-section (5A) in section 206C to provide that every person collecting tax in accordance with the provisions of section 206C shall prepare half-yearly returns for the period ending on the 30th September and 31st March in each financial year and deliver or cause to be delivered to the prescribed income-tax authority such returns in such form and verified in such manner and setting forth such particulars as may be prescribed in the rules. It may also be added that the Direct Tax Laws (Amendment) Act has inserted a proviso to clause (a) of sub-section (1) of section 44AC of the Income-tax Act which provides that clause (a) relating to determination of profits in the trading of goods, in the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor) at 40 per cent of the purchase price, shall not apply where the goods are not obtained by way of auction and where the sale price of such goods as sold by the buyer is fixed by or under any State Act. In such cases, tax will not be required to be collected under section 206C.

3. Subject to the amendments/modifications mentioned in para 2 above, the instructions contained in the Department’s Circular No. 525, dated 24-11-1988 will be applicable during the current financial year also i.e., 1989-90. It may be noted that as per the provisions of the Finance Act, 1989 in cases in which tax has to be collected under section 206C, the collection shall be made at the rates specified in that section, i.e., at the rate of 15 per cent of the amount payable by the buyer (at the rate of 5 per cent in the case of timber obtained by any mode other than forest lease), and it shall be further increased by surcharge for the purpose of the Union calculated at the rate of 8 per cent of such collection.

4. It may also be mentioned that the tax so collected is to be paid within seven days to the credit of the Central Government, as provided in sub-section (3) of section 206C. Failure to do so attracts prosecution under section 276BB of the Income-tax Act. Failure to collect the tax from the buyers of the goods mentioned in sections 44AC and 206C makes the “seller” of the goods responsible for paying the tax to the Central Government in terms of sub-section (6) of section 206C.

Circular : No. 535, dated 26-6-1989.

Clarification III

1. Attention is invited to this Department’s Circular No. 525, dated 24-11-1988 and No. 535, dated 26-6-1989, wherein the provisions relating to collection of income-tax at source under section 206C of the Income-tax Act in respect of profits and gains from the business of trading in alcoholic liquor, forest produce, etc. were communicated.

2. According to sub-section (5A) of section 206C, every person collecting tax in accordance with the provisions of the said section shall prepare half-yearly returns for the period ending on 30th September and 31st March in each financial year and deliver or cause to be delivered to the prescribed income-tax authority, the said returns in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed. A new rule 37E prescribing the half-yearly returns regarding tax collected at source u/s 206C(5A) and another rule 37F prescribing the income-tax authorities to whom these half-yearly returns are to be furnished, have been inserted by the Income-tax Rules, 1962, vide Notification No. S.O. 149(E), dated 19-2-1990. These half-yearly returns are to be filed within one month from the end of the period to which the returns relate.

Circular : No. 565, dated 11-7-1990.

Clarification IV

1. Reference is invited to Board’s Circular No. 565, dated 11-7-1990 regarding collection of income-tax at source under section 206C of the Income-tax Act in respect of profits and gains from the business of trading in alcoholic liquor, forest produce etc., as also to earlier Circulars referred to in paragraph 1 of Circular No. 565.

2. As a result of different systems prevailing in different States, the term “purchase price”, used in section 44AC of the Income-tax Act was being understood in different ways. In order to clarify this point, the Finance Act, 1990 has amended the said section to provide that the purchase price would mean any amount (by whatever name called) paid or payable by the buyer to obtain the goods referred to in that section, except the bid amount in an auction. Accordingly, the excise duty paid or payable by the buyer will also form part of the purchase price for the purposes of section 44AC. On the same analogy, the “Nirgam Mulya” or Issue Price which is paid by a buyer in the State of Uttar Pradesh will also form part of the purchase price. Thus, income-tax will have to be collected at source under the provisions of section 206C by all persons referred to in section 44AC of the Income-tax Act, 1961 (e.g. Central Government, State Government, local authority, corporations, etc.) at the specified rates, with reference to the purchase price including the excise duty, etc.

3. The above amendment has come into force with effect from the assessment year 1991-92 and, therefore, will be applicable to the collections under section 206C made during the financial year 1990-91.

4. The Finance Act, 1990 has further amended section 44AC so as to include a “co-operative society” also within the meaning of the term “seller” as defined therein. The said amendment has also come into effect from assessment year 1991-92 and will, accordingly, apply to collections made under section 206C during the financial year 1990-91.

Circular : No. 585, dated 27-11-1990.

Judicial analysis

Explained in - The above circular was explained in Badhar Khan Pukhraj v. Deputy Commissioner (Asstt.) [1993] 112 Taxation 74 (Trib.), in the following words :

“17. The above circular clearly shows that since the provisions of section 44AC were being understood in different ways, a necessity of clarifying the position was felt. In view of this state of affairs regarding the scope and application of section 44AC it would not be unreasonable to hold that a substantial point of dispute was there, involved in the assessment in this case, and that the nature of such dispute went beyond the scope of “adjustment” contemplated under section 143(1) and which could have been made by “rectifying an arithmetical error” in the return. In that sense of the matter there existed mistake apparent from record in the intimation sent by the DC (Asstt.) under section 143(1) after making “adjustments”. In fact, the existence of such a mistake or error apparent from record was appreciated in his second order dated 2-1-1992 by the Assessing Officer himself when he corrected or rectified the mistake regarding inclusion of cost price of Rum in the computation of “purchase price”. We are thus satisfied that the order under appeal which has the effect of upholding the legality and validity of intimation sent under section 143(1) is not correct in law and is required to be vacated. We hold accordingly and direct that the addition of Rs. 1,05,39,059 made by the DC (Asstt.) by way of making “adjustments” be cancelled.” (pp. 80-81)

Clarification V

1. Attention is invited to the Board’s Circular No. 565, dated 11-7-1990 regarding collection of income-tax at source under section 206C of the Income-tax Act, in respect of profits and gains from the business of trading in alcoholic liquor, forest produce, etc. and filing of half-yearly returns in this regard.

2. The Finance (No. 2) Act, 1991 does not make any change in the rates of tax applicable for the collection of tax at source under section 206C for the financial year 1991-92. These rates and other relevant provisions are enumerated below.

3. Sub-section (1) of section 206C lays down that every person, being a seller referred to in section 44AC shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at time of receipt of such amount from the said buyer in cash or by issue of cheque or draft or by any other mode, whichever is earlier, collect from the buyer of the goods of the nature specified below, a sum equal to the percentage, as mentioned against each, of such amount as income-tax on the income comprised therein :

(i) Alcoholic liquor for human consumption (other than Indian-made foreign liquor) 15%

(ii) Timber obtained under a forest lease 15%

(iii) Timber obtained by any mode other than under a forest lease 5%

(iv) Any other forest produce not being timber 15%

Further, according to the provisions of the Finance (No.2) Act, 1991, the amount of tax collectible at source at the aforesaid rates shall be increased by a surcharge at the rate of 15 per cent where the buyer is a domestic company and 12 per cent in respect of other buyers.

4. It may be clarified that “seller” for the aforesaid purpose means the Central Government or 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. It is also clarified that the provisions of section 44AC, and, consequently, those of section 206C will apply only to an assessee being a person (as defined in the Act) other than a public sector company, referred to as ‘buyer’ of any goods, in the preceding paragraph, at the point of first sale and not in the case of second or subsequent sale of such goods.

5. It is further clarified that in the case of goods of the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor), the aforesaid provisions shall not apply to a buyer where such goods are not obtained by him by way of auction and where the sale price of such goods to be sold (further) by the buyer is fixed by or under any State Act.

6. It is also clarified that where the Assessing Officer, on an application made by the buyer, gives a certificate in the prescribed form that to the best of his belief, any of the goods referred to above are to be utilised for the purpose of manufacturing, processing or producing articles or things and not for trading purposes, the provisions of sub-section (1) of section 206C shall not apply so long as the certificate remains in force. Reference in this regard may be made to rule 37C of the Income-tax Rules, 1962 and Form No. 27C prescribed thereunder.

7. The responsibilities, obligations, etc., under the Income-tax Act of the person collecting tax at source under section 206C, are as follows :

(a) According to the provisions of sub-section (3) of section 206C, any person collecting any amount, as aforesaid, shall pay within seven days the amount so collect to the credit of the Central Government or as the Board directs.

(b) According to the provisions of sub-section (5) of section 206C, every person collecting tax as aforesaid shall within ten days from the date of debit, or receipt of the amount, furnish to the buyer to whose account such amount is debited, or, from whom such payment is received, a certificate to the effect that tax has been collected, specifying the sum so collected and the rate at which the tax has been collected and such other particulars as may be prescribed. On production of this certificate by the buyer, credit shall be given to him for the amount so collected in the assessment made under the Act for the assessment year for which such income is assessable. Reference in this regard may be made to rule 37D of the Income-tax Rules, 1962 and Form No. 27D prescribed thereunder.

If a person fails to issue the certificate of tax collected at source by him, as aforesaid, he shall be liable to pay by way of penalty under section 272A, a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for every day during which the failure continues.

(c) If any person responsible for collecting tax under the provisions of section 206C fails to collect the tax, he shall still be liable in terms of sub-section (6) of section 206C to pay the tax to the credit of the Central Government within the period of seven days referred to in sub-para (a) above.

(d) If the seller fails to collect the tax, or, after collecting the tax, fails to pay it to the credit of the Central Government he shall be liable in terms of sub-section (7) of section 206C to pay simple interest @ 2% per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which such tax was actually paid. Further, section 276BB lays down that if a person fails to pay to the credit of the Central Government the tax collected by him as required under the provisions of section 206C, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years and with fine.

8. Sub-section (5A) of section 206C lays down that every person collecting tax in accordance with the provisions of the said section shall prepare half-yearly returns for the period ending on 30th September and 31st March in each financial year, and, deliver or cause to be delivered to the designated/concerned Assessing Officer the said returns. Under rule 37E of the Income-tax Rules, 1962, these returns are to be furnished in Form No. 27EA, 27EB, 27EC or 27ED relating respectively to alcoholic liquor for human consumption, timber obtained under a forest lease, timber obtained by any mode other than under a forest lease, or, any other forest produce not being timber, as the case may be, within a period of 1 month from the end of the half-yearly period to which the return relates.

If a person fails to furnish the aforesaid returns in time, he shall be liable to pay by way of penalty, under section 272A, a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for every day during which the default continues. However, the penalty shall not exceed the amount of tax which was collectible at source.

9.These instructions are not exhaustive and are issued only with a view to helping the persons responsible for making collection of tax at source under section 206C. Wherever, there is any doubt, a reference may be made to the relevant provisions of the Income-tax Act, 1961, and the Finance (No. 2 ) Act, 1991. In case any assistance is required, the Assessing Officer concerned or local Public Relations Officer of the Income-tax Department may be approached.

Circular : No. 620, dated 6-12-1991.

Clarification vi

1. Attention is invited to the Board’s Circular No. 620, dated 6-12-1991 regarding collection of income-tax at source under section 206C of the Income-tax Act, in respect of profits and gains from the business of trading in alcoholic liquor, forest produce, etc., during the financial year 1991-92.

2. The Finance Act, 1992 does not make any change in the rates of tax applicable for the collection of tax at source under section 206C for the financial year 1992-93. However, section 44AC, which was hitherto interlinked with section 206C, has been deleted by the Finance Act, 1992. Simultaneously, certain amendments consequential to the deletion of section 44AC have been made in section 206C.

3.1 Sub-section (1) of the amended section 206C enjoins that 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 :

Table

Sl. No.	Nature of goods	Percentage
(1)	(2)	(3)
(i)	Alcoholic liquor for human consumption (other than Indian-made foreign liquor)	Fifteen per cent
(ii)	Timber obtained under a forest lease	Fifteen per cent
(iii)	Timber obtained by any mode other than under a forest lease	Five per cent
(iv)	Any other forest produce not being timber	Fifteen per cent

3.2 The term “buyer” in section 206C is defined 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 referred above or the right to receive any such goods but does not include :

(i) a public sector company,

(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.

3.3 The term “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.

4. The amount of tax collectible at source at the rates referred to in paragraph 3.1 shall be increased by a surcharge at the rate of 15 per cent where the buyer is a domestic company and at the rate of 12 per cent in respect of other buyers.

5. It is clarified that the provisions of sub-section (1) of section 206C in relation to a buyer will not apply to a public sector company, and, to any other buyer who obtains the said goods at a second or subsequent sale of such goods. Thus, these provisions will apply only at the point of the first sale of such goods.

6. It is also clarified that where the Assessing Officer, on an application made by the buyer, gives a certificate in the prescribed form that, to the best of his belief, any of the goods referred to in the Table in paragraph 3.1 are to be utilised for the purpose of manufacturing, processing or producing articles or things and not for trading purposes, the provisions of sub-section (1) of section 206C shall not apply so long as the certificate remains in force. Reference in this regard may be made to rule 37C of the Income-tax Rules, 1962, and Form No. 27C prescribed thereunder.

7. The responsibilities, obligations, etc., under the Income-tax Act of the person collecting tax at source under section 206C, are as follows :

(a) Any person collecting any amount under section 206C (1) shall pay within seven days the amount so collected to the credit of the Central Government or as the Board directs.

(b) Every person collecting tax shall from the date of debit or within ten days of receipt of the amount, furnish to the buyer to whose account such amount is debited, or, from whom such payment is received, a certificate to the effect that tax has been collected, specifying the sum so collected and the rate at which the tax has been collected and such other particulars as may be prescribed. On production of this certificate by the buyer, credit shall be given to him for the amount so collected in the assessment made under the Act for the assessment year for which such income is assessable. Reference in this regard may be made to rule 37D of the Income-tax Rules, 1962 and Form No. 27D prescribed thereunder. If a person fails to issue the certificate of tax collected at source by him he shall be liable to pay by way of penalty, under section 272A, a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for every day during which the failure continues.

(c) If any person responsible for collecting tax fails to collect the tax, he shall still be liable to pay in terms of sub-section (6) of section 206C, the tax to the credit of the Central Government within the period of seven days referred to in sub-para (a) above.

(d) If the seller fails to collect the tax, or, after collecting the tax, fails to pay it to the credit of the Central Government, he shall be liable in terms of sub-section (7) of section 206C to pay simple interest @ 2 per cent per month or part thereof, on the amount of such tax from the date on which such tax was collectible to the date on which such tax was actually paid. Further, section 276BB lays down that if a person fails to pay to the credit of the Central Government the tax collected by him as required under the provisions of section 206C, he shall be punishable with rigorous imprisonment for a term which shall not be less than 3 months and which may extend up to 7 years and with fine.

(e) Every person collecting tax shall prepare half-yearly returns for the period ending on 30th September and 31st March in each financial year, and, deliver or cause to be delivered to the designated/concerned Assessing Officer the said returns. Under rule 37E of the Income-tax Rules, 1962, these returns are to be furnished in Form No. 27EA, 27EB, 27EC or 27ED relating respectively to alcoholic liquor for human consumption, timber obtained under a forest lease, timber obtained by any mode other than under a forest lease, or, any other forest produce not being timber, as the case may be, within a period of one month from the end of the half-yearly period to which the return relates.

(f) If a person fails to furnish the half-yearly returns in time, he shall be liable to pay by way of penalty, under section 272A, a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for each day during which the default continues. However, the penalty shall not exceed the amount of tax which was collectible at source.

8. These instructions are not exhaustive and are issued only with a view to helping the persons responsible for collecting tax at source under section 206C. Wherever, there is any doubt, a reference may be made to the relevant provisions of the Income-tax Act, 1961, and the Finance Act, 1992. In case any assistance is required, the Assessing Officer concerned or local Public Relations Officer of the Income-tax Department may be approached.

Circular : No. 634, dated 20-8-1992.

Clarification VII

1. Attention is invited to the Board’s Circular No. 634, dated 20-8-1992 regarding collection of income-tax at source under section 206C of the Income-tax Act, in respect of profits and gains from the business of trading in alcoholic liquor, forest produce, etc., during the financial year 1992-93.

2. The Finance Act, 1993 does not make any change in the rates of tax applicable for the collection of tax at source under section 206C for the financial year 1993-94.

3.1 Sub-section (1) of section 206C enjoins that 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 Table, of such amount as income-tax :

Table

Sl. No.	Nature of goods	Percentage
(1)	(2)	(3)
(i)	Alcoholic liquor for human consumption (other than Indian-made foreign liquor)	Fifteen per cent
(ii)	Timber obtained under a forest lease	Fifteen per cent
(iii)	Timber obtained by any mode other than under a forest lease	Five per cent
(iv)	Any other forest produce not being timber	Fifteen per cent

(i) a public sector company,

(ii) a buyer in the future 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.”

4.The amount of tax collectible at source at the rates referred to in paragraph 3.1 shall be increased by a surcharge at the rate of 15 per cent where the buyer is a domestic company and at the rate of 12 per cent in respect of other buyers.

5. It may be noted that the provisions of sub-section (1) of section 206C in relation to a buyer will not apply to a public sector company, and, to any other buyer who obtains the said goods at a second or subsequent sale of such goods. Thus, these provisions will apply only at the point of the first sale of such goods.

7. The responsibilities, obligations, etc., under the Income-tax Act, of the person collecting tax at source under section 206C, are as follows :

(a) Any person collecting any amount under section 206C (1) shall pay within seven days the amount so collected to the credit of the Central Government, or, as the Board directs.

(b) Every person collecting tax shall, within ten days from the date of debit, or, receipt of the amount, furnish to the buyer to whose account such amount is debited, or, from whom such payment is received, a certificate to the effect that the tax has been collected, specifying the amount of tax and the rate at which it has been collected, and, such other particulars as may be prescribed. This certificate has to be issued in Form No. 27D prescribed under rule 37D of the Income-tax Rules, 1962. On production of this certificate by the buyer, credit shall be given to him for the amount so collected, in the assessment made under the Act for the assessment year for which such income is assessable. If a person fails to issue the certificate of tax collected at source by him, he shall be liable to pay, by way of penalty, under section 272A(2), a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for every day during which the failure continues.

(c) If any person responsible for collecting tax fails to collect the tax, he shall himself be liable to pay, in terms of sub-section (6) of section 206C, the tax to the credit of the Central Government within the period of seven days referred to in sub-para (a) above.

(d) If the seller fails to collect the tax, or, after collecting the tax, fails to pay it to the credit of the Central Government, he shall be liable in terms of sub-section (7) of section 206C to pay simple interest @ 2 per cent per month or part thereof, on the amount of such tax from the date on which such tax was collectible to the date on which such tax is actually paid. Further, section 276BB lays down that if a person fails to pay to the credit of the Central Government the tax collected by him as required under the provisions of section 206C, he shall be punishable with rigorous imprisonment for a term which shall be not less than three months but which may extend up to 7 years, and with fine.

(e) Every person collecting tax shall prepare half-yearly returns for the period ending on 30th September and 31st March in each financial year, and, deliver or cause to be delivered to the designated/concerned Assessing Officer, the said returns. Under Rule 37E of the Income-tax Rules, 1962, these returns are to be furnished in Form No. 27EA, 27EB, 27EC or 27ED relating respectively to alcoholic liquor for human consumption, timber obtained under a forest lease, timber obtained by any mode other than under a forest lease, or, any other forest produce not being timber, as the case may be, within a period of one month from the end of the half-yearly period to which the return relates.

(f) If a person fails to furnish the half-yearly returns in time, he shall be liable to pay by way of penalty, under section 272A(2) a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for each day during which the default continues. However, the penalty shall not exceed the amount of tax which was collectible at source.

8. These instructions are not exhaustive and are issued only with a view to helping the persons responsible for collecting tax at source under section 206C. Whenever there is any doubt, reference may be made to the relevant provisions of the Income-tax Act, 1961, and Income-tax Rules, 1962. In case any assistance is required, the Assessing Officer concerned or the local Public Relations Officer of the Income-tax Department may be contacted.

Circular :No. 660, dated 15-9-1993.

Judicial analysis

Explained in - In Satya Pal Amrik Singh & Co. v. Union of India [1997] 228 ITR 653 (Punj. & Har.), the Court referred to paragraph 5 of the above circular, and observed :

“. . . Vide circular dated September 15, 1993, the Central Board of Direct Taxes has clarified that section 206C(1) of the Act in relation to the buyer will not apply to public sector undertakings/companies and to any other buyer who obtains goods at a subsequent sale of such goods and the provisions of section 206C will apply only at the time of first sale. Admittedly, CITCO is a public sector undertaking and, therefore, the provisions of section 206C are not attracted in its case. If this position of CITCO is taken into consideration in the light of our finding that the sale of liquor by CITCO to L-14 licensees falls within the expression “subsequent sale” as used in paragraph 5 of the circular issued by the Central Board of Direct Taxes, there can be no escape from the conclusion that the deduction of tax at source from the petitioners is illegal and without jurisdiction. As a logical corollary, it has to be held that the provisions of section 206C as amended by the Finance Act, 1992, are not available to the Income-tax Department to compel CITCO to deduct income-tax at source from the petitioners.” (p. 663)