DIFFERENCE BETWEEN ‘OCTROI’ AND ‘TOLL’ - Collection of Tax at Source u/s 206C

[Mr. M. GOVINDARAJAN]

‘Octroi’ is normally collected on account of goods entering the corporation limits for use, consumption or sale.  ‘Toll’ is normally collected on account of use of the roads by animals and humans. 

The seventh schedule of the Constitution of India empowers the State to levy octroi as found in Entry 52 of List II thereof.  Entry 59 of List II of seventh schedule of the Constitution of India empowers the State to collect tolls.

The issue to be discussed in this article is whether the ‘octroi’ and ‘toll’ are same or different with reference to decided case law as below-

In ‘Commissioner of Income Tax (TDS) V. Commissioner, Akola Municipal Corporation’ – 2017 (8) TMI 418 - BOMBAY HIGH COURT the respondent is the Municipal Corporation for the town Akola.  For the assessment years the respondent entered into a contract called agency agreement, by virtue of which the respondent appointed an agent to provide service of collecting octroi on its behalf.  The same was collected at the rates fixed for which the necessary receipts are also issue in the name of the respondent.  The entire amount collected by the agent is remitted to the respondent.  The agent is entitled to a commission depending upon the quantum of octroi collected during the year.

The Revenue issued notices to the respondent assessee for the subject assessment years asking it to show cause why it should not be held liable to pay the tax collected at source under section 206C(1C) of the Act.    The basis of the notice was that the amount collected by the agent as ‘octroi’ and handed over the respondent were subject to tax collection at source in terms of section 206C(1C) of the Act. 

The Income Tax Officer held that the respondent was liable to collect tax from its agents during three years from 2005 – 06 to 2007 – 08 at the prescribed rate on the amount received from its agent along with interest.  The demand was confirmed for ₹ 1.09 crores as the tax being collectible at source by the respondent and interest of ₹ 15.96 lakhs. 

The respondent filed an appeal before the Commissioner (Appeals).  The Commissioner (Appeals) confirmed the order of the Original Authority.  The respondent again filed an appeal before the Tribunal.  The Tribunal allowed the appeal of the respondent.  The Tribunal held that section 206C(1C) obliges a person who grants an agency/licence or any other manner transfers his right in respect of parking lot, toll, plaza or a mine and quarry to another person, then while receiving the amount so collected, the respondent should also collect tax at source.   However, the above obligation is restricted to parking lots, toll plazas and mine or quarry.  It does not extend to octroi.  The Tribunal draws a distinction between ‘toll plaza’ and ‘octroi’ as popularly understood.  Therefore it concludes that a collection of toll to which section 206C(1C) applies cannot be extended to a transfer of right to collect octroi through an agency.  The Tribunal allowed the appeal of the respondent.

Aggrieved against the order of the Tribunal the Revenue filed appeal before the High Court.  The Revenue raised the following substantial questions of law-

• Whether the Tribunal is correct in law in holding that there is no liability to collect tax at source under section 206C(1C) of the Income Tax Act, 1961 in respect of octroi collected by the agent appointed by the assessee?
• Whether on the facts and circumstances of the case, the Tribunal is justified in holding that ‘octroi’ collectible by the assessee is different than ‘toll’ leviable by the assesse and thus is not within the ambit of section 206C(1C) of the Income Tax Act, 1961?

The Revenue put forth the following arguments before the High Court-

• There is no difference between ‘octroi’ and ‘toll’;
• ‘Toll’ is a generic name while ‘octroi’ is a species  thereof;
• As such section 206 C (1C) of the Act obliges a person to collect tax in respect of toll collected by an agent is to be equally applied to collection of octroi by an agent;

The respondent contended that legally and commercially toll is considered to be distinct and differ from an octroi.  Therefore there is no occasion to interfere with the order of the Tribunal.

           The High Court analyzed the provisions of Section 206 C (1C) of the Act. Section 206C(1C) provides 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, other than a public sector company for the use of such parking lot or toll plaza or mine or quarry for the purpose of business shall, at the time of debiting of the amount payable by the license or lessee to the account of the licensee or lessee or at the time of receipt of such amount from the licensee or lessee in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the licensee or lessee or any such licence, contract or lease 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 contract or licence or lease etc.,	Percentage
1	Parking lot	2%
2	Toll plaza	2%
3	Mining and quarrying	2%

The High Court analyzed the judgments of various High Courts and Supreme Court in regard to interpretation of fiscal statutes.  The fiscal statutes are strictly to be construe.  In a taxing Act one has to look merely at what is clearly said.  There is no room for any intendment.  There is no equity about a tax.  There is no presumption as to tax.   Nothing is to be read in, nothing is to be implied.   One can only look fairly at the language used.

The High Court held that the language of a taxing statute should ordinarily be read understood in the sense in which it is harmonious with the object of the statute to effectuate the legislative animation.  A taxing statute should be strictly construed; common sense approach, equity, logic, ethics and morality have no role to play.    Thus the case at hand the inescapable conclusion is that section 206 C(1C) of the Act only obliges a person to collect tax from its agents who collects a toll on its behalf.  The obligation to collect tax under section 206C (1C) cannot be extended to collection of octroi.  The Legislature when it brought in section 206C (1C) of the Act has not authorized the collection of tax at source in respect of octroi.  It specifically restricted its obligation to only three categories, namely, parking, toll plaza, mining and quarrying.    There is no legislative mandate to collect tax at source or the octroi collected under section 206C (1C) of the Act.  The High Court dismissed the appeal filed by the Revenue.