TMI BlogInstructions regarding deduction of tax at source on profits and gains from the business of trading in alcoholic liquor, forest produce, etc.X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejudice 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 Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eptember 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (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 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 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." 3.3 The term "seller" means the Central G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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