Circular No. 620-Income tax dated 6-12-1991

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

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 :

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.