Circular No. 660-Income tax dated 15-9-1993

SECTION 206C – PROFITS AND GAINS FROM BUSINESS OF TRADING IN ALCOHOLIC LIQUOR, FOREST PRODUCE, ETC.

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. 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

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 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 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.

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, 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.