The court held that liquor vendors are not 'buyers' under Section 206C of the Income Tax Act, thus exempting the appellant from TDS obligations.

JUDGMENT :

UJJAL BHUYAN, J.

Heard learned counsel for the parties.

2. This appeal has been preferred against the judgment and order dated 13.03.2006 passed by the Division Bench of the High Court of Karnataka at Bengaluru (briefly “the High Court” hereinafter) in Writ Appeal No. 7926/2003. By the aforesaid judgment and order, the Division Bench had dismissed the writ appeal filed by the appellant as well as other writ appeals filed by Mysore Sales International, State of Karnataka and Mysore Sugar Company Limited assailing the common judgment and order dated 27.10.2003 passed by the learned Single Judge of the High Court, dismissing Writ Petition Nos. 6869-6874 of 2001 filed by the appellant and other writ petitions filed by the above parties against the orders dated 17.01.2001 passed by the Deputy Commissioner of Income Tax (TDS)–1, Bengaluru (referred to hereinafter as “the assessing officer” or “the revenue”) under Section 206C(6) of the Income tax Act, 1961 (referred to hereinafter as “the Income Tax Act”) for the assessment years 2000-2001, 1999-2000, 1998-1999, 1997-1998, 1996-1997 and 1995-1996 as well as the consequential demand notices of even date issued under Section 156 of the Income Tax Act. By the orders dated 17.01.2001, the assessing officer held that the appellant is a “seller” and the liquor vendors are “buyers” in terms of Section 206C of the Income Tax Act and hence the appellant was under a legal obligation to collect income tax at source from the liquor vendors (contractors) for the financial years relevant to the aforesaid assessment years. Accordingly, the assessing officer declared certain sums as income tax collectible at source by the appellant which it failed to do. Therefore, the appellant was directed to deposit the amounts so quantified as income tax deductible at source. Further, interest was also levied on the aforesaid amounts. This was followed by the demand notices. As noticed above, the challenge to the said orders dated 17.01.2001 by the appellant was negatived first by the learned Single Judge and then by the Division Bench of the High Court.

3. The short point for consideration in this appeal is whether provisions of Section 206C of the Income Tax Act is applicable in respect of the appellant and whether the liquor vendors (contractors) who bought the vending rights from the appellant on auction, can be termed as “buyer” within the meaning of Explanation(a) to Section 206C of the Income Tax Act or excluded from the said definition of “buyer” as per clause (iii) of Explanation (a) to Section 206C of the said Act. Relatable to the above core issue is the question as to, whether, the High Court was justified in rejecting the challenge to the said orders made by the appellant.

4. Before attempting to answer the question(s) so framed above, it would be apposite to briefly narrate the relevant facts of the case. Mysore Sales International Limited (also referred to “Mysore Sales” hereinafter) is a Karnataka Government undertaking, inter alia, engaged in the business of manufacturing arrack. Mysore Sales is an assessee under the Income Tax Act. Appellant had entered the arrack trade in July, 1993 in terms of the excise laws of the State of Karnataka. Prior to 1993, there were several private bottling units in the State of Karnataka and they were manufacturing and selling arrack. Auctions were conducted periodically for the purpose of conferring lease right for retail vending of arrack. It was conducted with reference to designated areas. Successful bidders were entitled to procure arrack from the bottling units and then to sell it in retail trade within their respective allotted areas. The arrack trade is controlled by the state government.

4.1. The Karnataka Excise Act, 1965 (briefly “the Excise Act” hereinafter) has been enacted to provide for a uniform excise law in the State of Karnataka. Preamble to the Excise Act says that it is expedient to provide for a uniform law relating to production, manu