CIVIL WRIT JURISDICTION CASE No.2101 OF 2000 In the matter of an application under Article 226 of the Constitution of India. The State of Bihar, Department of Excise & Prohibition, having its office at Vikas Bhawan, New Secretariat, Patna through its authorized signatory Sri Mahendra Kumar, Secretary to Excise Commissioner, Govt. of Bihar son of Late Rajdeo Verma, resident of Village – Hasanpurwa, PS Hussainganj, Distt. Siwan ……..Petitioner Versus 1. CENTRAL BOARD OF DIRECT TAXES, New Delhi 2. The Commissioner of Income Tax, Bihar, Patna 3. The Deputy Commissioner of Income Tax (TDS), Circle 2, Patna 4. The Income tax Officer, Ward Biharsharif, Nalanda 5. The Income Tax Officer, Ward Khagaria 6. The Income Tax Officer Ward Sasaram 7. The Income Tax Officer Ward -2, Purnia 8. The Income Tax Officer Ward –Ara 9. The Income Tax Officer (TDS), Darbhanga 10. The Income Tax Officer Ward -1, Bhagalpur 11. The Income Tax Officer Ward –Munger, Munger 12. The Income Tax Officer ward- Gaya 13. The Income Tax Officer Ward –Jehanabad ……..Respondents ******* For the Petitioner : Mr. D.V.PATHY For the Respondents : Mr. Rishi Raj Sinha ********* P R E S E N T THE HON'BLE MR. JUSTICE SUDHIR KUMAR KATRIAR THE HON'BLE MR. JUSTICE SAMARENDRA PRATAP SINGH S K KATRIAR, J. The State of Bihar challenges the assessment orders contained in Annexure- III series, passed by the Income Tax authorities in exercise of powers under section 206 C of the Income Tax Act 1961 (hereinafter referred to as `the Act’), and the consequent action under section 226(3) of the Act, whereby the bank accounts of the writ petitioner have been attached, and the deposits therein have been arrogated for realization of the amount determined by Annexure III series. The respondents have placed on record their counter affidavit and have supported the impugned action. 2 2. A brief statement of facts essential for the disposal of the writ petition may be indicated. In the beginning of 1989, a large number of persons died on account of consumption of spurious country-made liquor which led to CWJC No.4722 of 1989 (Bihar Distiller’s Association vs. State of Bihar & Ors.). A Division Bench of this Court passed an interim order on 9.5.89 (Annexure 1), whereby the State Government was directed to take over the whole-sale trade and business of country-made liquor as a temporary measure for the sake of life, health, and hygiene of the citizens which was subject to disposal of the writ petition. In due observance and compliance of the order, he State Government issued order dated 18.5.89 (Annexure II), whereby the State Government took over the trade and business of country-made liquor as a whole-seller. The whole-sale business in such manner commenced on 18.5.89, and continued till December 1991, when the State Government appointed whole- sellers on the private side. The present writ petition, therefore, deals with the financial years 1989-90, 1990-91, 1991-92, except for the period 1.4.1989 to 17.5.1989, and the period of December 1991 till March 1992, which are excluded. 2.1) The authorities under the Act took the stand that the present writ petitioner was obliged in law to realize tax deducted at source (TDS) from the vendees and the retailers in terms of section 206C (4), read with section 45AC, of the Act. The State Government had not collected the TDS, nor had submitted returns or any report in that behalf to the authorities under the Act. Consequently, the authorities under the Act issued notices to the State Government to supply the informations, inter alia, the total amount of country-made liquor sold by the petitioner to the retailers. The State Government did supply the requisite informations which led to the impugned order marked Annexure- 3 3 series, wherein the amount of TDS which the petitioner was obliged to collect was quantified along with interest. Inspite of further notice from the authorities under the Act, the State Government did not deposit the amount as per Annexure-3 series, leading to attachment of the bank accounts of the petitioner and drawal of funds towards satisfaction of the demand. Hence the writ petition. 3. While assailing the validity of the impugned action, learned counsel for the petitioner submits that though Section 206C of the Act does not provide any period of limitation, the authorities under the Act could have taken action within a reasonable time. He relies on the following reported judgments:- (1) Shalimar Works Ltd. V. Their Workmen AIR 1959 SC 1217 (2) Mohamad Kavi Mohamad Amin v. Fatmabai Ibrahim 1997 (6) SCC 71 (3) Ishwara Bhat v. 2000 ITR 238 (4) N M B Ali Khan Bahadur v. Asstt. CED 1996 ITR (222) 672 He next submits that the retailers have already paid taxes on their profits and, therefore, the impugned action leads to double taxation. The Revenue has not suffered any loss of revenue. He relies on the judgment of the Supreme Court in Hindustan Coca Cola Beverage Pvt. Ltd. Vs. CIT [2007 ITR (293) 226]. He next submits that the amount collected by the State Government from the retailers form part of the State exchequer and, therefore, cannot be taxed in terms of Article 289 of the Constitution of India. He relies on the judgment of the Supreme Court in Hindustan Coca Cola Beverage Pvt. Ltd. (supra). He lastly submits that, in any view of the matter, the brief periods prior to, and after the end of the period in question, have to be excluded from reckoning. 4 4. Learned Assistant Counsel for the Revenue has supported the impugned action of the authorities under the Act. He submits that, once the petitioner assumes the function of a whole-seller in country-made liquor, it was incumbent on it to realize TDS in terms of section 206C of the Act. Failure to do so will go to the debit of the petitioner as per the procedure prescribed by the Act. He next submits that the provisions of the quondam section 44AC was applicable during the periods in question, and computation of the amount of TDS realizable by the petitioner was entirely based on the facts and figures supplied by the petitioner. He also submits that, in view of the law in force read with the relevant circulars of the Central Board of Direct Taxes during the period in question, the Revenue rightly realized 10% of the purchase price along with interest. He submits that the purchase price had to comprise of the costs, the profits, and the excise duty under the State laws. He relies on the judgment of a Division Bench of this Court in State of Bihar v. Commissioner of Income Tax [1993 ITR (202) 535]. He next submits that the impugned action is not hit by the provision of Article 289 of the Constitution of India. He relies on the judgment of the Constitution Bench of the Supreme Court comprising of nine Hon’ble Judges in Re – Sea Customs Act [AIR 1963 SC 1760] (paragraphs 16 and 31). He lastly submits that the principles of natural justice were fully observed and the prescribed procedure was meticulously observed. 5. We have perused the materials on record and considered the submissions of learned counsel for the parties. It is evident on a perusal of the order dated 9.5.1989 (Annexure I), and the order dated 8.5.1989 (Annexure II), that the State Government had taken over whole-sale business of country- made liquor in the State of Bihar for the period 18.5.1989 till 5 December 1989, which fell within the financial years 1989-90, 1990-91, and 1991-92. Therefore, it was incumbent on the petitioner to realize TDS as per the law in force at that point of time in terms of section 206C of the Act. The petitioner had failed to discharge its statutory duty, as a result of which the Revenue was justified in taking steps to quantify the amount as per the procedure prescribed by section 44AC of the Act. It may be indicated that section 44AC was inserted in the Act with effect from 1.4.1989, and was omitted by Finance Act 1992, with effect from 1.4.1993. Section 44C, prescribed the special procedure for computation of purchase price for realization of TDS and was obviously in force during the periods in question. We further observe that quantification of TDS, which the State Government was enjoined in law to collect from its purchasers, was done by the authorities under the Act as per Annexure III series, after following the prescribed procedure and in accordance with law. We, therefore, do not find fault with Annexure 3 series. 6. We must consider the contention advanced on behalf of the petitioner that Annexure III series was not passed within a reasonable time. We are of the view that reasonable time would commence from the date of knowledge. The petitioner has not brought to our notice any material to show that the Revenue had come to know of non-realization of TDS, and sat over the matter creating an impression of laches and negligence. The contention is rejected. 7. We also agree with the submission advanced on behalf of the Revenue that it acted with fairness and indeed full restraint. Repeated notices under section 156 of the Act were served on the petitioner at two vital stages. Indeed Annexure III series is entirely based on the replies submitted, and the facts, figures and particulars provided by the petitioner. After Annexure 6 III series was passed and the amount was quantified, the Revenue served repeated notices on the petitioner to deposit the amount quantified as per Annexure III series which was completely ignored. Consequently, the Revenue was left with no option and had to take action in terms of section 226(3) of the Act. We do not find fault with the action of the Revenue on the question of realization of the demand also which was indeed in full conformity with the principles of natural justice as well as the prescribed procedure. 8. We must deal with the scope and content of Article 289 of the Constitution of India. The same is reproduced hereinbelow:- “289. Exemption of property and income of a State from Union taxation. - (1) The property and income of a State shall be exempt from Union taxation. (2) Noting in clause (1) shall prevent the Union from imposing, or authorizing the imposition of, any tax to such extent, if any, as Parliament may by law provide in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State, or any operations connected therewith, or any property used or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith. (3) Nothing in clause (2) shall apply to any trade or business, or to any class of trade or business, which Parliament may by law declare to be incidental to the ordinary functions of Government.” Sub-article (1) of Article 289 exempts the State Government from Union taxation in so far as its property and income is concerned. The same is obviously inapplicable to the facts and circumstances of the present case because neither the property nor the income of the State of Bihar has been sought to be taxed by the Union of India. TDS is only a method of collection of tax. It is, therefore, an advance collection of tax on behalf of the Revenue with respect to the income of assessee. It was obviously a collection of TDS in relation to the income of the retailers. Therefore, there was no liability of taxation at all on the income of the petitioner. The 7 impugned action took place because the petitioner failed in its statutory duty of collection of tax at source with respect to the proposed income of its retailers, and indeed the petitioner would have Pro Tanto received more from its retailers. 9. We are also of the view that sub-article (2) of Article 289 is equally inapplicable to the facts and circumstance of the present case, because the same authorizes the Parliament to enact laws for imposition of tax on properties, on any trade or business carried on by the State Government. We have held hereinabove that TDS in the present case was not taxation or levy on the income of the State of Bihar, but was indeed an advance collection of tax to be done by the State of Bihar in the capacity of whole-seller in relation to the income of the retailers. We are, therefore, of the view that the provisions of Article 289 of the Constitution are inapplicable to the facts and circumstances of the present case. 10. Learned counsel for the petitioner has also complained that the impugned action of the Revenue has resulted in double taxation. He has placed before us a few orders of assessment passed with respect to some of the retailers in an effort to establish that the retailers have paid taxes and the Revenue has not suffered. It is, therefore, submitted realization of TDS from the petitioner, even if it is conceded for the sake of argument that the petitioner was guilty of non-realization of the same from the retailers, will result in unjust enrichment to the Revenue. We do not find it possible to agree with the contention because one swallow does not make a summer. It can be safely presumed that the petitioner must have sold country-made liquor to thousands of retailers spread over the undivided State of Bihar, comprising of the present States of Bihar and Jharkhand. Sample of a few orders with respect to a few of the retailers does not satisfy us that all the 8 retailers were taxed in accordance with law, and the Revenue has not suffered any loss. 11. In view of the limited materials placed before us, we are of the view that the Revenue did suffer on account of inaction on the part of the petitioner to realize TDS at the time of sales to the retailers. Furthermore, even if part of the amount of income tax were paid by a few of the retailers, in contradistinction to thousands of retailers, it will be open to the petitioner to apply for refund of the same in accordance with the prescribed procedure. 12. In the result, we do not find any merit in this writ petition and is accordingly dismissed. In the facts and circumstances of the case, there shall be no order as to costs. ( S K Katriar, J. ) Samarendra Pratap Singh, J. I agree. ( Samarendra Pratap Singh, J. ) Patna High Court, Patna The 2nd of December 2010 AFR/mrl