Wp/28498/1997 Of A.p. Forest Development Corporation, Ltd v. The Asst Commissioner Of Incometax

IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) WEDNESDAY, THE THIRD DAY OF NOVEMBERTWO THOUSAND AND FOUR PRESENT THE HON'BLE MR JUSTICE BILAL NAZKI and THE HON'BLE MR JUSTICE S.ANANDA REDDY WRIT PETITION No. 28498 of 1997 Between: A.P.Forest Development Corporation Ltd., Regd. Office : 3[rd] Floor, UNI Building, A.C.Guards, Hyderabad. …Petitioner. AND 1. The Asst.Commissioner of Income Tax, Circle 5 (1), Ayakar Bhavan, Basheerbagh, Hyderabad. 2. The Commissioner of Income Tax, AP-I, Ayakar Bhavan, Basheerbagh, Hyderabad. .....Respondents Petition under Article 226 of the constitution of India praying that in thecircumstances stated in the Affidavit filed herein the High Court will be pleased topleased to issue a writ of certiorari or any other writ, order or direction quashing theorder of the respondent No. 2 passed on the petitioner in file No.HQS./1-40(37)/96-97, dated 28-5-97 to the extent to which the order requires the tax to be collected onbamboo, eucalyptus and firewood u/s 206-C of the I.T Act. Counsel for the Petitioner : MR.Y.RATNAKARCounsel for the Respondents : MR.S.R.ASHOK, SC The Court made the following : THE HON’BLE SRI JUSTICE BILAL NAZKI AND THE HON’BLE SRI JUSTICE S.ANANDA REDDY WRIT PETITION No.28498 OF 1997 ORDER :(Per Hon’ble Sri Justice S.Ananda Reddy) This writ petition is filed assailing the order dated 28-5-1997 of the secondrespondent, Commissioner of Income Tax passed under Section 264 of the IncomeTax Act, 1961 revising the order of the Assessing Officer granting partial relief to thepetitioner assessee. The petitioner is Andhra Pradesh Forest Development Corporation Limited. Against the said Corporation, first respondent herein initiated proceedings under Section206-C Income Tax Act, 1961 (for short ‘the Act’) and passed order for the years1988-89 to 1993-94 on the ground that the petitioner Corporation failed to collect taxfrom its buyers in respect of Bamboo, Cashew, Eucalyptus, Pepper, Firewood etc.According to the Assessing Officer-first respondent herein, the petitioner Corporationwas obligated to collect tax from the buyers of timber and other forest produce at therates specified under Section 206-C of the Act. Therefore, first respondent initiated proceedings proposingto treat the petitioner Corporation as an assessee deemed to be in default and tocollect the tax which it failed to collect from the buyers of timber and other forestproduce. The petitioner Corporation appeared before the Assessing Officer andclaimed that the produce it sold to various buyers was agricultural produce, as thepetitioner Corporation had developed the land and cultivated various tree growth aswell as horticultural products and the sale of such items would not attract theprovisions of Section 206-C of the Act. The petitioner also produced some non-deduction certificates issued by various Assessing Officers, claiming exemption fromthe tax collection at source. The first respondent, however, rejected the claim of thepetitioner Corporation that the timber and other products sold by it are agriculturalproducts and even with reference to the non-deduction certificates, the Assessing Officer gave part relief and computed theliability including interest at about non-deduction certificates, the Assessing Officer gave part relief and computed theliability including interest at about Rs.12-00 Crores. Aggrieved by that, the petitioner Corporation filed a revision beforesecond respondent. Second respondent, in the first round of revision, remanded thematter to the Assessing Officer and after remand, the Assessing Officer againpassed an order dated 7-1-1997 computing the tax payable by the petitionerCorporation at Rs.3,94,68,526/-. Aggrieved by that the petitioner Corporation againcarried the matter in revision before second respondent and reiterated thecontentions that the petitioner Corporation obtained the produce by using humanefforts, fertilizers, pesticides etc., and the produce thus derived is as a result ofagriculture carried on by the Corporation, and therefore, it is an agricultural produce,which would not attract the provisions of Section 206-C of the Act. The Commissioner of Income Tax, second respondent herein, considered thecontentions of the petitioner Corporation with reference to the provisions of theAndhra Pradesh Forest Act, 1967 (for brevity ‘the Forest Act’) especially withreference to the definition of ‘forest produce’ contained in Section 2(g) of the ForestAct and concluded that the petitioner Corporation was under obligation to collect tax(a) on timber (including Malaysian sal wood and eucalyptus poles); (b) under Section 206-C in respect of sale of bamboo, as bamboo is forest produce;and (c) under Section 206-C on sale of firewood, which is nothing but timber of aspecified dimension under the rules. The Commissioner, however, accepted theclaim of the petitioner Corporation with reference to coffee and cashew holding thatthe same does not fall within the term ‘forest produce’ as defined in Section 2 of theForest Act. Therefore, finally the first respondent was directed to compute thecollectable tax under Section 206-C of the Act from timber, bamboo and firewoodand ordered to revise the original order passed by him. While doing so, theAssessing Officer was also directed to consider the non-deduction certificates issued by the officer concerned and produce before thefirst respondent. Aggrieved by that, the petitioner Corporation has come up with thepresent writ petition. Learned counsel for the petitioner Corporation contended that the Corporation wasformed with an intention to develop the land by cultivating various types of timber orother produce, like coffee, cashew, eucalyptus, pepper, bamboo etc. For thatpurpose, the Government has allotted certain land, which was re-claimed by thepetitioner Corporation and through the process of development of the said land, thepetitioner Corporation has cultivated and grown various types of trees. It is alsostated that the petitioner Corporation has effected the sales of eucalyptus poles toSingareni Collieries Limited, a Public Sector Undertaking. Similarly, eucalyptus,pulpwood, bamboo industrial cuts etc., were sold to companies like A.P. Paper MillsLimited, Badrachalam Paper Boards Limited, Sirpur Paper Mills Limited, A.P.Rayons Limited etc.; cashewnuts, pepper etc., were sold to TTD and otherindividuals. According to the petitioner Corporation all the produce that was sold by it to various buyers is an agricultural produce. In fact, the petitioner Corporation filedan order of assessment for the year 1986-87 where the Assessing Officer passed anassessment considering the contentions elaborately with reference to the sale ofvarious items including the items, which are considered by the respondent now andthe sale produce of all those items was claimed by the petitioner Corporation asagricultural income and the Assessing Officer accepted the said claim andexempted the entire income of the petitioner Corporation under Section 10(1) of theAct. The said order has become final. It is also claimed that even for the subsequentyears including the years under consideration, the petitioner Corporation has filed itsreturns claiming similar benefit of exemption of agricultural income and thedepartment has accepted the returns. Therefore, the learned counsel contended thatthere is absolutely no justification in passing an order under Section 206-C of theAct, that too after a long lapse of time with reference to the periods for which thealleged tax collection was not done by the petitioner Corporation. The learnedcounsel also, in fact, contended that even in the absence of any specific period oflimitation prescribed under the relevant provisions of the Act, the orders have to bepassed within the reasonable time. As the impugned order was passed long afterthe relevant periods, the same is liable to be quashed on the ground of limitation.The learned counsel further contended that under Section 206-C of the Act, there isno specific provision declaring the petitioner Corporation as an assessee deemed tobe in default for its failure to collect and remit the tax. No doubt, the provisions madeprovide, with reference to the sale of specified items of produce, for collection of taxby the seller from the buyers, but no authority is specified empowering him to passorders in case of default. In the absence of any such specific provision, treating thepetitioner Corporation as an assessee deemed to be in default and in the absence ofany specific provision authorizing any authority or officer to pass such an order, theimpugned order is liable to be quashed. The learned also contended that after therevisional order, the items that are ordered to be considered for collection of tax isbamboo, eucalyptus and pepper. As these items are the products as a result of theagricultural operations carried on by the petitioner Corporation, they cannot betreated either as timber extracted from forest or as a forest produce, therefore, sought for setting aside the impugned order of second respondent. The learned counselalso relied upon the judgment of the Supreme Court in Commissioner of IncomeTax v. Raja Benoy Kumar Sahas Roy. Learned senior standing counsel for the Department, however, contended thatSection 206-C of the Act was introduced in the Statute in order to remedy the taxevasion by those who are purchasing and dealing with the items mentioned inSection 206-C of the Act. Therefore, as a measure, this provision has been insertedimposing obligation on the seller to collect tax from the buyers at the time of sale atparticular rates specified under the said provision and to remit the same to theCentral Government. According to the learned counsel, at the stage of collection oftax, it is not open to the collecting agency to go into the issue whether the items thatare being sold by it are agricultural produce or a Learned senior standing counsel for the Department, however, contended thatSection 206-C of the Act was introduced in the Statute in order to remedy the taxevasion by those who are purchasing and dealing with the items mentioned inSection 206-C of the Act. Therefore, as a measure, this provision has been insertedimposing obligation on the seller to collect tax from the buyers at the time of sale atparticular rates specified under the said provision and to remit the same to theCentral Government. According to the learned counsel, at the stage of collection oftax, it is not open to the collecting agency to go into the issue whether the items thatare being sold by it are agricultural produce or a non-agricultural produce as is referred to in the said Section. If ultimately the buyersare not liable to pay any tax they are at liberty to file their returns and claim for refundbasing on the certificates issued by the petitioner Corporation showing the collectionof tax at the time of purchase. The learned standing counsel also contended thatadmittedly what was sold by the petitioner Corporation was timber, such as bamboo,eucalyptus etc., therefore, the petitioner Corporation was under obligation to collecttax. Similarly, with reference to the other items, it is contended that they have to betreated as forest produce, and therefore, the petitioner Corporation is liable to collectthe tax at the time of sale. The learned standing counsel relied upon Rule 37 (E) and (F) of the Income Tax Rules and contended that even in theabsence of a specific provision treating the petitioner Corporation as an assesseedeemed to be in default as well as in the absence of any specific provisionauthorizing an officer to pass an order so as to collect the amount of tax collectableby the petitioner Corporation at the time of sale of its produce, the provisions have tobe liberally construed as they are only machinery provisions. In support of hiscontention, the learned standing counsel relied upon the decision of the Apex Courti n Fertilizer Corporation of India Limited v. State of Bihar and contended thatwhen once there is an obligation on the part of the petitioner Corporation to collect the tax at the time of sale of its produce, it has to collect and paid over to the CentralGovernment. As the petitioner Corporation failed to do so, the authorities under theAct have initiated proceedings and passed appropriate order. In fact, it is contendedby the learned standing counsel that in the absence of any specific provision to passan order, the Assessing Officer can even issue a notice directing the petitionerCorporation to pay the amount which it ought to have been collected from its buyers.When it failed to collect and pay to the Central Government, in order to give anopportunity to the assessee, the Assessing Officer has issued notice and passed adetailed reasoning order considering the objections of the petitioner Corporation.Therefore, there is absolutely no material warranting interference. The learnedstanding counsel also contended that when a revision is filed against the order offirst respondent, the revisional authority-second respondent herein on merits grantedeven partial relief. Therefore, there is no merit warranting interference. From the above rival contentions, the issue to be considered is whether the items ofsale effected by the petitioner Corporation would attract the provisions of Section206-C of the Act and failing to comply the said provision, whether the Department isentitled to proceed and recover the same from the petitioner Corporation? In order tohave a clear idea of the provision, it would be appropriate to extract the relevantprovision of Section 206-C of the Act, which reads as under. Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc. From the above rival contentions, the issue to be considered is whether the items ofsale effected by the petitioner Corporation would attract the provisions of Section206-C of the Act and failing to comply the said provision, whether the Department isentitled to proceed and recover the same from the petitioner Corporation? In order tohave a clear idea of the provision, it would be appropriate to extract the relevantprovision of Section 206-C of the Act, which reads as under. Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc. 206C. (1) Every person, being a seller referred to in section 44AC, shall, at the time of debiting of theamount payable by the buyer referred to in that section to the account of the buyer or at the time ofreceipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any othermode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) ofthe Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) ofthe said Table, of such amount as income tax on income comprised therein. TABLE (i) Alcoholic liquor for human consumption Fifteen percent (other than Indian-made foreign liquor) (ii) Timber obtained under a forest lease Fifteen percent (iii) Timber obtained by any mode other (Five) percent than under a forest lease (iv) Any other forest produce not being timber Fifteen percent Provided that where the Assessing Officer, on an application made by the buyer, gives a certificate inthe prescribed form that to the best of his belief any of the goods referred to in the aforesaid Table areto be utilized for the purposes of manufacturing, processing or producing articles or things and not fortrading purposes, the provisions of this sub-section shall not apply so long as the certificate is inforce. (2) The power to recover tax by collection under sub-section (1) shall be without prejudice to any othermode of recovery. (3) Any person collecting any amount under sub-section (1) shall pay within seven days the amount socollected to the credit of the Central Government or as the Board directs. (4) Any amount collected in accordance with the provisions of this section and paid under sub-section(3) shall be deemed as payment of tax on behalf of the person from whom the amount has beencollected and credit shall be given to him for the amount so collected on the production of thecertificate furnished under sub-section (5) in the assessment made under this Act for the assessmentyear for which such income is assessable. (5) Every person collecting tax in accordance with the provisions of this section shall within ten daysfrom the date of debit or receipt of the amount furnish to the buyer to whose account such amount isdebited or from whom such payment is received, a certificate to the effect that tax has been collected,and specifying the sum so collected, the rate at which the tax has been collected and such otherparticulars as may be prescribed. [(5A) Every person collecting tax in accordance with the provisions of this section shall prepare halfyearly returns for the period ending on 30[t h ]September and 31[st] March in each financial year, anddeliver or cause to be delivered to the prescribed income tax authority such returns in such form andverified in such manner and setting forth such particulars and within such time as may be prescribed.] (6) Any person responsible for collecting the tax who fails to collect the tax in accordance with theprovisions of this section, shall, notwithstanding such failure, be liable to pay the tax to the credit ofthe Central Government in accordance with the provisions of sub-section (3). [(5A) Every person collecting tax in accordance with the provisions of this section shall prepare halfyearly returns for the period ending on 30[t h ]September and 31[st] March in each financial year, anddeliver or cause to be delivered to the prescribed income tax authority such returns in such form andverified in such manner and setting forth such particulars and within such time as may be prescribed.] (6) Any person responsible for collecting the tax who fails to collect the tax in accordance with theprovisions of this section, shall, notwithstanding such failure, be liable to pay the tax to the credit ofthe Central Government in accordance with the provisions of sub-section (3). (7) Without prejudice to the provisions of sub-section (6), if the seller does not collect the tax or aftercollecting the tax fails to pay it as required under this section, he shall be liable to pay simple interestat the rate of two per cent per month or part thereof on the amount of such tax from the date on whichsuch 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 the tax togetherwith the amount of simple interest thereon referred to in sub-section (7) shall be a charge upon all the assets of the seller.] A perusal the above shows that this provision was inserted by the Finance Act, 1988along with Section 44AC, which was intended for levy and collection of presumptivetax in the case of trading in certain goods to remove hardship and to remove thelacuna. The trades mentioned therein are Alcoholic liquor for human consumption;timber obtained under a forest lease; timber obtained by any mode other than undera forest lease; and any other forest produce not being timber, at different rates. Theobject of introduction of the new provisions for working out the profits on presumptivebasis is to get over the problems being faced in assessing the income of andrecovering the taxes in the cases of persons trading in the above items. A largenumber of such persons either do not maintain any books of accounts or the booksmaintained are irregular and incomplete. Locating such persons after the contract oragreement became impossible in many cases. Further, in such cases, even if theassessment was completed, the Income Tax Department found it extremely difficultto collect the tax from them. Thus, the assessment of income and recovery of taxesfrom such businessmen posed serious problems. Therefore, these two provisionswere brought on the statute not only to estimate the profits on presumptive basis, butalso to collect the tax on such transactions at specified rates mentioned in Section206-C of the Act. The Department has applied the above provisions to the petitioner Corporationperhaps on the assumption that the items that were sold by the petitionerCorporation would fall under the items specified under Section 206-C of the Act.Though the Department claimed that the items dealt with by the petitionerCorporation would fall under the items specified in the relevant provision, but thatclaim is disputed by the assessee. According to the petitioner Corporation, it did notdeal with any forest produce like timber or any other forest produce, therefore, theprovisions of Section 206-C of the Act has no application. But this claim wasrejected by both the authorities on the ground that the very name of the petitioner isForest Development Corporation which would imply that it was dealing with theforest and its produce must be treated as forest produce. Further, the contention ofthe learned standing counsel for the Department is that it is not necessary to go intothe issue whether it is a forest produce or non-forest produce, the sale by thepetitioner of the items specified would attract the provisions of Section 206-C of theAct, and therefore, the petitioner Corporation is under obligation to collect the taxwhile effecting the sales of its produce. We are unable to agree with the contentionof the learned standing counsel for the Department that it is not necessary to go intothe nature of the products that were sold by the petitioner Corporation in order toattract the provisions of Section 206-C of the Act. The provisions of Section 206-C ofthe Act would apply only with reference to the timber obtained under a forest lease;or timber obtained by any mode other than under a forest lease; and any other forestproduce not being timber. From the above provision, it is clear that the Legislatureintend to apply this provision in respect of timber and other produce obtained fromthe forest and not intended to apply to any produce. Therefore, in order to attract theprovisions of Section 206-C of the Act, one has to examine whether the items soldby the petitioner Corporation is a forest produce or not? In fact, the contentionadvanced by the learned standing counsel for the Department would not reflect fromthe impugned order. On the other hand, the stand of second respondent is that theprovisions of Section 206-C of the Act is applicable only with reference to the forestproduce. But according to him, the items of produce sold by the petitioner Corporation would fall under items (ii) and (iii) specified in the Table in Section 206-C of the Act. Therefore, there is absolutely no merit in the contention of the learnedstanding counsel that even if the produce is not a forest produce, still the petitionerCorporation is under obligation to collect the tax at the time of effecting the sale. Corporation would fall under items (ii) and (iii) specified in the Table in Section 206-C of the Act. Therefore, there is absolutely no merit in the contention of the learnedstanding counsel that even if the produce is not a forest produce, still the petitionerCorporation is under obligation to collect the tax at the time of effecting the sale. Coming to the nature of the produce, a perusal of the impugned order shows that theCommissioner was more influenced by the terms contained in the Andhra PradeshForest Act rather than confining himself to the provisions of the Income Tax Act andto the facts of the case. The Commissioner accepted the claim that coffee, cashewetc., grown on the land assigned to the petitioner Corporation does not fall under theterm ‘forest produce’. But with reference to eucalyptus, bamboo and firewood, theCommissioner felt that it would fall under the term ‘forest produce’. There is nofinding either by the Assessing Officer or by the revisional authority whether theproduce sold by the petitioner Corporation was actually grown and cultivated by thepetitioner Corporation or not? In order to decide the issue whether the items that aredirected to be treated as forest produce, one has to examine and consider the claimof the petitioner Corporation and must arrive at a finding whether these productswere, in fact, grown by carrying on the operations on the soil and obtained as aresult of such operations. In fact, the learned counsel relied upon the decision of theApex Court in Commissioner of Income Tax v. Raja Benoy Kumar Sahas Roy(supra-1) where the Apex Court had an occasion to consider the term ‘Agriculture’ inorder to decide whether particular receipts are liable to tax or not? In that case therespondent owns an area of Acs.6,000-00 of forest land assessed to land revenueand grown with sal and piyasal trees. The forest was originally of spontaneousgrowth, “not grown by the aid of human skill and labour” and it has been in existencefor about 150 years. A considerable income is derived by the assessee from sales oftrees from this forest. Though, originally for some assessment years the income wasassessed as forest income, thereafter it was not declared between 1923-24 to 1944-45. Therefore, the assessment for the assessment year 1944-45 was reopenedproposing to include the receipts on the sale of forest produce. This was contestedby the assessee. The Apex Court after considering elaborately held as under. “Agriculture” in its primary sense denotes the cultivation of the field and is restricted tocultivation of the land in the strict sense of the term, meaning thereby tilling of the land,sowing of the seeds, planting and similar operations on the land. These are basic operationsand require the expenditure of human skill and labour upon the land itself. Those operations which the agriculturist has to resort to and which are absolutelynecessary for the purpose of effectively raising produce from the land, operations which areto be performed after the produce sprouts from the land, e.g., weeding, digging the soilaround the growth, removal of undesirable undergrowth, and all operations which foster thegrowth and preservation of the same not only from insects and pests but also fromdepredation from outside, tending, pruning, cutting, harvesting and rendering the produce fitfor the market, would all be agricultural operations when taken in conjunction with the basicoperations. The human labour and skill spent in the performance of these subsequentoperations cannot be said to have been spent on the land itself. Those operations which the agriculturist has to resort to and which are absolutelynecessary for the purpose of effectively raising produce from the land, operations which areto be performed after the produce sprouts from the land, e.g., weeding, digging the soilaround the growth, removal of undesirable undergrowth, and all operations which foster thegrowth and preservation of the same not only from insects and pests but also fromdepredation from outside, tending, pruning, cutting, harvesting and rendering the produce fitfor the market, would all be agricultural operations when taken in conjunction with the basicoperations. The human labour and skill spent in the performance of these subsequentoperations cannot be said to have been spent on the land itself. The mere performance of these subsequent operations on the products of the land, wheresuch products have not been raised on the land by the performance of the basic operations,would not be enough to characterize them as agricultural operations; in order to invest themwith the character of agricultural operations these subsequent operations must necessarilybe in conjunction with and in continuation of the basic operations which are the effectivecause of the products being raised from the land. The subsequent operations divorced fromthe basic operations cannot constitute by themselves agricultural operations. Only if this integrated activity which constitutes agriculture is undertaken and performed inregard to any land be said to have been used for “agricultural purposes” and the incomederived therefrom be said to be “agricultural income” derived from the land by agriculture,under section 2(I) of the Indian Income-tax Act, 1922. Agriculture comprises within its scope the basic as well as the subsequent operationsdescribed above regardless of the nature of the products raised on the land. Theseproducts may be grain or vegetable or fruits which are necessary for the sustenance ofhuman beings, including plantations and groves, or grass or pasture for the consumption ofbeasts or articles of luxury, such as betel, coffee, tea, spices, tobacco, or commercialcrops like cotton, flax, jute, hemp, indigo. All these are products raised from the land but theterm agriculture cannot be confined merely to the production of grain and food products forhuman beings and beasts; it must be understood as comprising all the products of the landwhich have some utility either for consumption or for trade and commerce and would alsoinclude forest products such as timber and sal and piyasal trees, casuarinas plantations,tendu leave and horra nuts. There is no warrant at all for extending the term “agriculture” to all activities which havesome relation to the land or are in any way connected with the land, for the term agriculturecannot be dissociated from the primary significance thereof, which is that of cultivation ofthe land. The extension of the term “agriculture” to denote such activities as breeding andrearing livestock, dairy farming, butter and cheese-making, and poultry farming, is anunwarranted distortion of the term. There is no warrant at all for extending the term “agriculture” to all activities which havesome relation to the land or are in any way connected with the land, for the term agriculturecannot be dissociated from the primary significance thereof, which is that of cultivation ofthe land. The extension of the term “agriculture” to denote such activities as breeding andrearing livestock, dairy farming, butter and cheese-making, and poultry farming, is anunwarranted distortion of the term. From the above, it is clear that a distinction has been drawn between the‘agricultural operations and agricultural produce’ with that of ‘forest produce’.Basically, forest produce is the produce grown spontaneously, may be at thesubsequent stages some human effort and skill may be applied in order to protectand extract the resultant product, which could be considered as a forest produce. Asis evident from the relevant provisions, the tax collection at the time of sale isintended only to be applied in respect of the forest produce and not with reference tothe agricultural produce. Therefore, in order to hold that the assessee is liable tocollect the tax at source, the authorities have to give a finding that it is a forestproduce. The finding that was arrived at by the Commissioner, second respondentherein, is not with reference to the basic facts but only based on the provisions of theA.P. Forest Act. In fact, it was the contention of the assessee that for the assessmentyear 1986-87 the sale proceeds were treated as receipts from the sale of agriculturalproduce and exempted from assessability to tax. In fact, it is claimed that even for thesubsequent years including the assessment years in question, the petitioner’sreturns were accepted treating its income as agricultural income. If such is thefactual position, there is absolutely no justification for the authorities to proceedagainst the petitioner Corporation as an assessee deemed to be in default. Though it was contended that there is no specific provision under which anyauthority is specified to pass an order or treating the petitioner Corporation as an assessee deemed to be in default for non-collection and non-remittance of theamount specified to be collected in terms of Section 206-C of the Act, but, however,a perusal of the relevant provision clearly shows that the persons specified in thesaid provision are liable to collect tax at the time of effecting the sale of the itemsspecified in the Table provided in the said provision and the said amount has to beremitted to the Central Government within seven days of its collection. Though it was contended that there is no specific provision under which anyauthority is specified to pass an order or treating the petitioner Corporation as an assessee deemed to be in default for non-collection and non-remittance of theamount specified to be collected in terms of Section 206-C of the Act, but, however,a perusal of the relevant provision clearly shows that the persons specified in thesaid provision are liable to collect tax at the time of effecting the sale of the itemsspecified in the Table provided in the said provision and the said amount has to beremitted to the Central Government within seven days of its collection. Sub-section (6) of section 206-C of the Act also provides that any personresponsible for collecting the tax, who fails to collect the same, shall,notwithstanding such failure, be liable to pay the tax to the credit of the CentralGovernment. A penal provision is also incorporated imposing the interest at the rateof 2% for failure to collect or failure to remit the amount collected. Further, theamount not paid shall have a charge on the assets of the seller. In any case, whenthere is an obligation on the part of the seller as contemplated under Section 206-Cof the Act in respect of the items specified therein, the seller has to collect the taxand remit to the Central Government. Therefore, without going into the merits of thecontentions as to the slight lacuna in the provisions, such as absence of specificauthority empowered to pass an order or in the absence of a consequential actionagainst the seller who fails to collect the tax, in the light of the judgment of the ApexCourt in the case of Fertilizer Corporation of India Limited v. State of Bihar(supra-2) wherein it was held while interpreting the Taxation Statutes, machineryprovisions are to be interpreted liberally and generously so long as principal objectof provision is not frustrated. If so interpreted, the first respondent being theAssessing Authority cannot be said to be without jurisdiction to pass an order underSection 206-C of the Act. Even with reference to the limitation, as the notice wasissued in December, 1994 and the order was passed in 1995, the same cannot besaid to be beyond the period of limitation. Under the above circumstances, the impugned order of the secondrespondent is set aside and the matter is restored to the first respondent to considerthe claim of the petitioner Corporation and to give a finding as to the nature of theproduction of the items, which are directed to be treated as forest produce by the Commissioner of Income Tax, second respondent herein and after ascertaining thenature of the produce, it is open to the first respondent to pass appropriate order.While doing so, the first respondent is also directed to consider the assessmentorder already passed against the petitioner Corporation for the relevant assessmentyears in question. It is needless to clarify, if the income of the petitioner Corporationis accepted as agricultural income and exempted from tax, the question of applyingthe provision of Section 206-C of the Act, would not arise. The writ petition is accordingly allowed as indicated above. No order as to costs. __________________ (BILAL NAZKI, J) ______________________ Date: -10-2004. (S.ANANDA REDDY, J) Msr. That Rule Nisi has been made absolute as above. Witness the Hon’ble Sri Devinder Gupta, the Chief Justice on this Wednesday, theThird day of November, Two thousand and four. To 1. The Asst.Commissioner of Income Tax, Circle 5 (1),Ayakar Bhavan, Basheerbagh, Hyderabad. 2. The Commissioner of Income Tax, AP-I,Ayakar Bhavan, Basheerbagh, Hyderabad. 3. 2 CD copies. THE HON’BLE SRI JUSTICE BILAL NAZKIAND THE HON’BLE SRI JUSTICE S.ANANDA REDDY WRIT PETITION No.28498 OF 1997 Dt: -10-2004. (Msr)