By TIOL News Service

MUMBAI, AUG 05, 2017: THE ISSUE BEFORE THIS COURT IS - Whether amount collected by agent/licensee of the Municipal Corporation as octroi charges, would be covered by Section 206C(1C) of the I-T Act. NO is the verdict.

Facts of the case:

The Assessee is the Municipal Corporation for the town Akola. For the subject A.Ys, the Assessee had entered into a contract called Agency Agreement, by virtue of which assessee had appointed agent to provide services of collecting octroi on its behalf. This octroi was collected at the rates fixed by the assessee, for which the necessary receipts were also issued in the name of assessee. The entire amount collected by the agent was then remitted to the assessee and the agent was entitled to a commission depending upon the quantum of octroi collected during the year. The Revenue accordingly issued notices to the assessee for the subject A.Y asking it to show cause as to why it should not be held liable to pay the tax collected at source u/s 206C(1C). Thereafter, the ITO held that for the subject A.Ys 2005-2006, 2006-2007 and 2007-2008 the assessee was under obligation to collect tax from its agent/licensee during three years at the rate prescribed in Section 206C(1C) on the amount received from its agent/licensee along with interests thereon. Thus, the order demanded an amount in the aggregate of Rs.1.09 Crores being the tax collectible at source by the assessee along with interest thereon of Rs.15.96 Lakhs for the subject three assessing years. When the matter reached ITAT, it was held that a collection of toll to which Section 201C(1C) applies could not be extended to a transfer of right to collect octroi through an agency/licensee.

On appeal, the HC held that,

++ the impugned order of the Tribunal is a detailed order and it has examined in depth the difference between the meaning of the word 'toll' and 'octroi' and pointed out how differently the two words are legally and popularly understood. The Seventh Schedule of the Constitution of India empowers the State to levy octroi as found in Entry 52 of List II thereof. While Entry 59 of List II of the Seventh Schedule of the Constitution of India empowers the State to collect tolls. Thus, the basic constitutional difference between that two levies. Further, Section 127 of the Maharashtra Municipal Corporation Act, 1949 lists out the power of the Corporation to impose tax as listed therein and it separately enumerates 'octroi' and 'toll'. This again is indicative of the fact that legally 'octroi' as a tax is distinct from a 'toll' as a tax. Further, we note the impugned order also placed reliance upon various dictionary meanings which again show that a 'toll' is normally collected on account of use of the roads by animals and humans. As against which, 'octroi' is normally collected on account of goods entering the corporation limits (area) for use, consumption or sale. Keeping in view the aforesaid distinction between the two, the impugned order of the Tribunal holds that Section 206C(1C) of the Act obliges every person who grants a contract/lease transferring his right to collect toll to also collect tax at source as specified at serial No.2 of the Table to Section 206C(1C) of the Act. However, Section 206C(1C) of the Act cannot be extended to oblige the Corporation to collect tax at source from its agent in respect of octroi collected;

++ it is a settled position of law that fiscal statues are strictly construed. Recently the Supreme Court in CIT vs. Calcutta Knitwears - 2014-TIOL-30-SC-IT has held that while interpreting fiscal statues, the Court must not add or substitute the word in the provision. Applying aforesaid test to the case at hand the inescapable conclusion is that Section 206C(1C) only obliges a person to collect tax from its agents/licensee who collects a toll on its behalf. The obligation to collect tax u/s 206C(1C) cannot be extended to collection of octroi. The legislature when it brought in section 206C(1C) has not authorised the collection of tax at source in respect of octroi. It specifically restricted its obligation to only three categories namely parking, toll plaza, mining and quarrying. It is not open to the Revenue to extend the ambit and scope of section to also include contracts, license or lease for collection of items other then toll, parking fees and for mining and quarrying. Therefore, there is no legislative mandate to collect tax at source or the octroi collected u/s 206C(1C) of the Act.

(See 2017-TIOL-1498-HC-MUM-IT)