Tahbazari is not covered under TCS provisions u/s 206C(1C). Toll plaza are different from Tahbazari

Tahbazari is not covered under TCS provisions u/s 206C(1C).  Toll plaza does not include Tahbazari as there is no toll set up when licence is issued – High Court 

ABCAUS Case Law Citation:
ABCAUS 2462 (2018) 08 HC

The instant appeal had been filed by the Apar Mukhya Adhikari, Zila Panchayat  against the order passed by the Income Tax Appellate Tribunal (ITAT) upholding the order of the CIT(A) who sustained the order of the Assessing Officer for treating the assessee in default for failure to collect TCS from tahbazari licensee.

The appellant was an Apar Mukhya Adhikari Zila Panchayat constituted under a State Act. In order to regularize its function, a policy had been devised whereby Tahbazari-Vahan stand and Balu-Morang, Gitti-BoulderVahan Shulk was auctioned and authority letter was issued to the highest bidder.

The Assessing Officer conducted a survey u/s.133B of the Income Tax Act 1961 (the Act) and it was noticed that there were three kinds of auctions

(i) Tahbazari,
(ii) Tahbazari – Vahan stand &
(iii) Balu – Morang and Gitti boulder – Vahan Shulk.

The Zila Panchayat had issued license to different persons (through tender and auction) for collection of Tehbazari etc. The AO was of the view that the amount collected by Zila Panchayat fall under and within the scope of TCS.

When the AO asked the appellant, it was explained that the licenses were issued for collection of Tahbazari in rural areas of the District from businessman using public place in fairs/markets roadside vehicle parking place (called as Vahan stand) having a display board of parking rates. The Zila Panchayat had issued the license to auctioneer to collect Vahan Shulk from tractors/truck owners and other vehicle carrier which pass through certain places of loading/unloading of Balu Morang, Grit and Boulders.

The Assessing Officer did not agree and took a view that the grant of a license or transferred its right through auction to contractors/agent to collect fees (so called as Tahbazari) is nothing but a toll. Placing reliance on various judgments, the AO worked out the amount of short collection and amount of the interest u/s 206(7).

The assessee went in appeal before the CIT(A) who sustained the order of the Assessing Officer by dismissing all the ground taken by the assessee.

The Tribunal noted that toll is a tax levied as compensation for the purpose of temporary use of land or allowing passage of vehicles through the land. It observed that Tahbazari was collected by the appellant from temporary vendor squatting on the specified places for selling their goods. Thus, the Tribunal opined that it was an issue of granting of a license in respect of using temporary place by the hawkers or the vendors for selling the goods. Toll had also been collected from the parking stand and market places in rural areas therefore it could not be different from toll plaza as well as parking lot. Accordingly, the Tribunal also sustained the order of the Assessing Officer for treating the assessee in default for failure to collect the tax at source from these licensee.

Aggrieved by the ITAT judgment, the assessee appeled to the Hon’ble High Court with the following questions of law:

1. Whether the “Tahbazari” comes within the ambit of Section 206C(1C); 

2. Whether the term “Parking Lot”, “Toll Plaza”, “Mining and quarrying” include “Tahbazari”; 

3. Whether the Apar Mukhya Adhikari, Zila Panchayat was responsible for collecting the tax at source under Section 206C(1C) of Income Tax Act; and 

4. Whether the term “person” as defined under Section 2(31) includes “the Apar Mukhya Adhikari Zila Panchayat’. 

The Hon’ble High Court observed that under Section 206C(1C) of the Act every person, who grants a lease or a licence is required to collect tax at the prescribed rate from the licencee for granting lease/licence or otherwise transferring any right or interest to any other person with respect to parking lot, toll plaza, mine or quarry.

The Hon’ble High Court observed  that the Tahbazari is not an item which is provided under said Section for collecting TCS. If a licence or lease is issued in favour of any other person for collecting the Tahbazari, it could not be said that lessee was collecting toll on such licence or lease, as the case may be.

The Hon’ble High Court further observed that the Court was required to construe the taxing provisions strictly and could not give liberal interpretation to a taxing provision.

Accordingly, the Hon’ble High Court opined that the toll plaza does not include Tahbazari inasmuch as there is no toll set up for collecting the Tahbazari when licence for collecting the Tahbazari is issued. The Tahbazari has different connotation and it is not a toll as held by the Tribunal.

The Hon’ble High Court rejected the the view taken by the Tribunal that Tahbazari is nothing but a toll or it is not different from Toll Plaza. Therefore, the impugned order was set-asideand the the appeal was allowed.

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Note: Tahbazari, is a fee for permission to do certain acts such as sale of goods or services. Tahbazari is charge for a privilege to sell goods and services within certain limits of a local body