2011 (6) TMI 334 - AT - Income Tax

Collection of tax under the provisions of section 206C - Sale of goods - Held that - For the financial year 2004-05 with which are concerned in the present appeal the law relating to the definition of buyer was as per the Taxation Laws (Amendment) Act w.e.f. 8-9-2003 - The appellant obviously do not fall in sub-clause (ii) or clause (a) of the Explanation to section 206C - Going by the spirit of the letter dt. 10-1-1996 of the Board the appellant was not required to deduct tax at source if it falls in any of the exceptions provided in Clause (a) of Explanation to section 206C. As stated earlier the appellant does not fall in any of the exceptions. Hence the appellant s argument that provisions of section 206C are not applicable for the sales made by it is not acceptable and this ground of appeal is dismissed. Collection of tax at source under section 206C - Appellant contended that part of the products were sold to certain purchasers who utilized the same in the manufacturing process - Held that - Appellant has neither furnished the details of the buyers who furnished such Form No. 27C nor furnished the evidence relating to the fact that copies of such declarations were delivered to the Chief Commissioner or Commissioner - Decided against the assessee. Tax liability - TCS - While section 201(1) treats an assessee who fails to deduct the tax at source or after deduction does not pay the same to the Government as an assessee in default - Held that - Section 206C(6) clearly provides that any person responsible for collecting the tax who fails to collect the tax in accordance to the provisions of the said section shall not withstanding such failure be liable to pay the tax to the credit of the Central Government - Thus in case of failure to effect the TCS becomes the liability of the collector of such tax and he is mandatorily required to pay the same to the Central Government as the word used in the said section is shall - Therefore the case law relating to section 201(1) would not be applicable to the cases covered under section 206C(6) of the Act - Decided against the assessee.

Summary

Issues Involved:

1. Liability for collection of tax under section 206C of the Income-tax Act.
2. Applicability of TCS provisions on sales used in the manufacturing process.
3. Non-collection of TCS when buyers have already paid tax on the transactions.

Detailed Analysis:

Issue 1: Liability for Collection of Tax under Section 206C

The primary issue is whether the assessee is liable for the collection of tax under section 206C of the Income-tax Act. The assessee, a cooperative society, argued that it is not covered by the provisions of section 206C, which requires the collection of tax from buyers of its products. The Assessing Officer and CIT(A) held that the products sold by the assessee fall under "Forest produce" and are subject to TCS. The assessee contended that it, being the first buyer from tribal sellers, is exempt based on a CBDT letter dated 10-1-1996. However, the CIT(A) noted that the definition of "buyer" was amended by the Finance Act, 2003, and the Taxation Laws (Amendment) Act, 2003, and the assessee does not fall under the exceptions provided. The Tribunal upheld the CIT(A)'s decision, confirming that the assessee is liable for TCS as per the amended provisions.

Issue 2: Applicability of TCS Provisions on Sales Used in Manufacturing Process

The second issue pertains to whether TCS provisions apply to sales where the products are used in the manufacturing process. The assessee claimed that some products were sold to manufacturers who used them in the manufacturing process and issued Form No. 27C, exempting them from TCS. However, the CIT(A) pointed out that the assessee failed to follow the prescribed procedure, such as furnishing Form No. 27C to the Chief Commissioner or Commissioner within the stipulated time. The Tribunal agreed with the CIT(A), noting that the assessee did not produce evidence of compliance with the procedures, thus rejecting the ground of appeal.

Issue 3: Non-collection of TCS When Buyers Have Already Paid Tax

The third issue concerns whether the assessee should be liable for TCS when the buyers have already paid tax on the transactions. The assessee argued that since the buyers had filed their returns and paid tax on the purchases, it should not be liable for TCS. The assessee relied on the Supreme Court's decision in Hindustan Coca Cola Beverages (P.) Ltd. v. CIT, which dealt with section 201 of the Act regarding TDS. The CIT(A) distinguished between TDS and TCS provisions, noting that section 206C(6) imposes a liability on the seller to pay TCS even if it is not collected from the buyers. The Tribunal upheld the CIT(A)'s decision, stating that the provisions of section 206C(6) are specific and mandate the seller to pay TCS, regardless of whether the buyers have paid tax on the transactions.

Conclusion:

The Tribunal dismissed the appeal of the assessee, confirming the liability for TCS under section 206C, the applicability of TCS provisions on sales used in the manufacturing process, and the non-exemption from TCS even when buyers have paid tax on the transactions. The decision emphasized compliance with the specific provisions and procedures outlined in the Income-tax Act.