TMI Blog2015 (1) TMI 707X X X X Extracts X X X X X X X X Extracts X X X X ..... n to everybody that 'Timber' is not such an item, transportation of which could be easily concealed. But the Department has come across several ways and means carved out by the traders in the field, to effect deals and evade tax through such dubious means. In such situation, commodity-wise preference has been made, identifying such items and the trade set up, considering the market conditions and such other circumstances. This includes trade in Liquor, Timber, Tendu leaves, Scrap, other Forest produces, Minerals being coal, lignite or iron ore. Depending upon the nature and extent of trade and the commodities concerned, different extent of deduction/percentage has also been specified, as given in the 'Table'. This is on the basis of the conscience and wisdom of the law makers and it is not for the Court to question or substitute the same. Whether 'Timber' is imported from outside the country or whether it comes to the hands of the petitioners by forest lease or any other mode, chance to evade tax 'by the buyer' weighed more with mind of the law makers, to have stipulated that, seller shall effect collection of tax at the prescribed rate, at the time of sale. Considering the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P.K. RAVINDRANATHA MENON, STANDING COUNSEL SRI.JOSE JOSEPH JUDGEMENT Whether Section 206C of the Income Tax Act is applicable in the case of dealers like the petitioners, who are importing timber from abroad, to effect 'Tax Collection at Source'; and would the failure, if any, make them an 'assessee-in-default', to be saddled with the liability to pay tax and also interest as envisaged therein, is the main point projected for consideration. The foundation built up to dispute the applicability is, with reference to the circumstances under which Section 44AC and 206C were brought into the Statute Book about 2 decades ago and the subsequent deletion of Section 44AC alone, with effect from 01.04.1992; however retaining Section 206C. The attempt is, to give only a restricted meaning to the term 'timber obtained by any mode other than under a forest lease' given at Serial No. iii of the table under Section 206C, which according to the petitioners, has to be read and understood as to the procurement of timber from the 'Indian soil' and not from abroad. 2. Before dealing with the provisions of law, the factual matrix reveals that, all the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was collected at source from the registered dealers at the time of sale of timber. The respondents contend that, the term 'obtained' used in Section 206C covers all modes of acquisition. Referring to the relevant provisions of law and also the explanation offered by the petitioners, it is contended that, the petitioners are liable for collecting tax at source from the sale amount of timber sold to other retail dealers, with effect from 08.09.2003. The point regarding the deletion of Section 44AC as well as the purpose and effect of introduction of Section 206C are also discussed in detail. Copy of the decision rendered by the Rajkot Bench of the Income Tax Appellate Tribunal in Shyam Timber Pvt. Ltd. Vs. Department of Income Tax and a copy of the decision rendered by the Gujarat High Court, dismissing the appeal filed by the Revenue (raising the alleged substantial question of law under Section 260A of the Act) have also been produced as Annexures 2(B) and 2(C) respectively. 5. Heard Sri. Arshad Hidayathullah, the learned Senior Counsel on the side of the petitioners and Sri. P.K Ravindranatha Menon, the learned Senior Central Government Counsel (Taxes) appearing on beha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned was found to be quite difficult to be traced out and in the said circumstances, to check the tax evasion and to procure revenue at the earliest point of time, remedy was worked out by including such items/instances within the reach of the Department, by fixing a specific extent of the purchase price, as 'presumptive income' procured from the deal. It was accordingly, that Section 40AC was introduced and the rate of tax leviable at the source in respect of such commodities, was specified under Section 206C of the Act. Subsequently, on finding that the 'presumptive income' as stipulated under Section 44 AC was causing much hardship to genuine dealers, the Parliament, by virtue of its wisdom, sought to delete the said provision from the statute book with effect from 1.4.1992, as per the relevant Finance Act. 8. The learned Senior Counsel submits that, the petitioners belong to a different class by themselves, being 'importers' of timber from other countries. As such, they are very much identifiable and their transactions are quite transparent. It is stated that, most of the sales effected by the petitioners were to the registered dealers. The transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts rendered by this Court, and that of the Apex Court in Sanyasi Raos' case (cited supra). The learned counsel also points out that, Section 206C stands on a footing of its own, and it was never resting on the platform of Section 44AC. It is stated that the course stipulated under Section 206C is only to procure revenue at the source itself, and the 'purchase price' is treated as a 'measure', to apply the percentage/rate stipulated. It is almost a similar exercise as the Tax Deducted at Source (TDS). Such an exercise by itself does not amount to any assessment of its own, and the duty cast upon the parties concerned by virtue of the enactment is merely to debit the amount and to have it remitted to the Government account, for being credited to the account of the buyer, as envisaged under sub section 4 of Section 206C. Even though Section 44AC was deleted with effect from 1.4.1992, Section 206C remains in tact, with its own identity and scope. It is also brought to the notice of this Court that said provision has undergone many changes after 1.4.1992, i.e., after deletion of section 44AC, so as to meet timely requirements, depending upon the policy and desire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .M Joseph Binoy's case [(1992) 194 ITR 449(Ker)]. The position has become final, in view of the confirmation of the verdict passed by the Andhra Pradesh High Court as per the judgment rendered by the Apex Court in Union of India Another v. Sanyasi Rao and others reported in [(1996) 219 ITR 330(SC)]. Since constitutional validity of the provision has been upheld and the liability to collect tax in terms of Section 206C of the Act has become final, the attempt of the petitioners is to contend and try to establish that the provision is not applicable to their case. 11. To understand the scope of the provision, a peep into the metamorphosis of law in respect of Section 44AC and 206C is necessary. Section 44AC, which was inserted by the Direct Tax law (amendment) Act 1989 with effect from 1.4.1989 reads as follows: 44AC. Special provisions for computing profits and gains from the business of trading in certain goods.- (1) Notwithstanding anything to the contrary contained in sections 28 to 43C in the case of an assessee, being a person other than a public sector company (hereafter in this section referred to as 'the buyer'), obtaining in any sale by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) For the removal of doubts, it is hereby declared that the provisions of sub-section (i) shall not apply to a buyer (other than a buyer who obtains any goods, from any seller which is a public sector company) in the further sale of any goods obtained under or in pursuance of the sale under sub-section (1). (3) In a case where the business carried on by the assessee does not consist exclusively of trading in goods to which this section applied and where separate accounts are not maintained or are not available, the amount of expenses attributable to such other business shall be an amount which bears to the total expenses of the business carried on by the assessee the same proportion as the turnover of such other business bears to the total turnover of the business carried on by the assessee. Explanation- For the purpose of this section, 'seller' means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co- operative society . 12. Section 206C of the Act was inserted by the Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson from whom the amount has been collected and credit shall be given to him for the amount so collected on the production of the certificate furnished under sub-section (5) in the assessment made under this Act for the assessment year for which such income is assessable. (5) Every persons collecting tax in accordance with the provisions of this section shall be within ten days from the date of debit or receipt of the amount furnish to the buyer to whose account such amount is debited 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 other particulars as may be prescribed. (5A) Every person collecting tax in accordance with the provisions of this section shall prepare half-yearly returns for the period ending on 30th September and 31st March in each financial year, and deliver or cause to be delivered to the prescribed income tax authority such returns in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed. (6) Any person responsible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect form 8.9.2003 which read as follows: 11. The said clauses further substituted by the Taxation Laws(Amendment) Act, 2003 with effect from 8.9.2003 which read as below: Explanation.- For the purposes of this section,- (a) buyer means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the table in sub-section (1) or the right to receive any such goods but does not include,- (i) a public sector company, the central Government, a State government and an embassy, a high commission, legation, commission, consulate and the trade representation, of a foreign State and a club; or (ii) a buyer in the retail sale of such goods purchased by him for personal consumption . 15. From the above provisions, it is very much clear that, tax was not liable to be collected at source under Section 206C, from a buyer in the further sale of such goods obtained, which subsequently came to be restricted to buyers engaged in 'retail sale' of such goods during the period from 1.6.1993 to 8.9.2003. After 8.9.2003, exemption was further restricted to the buyers under Clause (a) ii, only if it was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be credited against the account of the buyers, as envisaged under sub section 4 of Section 206C. 17. By virtue of the nature of business and the type of commodity involved, the law makers, in their wisdom, thought it fit to fix a 'presumptive income' in respect of such transactions, which was brought about by incorporating Section 44AC w.e.f. 01.04.89. It is true that the said provision had a life span only till 31.03.1993 and the same was deleted, by virtue of a conscious exercise, because of the hardships faced by genuine buyers, brought to the notice of the Parliament. At the same time, the Parliament was well aware of the existence of Section 206C and consciously found it necessary to be retained, as it could work of its own, to effect deduction of tax at the specified rate in respect of the commodities mentioned therein and to be paid to the Central Government, on account of the buyers. 18. It is relevant to note that, under Section 44AC, only 'four' different instances/commodities were included to work out 'presumptive income'. Coming to Section 206C, there were 'six entries' and the entries at Serial No. 2 and 6 ('Tendu leaves' a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and understood to have only a limited field of application i.e. for collection of tax. In fact, there is no presumptive tax under Section 206C and it only fixes a measure, as to the amount to be collected and deposited in the account of the Government, to be credited against the account of the buyer. Proper assessment will follow and once the liability is fixed, it may turn to 'buyer' to pay the balance tax, or effect refund, if any. It is also relevant to note that, the Legislature incorporated Section 206CA, by virtue of the amendment in the year 2002, whereby the allotment of tax collection account number was specified among other things. This shows that Legislature did not stop just after deletion of Section 44AC. The amendment at different points of time had its own object and reasons. Collection of tax at source is discernible under other similar circumstances as well, as referred to hereinbefore. This being the position, the circumstance under Section 44AC was introduced or the consequence of deletion of the said provision w.e.f. 01.04.1993, cannot have a bearing in non-satisfying the requirement by the concerned dealers under Section 206C of the Act, in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions and such other circumstances. This includes trade in Liquor, Timber, Tendu leaves, Scrap, other Forest produces, Minerals being coal, lignite or iron ore. Depending upon the nature and extent of trade and the commodities concerned, different extent of deduction/percentage has also been specified, as given in the 'Table'. This is on the basis of the conscience and wisdom of the law makers and it is not for the Court to question or substitute the same. Whether 'Timber' is imported from outside the country or whether it comes to the hands of the petitioners by forest lease or any other mode, chance to evade tax 'by the buyer' weighed more with mind of the law makers, to have stipulated that, seller shall effect collection of tax at the prescribed rate, at the time of sale. 23. Incidental reference to the Scheme of Statute is also relevant. Section 4 of the Income Tax Act forms the basis for charge of tax and Section 5 refers to the total income. Income deemed to be received is dealt with under Section 7, while Section 9 refers to income deemed to accrue or arise in India. The relevant portion of Section 9 is extracted below : S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;buyer'. For clarity and convenience, rate of tax to be collected is also specified under Section 206C, in respect of the concerned commodities, to be adjusted against the actual tax payable by the buyer under the regular assessment. This being the position, the source from which 'Timber' came to the hands of the petitioners does not have any relevance at all, and it very much satisfies the term obtained by another mode , as envisaged under the relevant provisions of law. The version of the petitioners is that it has to be read and understood giving restrictive meaning referring to the circumstances under which section 44AC was introduced w.e.f 01.04.1988, does not hold any water at all. 25. There is a feeble attempt to contend that the petitioners have to be treated as 'second sellers', as the first sale has already taken place on purchasing the goods from abroad. Since it is the second sale, no tax liability could be mulcted upon the shoulders of the petitioners. This proposition is cent per cent contrary to the case projected by the petitioners right from the beginning, that the transaction has to be considered in the 'Indian context', to ascert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 44AC of the Income Tax Act, the difficulties experienced by the Revenue to identify persons engaged in the trade of specified commodities (Timber obtained by way of forest lease, Forest produce, Timber obtained by any other mode of transport) and the chances for evasion of tax, for want of proper identity and lack of infrastructure to trace out the defaulters. 27. In the above decision, reference has been made to principle of 'noscitur a sociis . The said principle is [as explained in Advance Law Lexican Vol III - 3rd Edn. 2007 - reprint (P. Ramanatha Iyer)] - the meaning of the doubtful word may be ascertained by reference to the meaning of the word associated with it. This Court finds that the said decision does not come to the rescue of the petitioners in any manner. Same is the position, with regard to the decision rendered by a Division Bench of the Madras High Court in Commissioner of Income Tax Vs. Singapore Airlines Ltd. [(2013) 358 ITR 237 (Madras)] and the Jaipur Bench of the Rajasthan High Court in Commissioner of Income Tax (TDS) Vs. Rajasthan Urban Infrastructure Development Project (RUIDP) [(2013) 359 ITR 385 (Rajasthan)]. 28. The question considered b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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