2011 (6) TMI 399 - AT - Income Tax

Tax collected at source - whether an assessee who imports scrap and sells them in the local market, could be brought under the purview of section 206C - assessee contended that they are only traders; they are not into any manufacturing activity which would yield any scrap - Held that - On perusal of record we find that the nature of goods imported by the assessee is scrap from demolished buildings and others and it is not generated out of any manufacturing process carried out by somebody. Assessee sold scrap but the scrap sold is not the scrap as defined in Explanation (b) to section 206C. The scrap sold was neither generated from the manufacture or mechanical working of materials nor was the scrap sold not usable as such. Therefore we exonerate assessee from the ambit of provisions of section 206C(1). Orders of revenue authorities set aside - Decided in favor of assessee

Issues Involved:
1. Applicability of Section 206C of the Income Tax Act.
2. Definition and scope of "scrap" under Explanation (b) to Section 206C.
3. Liability of a trader versus a manufacturer under Section 206C.
4. Interpretation of fiscal statutes and legislative intent.

Issue-wise Detailed Analysis:

1. Applicability of Section 206C of the Income Tax Act:
The primary issue in these appeals is whether the provisions of Section 206C, which mandate the collection of tax at source on the sale of certain goods, apply to the appellants who are traders in recycled metals. The appellants are contesting the demand raised by the Assessing Officer (A.O.) for failing to collect tax at source on sales of scrap worth Rs. 2,83,22,756 and Rs. 7,49,31,721 for the assessment years (A.Y.) 2009-10 and 2010-11, respectively.

2. Definition and Scope of "Scrap" under Explanation (b) to Section 206C:
The term "scrap" is defined in Explanation (b) to Section 206C as "waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting-up, wear and other reasons." The appellants argued that the materials they sold do not fit this definition since they are traders dealing in recycled metals derived from dismantling buildings, not from manufacturing processes. The C.I.T.(A) upheld the A.O.'s view that the appellants were liable under Section 206C, interpreting the definition to include even traders.

3. Liability of a Trader versus a Manufacturer under Section 206C:
The appellants contended that Section 206C applies specifically to manufacturers of scrap, not to traders. They argued that the scrap they sold was not generated from any manufacturing or mechanical working carried out by them, thus exempting them from the provisions of Section 206C. The C.I.T.(A) disagreed, stating that the section applies to both traders and manufacturers, emphasizing that the title of the section includes "Profits and gains from the business of trading."

4. Interpretation of Fiscal Statutes and Legislative Intent:
The appellants relied on judicial precedents to argue that fiscal statutes should be interpreted strictly and literally, without extending the scope beyond the clear language of the law. They cited the Delhi High Court's decision in CIT v. Sumi Motherson Innovative Engg. Ltd., which emphasized that the intention of the legislature should be derived from the plain language of the statute.

Judgment Analysis:

Findings on the Applicability of Section 206C:
The Tribunal examined whether the appellants, as traders in scrap, fall under the purview of Section 206C. It was noted that the scrap sold by the appellants was derived from dismantling buildings and not from any manufacturing or mechanical working of materials. The Tribunal found that the C.I.T.(A) erred in applying the provisions of Section 206C to the appellants, as the specific conditions outlined in Explanation (b) were not met.

Definition and Scope of "Scrap":
The Tribunal emphasized that for an assessee to be liable under Section 206C, the scrap sold must meet the criteria of being waste from manufacturing or mechanical working and not usable as such. The materials sold by the appellants did not originate from any manufacturing process, thus falling outside the scope of the definition provided in Explanation (b).

Liability of a Trader versus a Manufacturer:
The Tribunal clarified that the heading of a section cannot override the specific provisions and definitions within the section. It was concluded that the legislative intent, as expressed in the detailed provisions and explanations, did not support the inclusion of traders like the appellants under Section 206C.

Interpretation of Fiscal Statutes:
The Tribunal agreed with the appellants' argument for a strict and literal interpretation of fiscal statutes. It held that the language of Explanation (b) to Section 206C is clear and unambiguous, and the appellants' activities did not fall within its ambit.

Conclusion:
The Tribunal set aside the orders of the revenue authorities, concluding that the appellants were not liable to collect tax at source under Section 206C. The appeals filed by the appellants were allowed, and the demands raised by the A.O. were quashed.

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