2013 (12) TMI 537 - AT - Income Tax

Applicability of TCS provisions - Selling of Molasses and bagasses Held that - Following CIT vs. Deep Chand and others 2002 (5) TMI 37 - DELHI High Court - Molasses is not a waste or scrap and cannot be used as such - It does not fall within the meaning of scrap as defined in Explanation (b) to section 206C - The assessee cannot be held to be in default and is not required to deduct tax under section 206C(6) on the Molasses and no interest could be charged under section 206(7) Decided in favour of assessee.

Summary

Issues:
Assessment of whether molasses and bagasses generated during sugar production can be considered as scrap under section 206C of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1:
The assessee challenged the order of the Ld. CIT(A) upholding the action of the AO in holding the assessee in default under section 206C(6) of the Act for the sale of molasses.

Analysis:
The Hon'ble Delhi High Court's decision in CIT vs. Deep Chand and others emphasized interpreting statutes in their natural sense unless leading to absurdity. The ordinary meaning of scrap and waste from the Oxford English Dictionary was considered. The IT Act's explanation of scrap as "waste and scrap" from manufacturing or mechanical working of material was analyzed. The Tribunal found that molasses, a by-product of sugar extraction, does not fit the definition of scrap as it is not waste or scrap and cannot be used as such. The Tribunal concluded that molasses does not fall within the meaning of scrap as defined in Explanation (b) to section 206C of the Act. Therefore, the assessee was not required to deduct tax under section 206C(6) on molasses, and no interest could be charged under section 206(7) of the Act.

Issue 2:
The assessment of whether bagasses are considered scrap under section 206C of the Income Tax Act, 1961.

Analysis:
The Ld. CIT(A) partly allowed the appeal by ruling that bagasses are not scrap for the purpose of section 206C of the Act. The Tribunal upheld this decision based on similar reasoning as the molasses issue. Bagasses, utilized as biofuel and in manufacturing pulp and paper products, do not meet the definition of scrap. The Tribunal found that the Ld. CIT(A) rightly deleted the addition on account of bagasses, as upheld in previous cases. Therefore, the assessee was not liable to collect tax at source under section 206C(1) for the sale of bagasses, and the demand raised and interest charged under section 206C(6) and 206C(7) were vacated.

Conclusion:
The Tribunal allowed all four appeals filed by the assessee, determining that molasses and bagasses generated during sugar production were not to be considered as scrap under section 206C of the Income Tax Act, 1961. The orders of the Ld. CIT(A) and AO were overturned, and the assessee was not held in default for failing to deduct tax at source on the sale of molasses and bagasses.