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2015 (1) TMI 707 - HC - Income TaxApplicability of Section 206C r.w.s. 44AC of the Income Tax Act - dealers like the petitioners, who are importing timber from abroad, to effect Tax Collection at Source (TCS); 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? - Held that - The provision does not draw any distinction between Timber grown in India (whether in forest or elsewhere) and the Timber imported from abroad. The object of the Statute is important to be noted, to ascertain the scope of the provision. Procurement of revenue is of paramount importance and the Statute, to the best possible extent takes care of the different situations, where there is a chance to evade payment of tax suppressing such income. It is in the said circumstance, that evasion-prone items have been identified and appropriate extent of collection of tax has been stipulated to be finalized in the due course, after verification of accounts of the buyers/traders concerned. It is known 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 factual position involved, though the Timber was imported from abroad, after clearance from the Customs department paying the Customs duty, when sale is effected by the petitioners (sellers) to the concerned registered dealers or others (buyers), income can be said to have been accrued at the time of purchase to attract imposition of tax on the 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. 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 ascertain whether Section 206C could be invoked in the case of the petitioners (who are importing Timber from abroad), contending that the said provision was intended to tackle the situation of tax evasion by fly by night operators , who procured the specified commodities from soil of Indian origin. If the transaction has to be reckoned with reference to the Indian context as above, the first sale to be effected is also to be considered in the Indian context and admittedly, the first sale effected in India has been performed by the petitioners in their capacity as sellers. - Decided against assessee.
Issues Involved:
1. Applicability of Section 206C of the Income Tax Act to timber importers. 2. Classification of petitioners as 'assessee-in-default' under Section 206C(6). 3. Liability for interest under Section 206C(7). 4. Initiation of penal action against the petitioners. Detailed Analysis: 1. Applicability of Section 206C of the Income Tax Act to Timber Importers: The main issue is whether Section 206C applies to dealers importing timber from abroad and if failure to collect tax at source (TCS) makes them 'assessee-in-default'. The petitioners argued that Section 206C should be read to apply only to timber procured from Indian soil, not imported timber. They contended that the legislative intent behind Section 44AC and its subsequent deletion should guide the interpretation of Section 206C. The court found that the term 'obtained by any mode other than under a forest lease' in Section 206C includes all modes of acquisition, including import from abroad. The deletion of Section 44AC did not affect the applicability of Section 206C, which stands on its own. The legislative intent was to prevent tax evasion in transactions involving specified commodities, including timber, irrespective of its source. 2. Classification of Petitioners as 'Assessee-in-Default' under Section 206C(6): The petitioners were classified as 'assessee-in-default' for not collecting TCS from buyers. They argued that their transactions were transparent and involved registered dealers, making them different from the 'fly by night operators' targeted by the legislation. The court rejected this argument, emphasizing that the statutory duty to collect TCS applies to all sellers of timber, regardless of the source of the timber. The court noted that the legislative intent was to ensure tax collection at the source to prevent evasion, and the petitioners' failure to collect TCS made them liable as 'assessee-in-default'. 3. Liability for Interest under Section 206C(7): The petitioners were also liable for interest under Section 206C(7) for failing to collect and remit TCS. The court upheld this liability, stating that the interest is a statutory consequence of non-compliance with the TCS provisions. The interest is intended to compensate the government for the delay in tax collection. 4. Initiation of Penal Action Against the Petitioners: The court also addressed the issue of penal action against the petitioners. The petitioners argued that they should not be penalized as their transactions were genuine and transparent. However, the court held that the statutory provisions for penal action apply to any failure to comply with the TCS requirements, regardless of the nature of the transactions. The court emphasized that the legislative intent was to ensure compliance and prevent tax evasion. Conclusion: The court dismissed the petitions, holding that Section 206C applies to all timber transactions, including imports. The petitioners' failure to collect TCS made them 'assessee-in-default' and liable for interest and potential penal action. The court emphasized the legislative intent to prevent tax evasion and ensure tax collection at the source. The petitioners were advised to challenge the quantification of their liability before the statutory authorities.
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