2015 (11) TMI 1263 - AT - Income Tax

TCS u/s 206C - Non compliance of provisions of Section 206C - failure to deduct TDS - CIT(A) deleting order passed u/s. 201(1) and interest thereon u/s. 201(1A) - Held that - Waste and scrap are one item. The waste and Scrap must be from manufacture or mechanical working of material which is definitely not usable as such because of breakage, cutting up, ware and to other reasons. It would mean that these waste and scrap being one item should arise from manufacture or mechanical working of material. The words waste and scrap should have nexus with manufacturing or mechanical working of materials. Therefore, the word used is which is definitely not usable. The word is as used in this definition of the scrap meant for singular item i.e. waste and scrap . As stated above, assessee is engaged in ship breaking activity and as given to understand these items/ products in question are finished products obtained from the activity. They constitute sizable chunk of production done by ship breakers. Though such products may be commercially known as scrap they are definitely not waste and scrap . The items in question are usable as such and therefore does not fall within the definition of scrap as given in of section 206C(1). Having said so, we restore the issue to Assessing Officer with direction to grant relief to assessee under the provision of 206C(1) of Act, with regards to only sale of scrap arising out of manufacturing activity in course of ship breaking after providing due opportunity of hearing to assessee. - Decided in favour of revenue for statistical purpose.

Summary

Issues:
1. Deletion of order passed u/s. 201(1) of the I.T. Act and interest charge under section 201(1A).
2. Assessment of tax liability on sale of scrap without deduction at source under Section 206C.

Analysis:
1. The appeal was filed by Revenue against the order of Commissioner of Income Tax (Appeals) concerning the deletion of the order passed u/s. 201(1) of the I.T. Act and interest charge under section 201(1A). The main contention was that the decision relied upon by the CIT(A) was not applicable to the case, as the products involved were distinguishable. The Assessing Officer found that the assessee had failed to deduct tax at source on sales of scrap during A.Y. 05-06, leading to a demand raised under section 201(1) and interest thereon. The CIT(A) allowed the penalty, which was opposed by Revenue, arguing that the order should not have been deleted. The ITAT, after considering the submissions and material on record, found that the products in question were not "waste and scrap" as defined under Section 206C(1), as they were usable and did not arise from manufacturing or mechanical working of materials. Therefore, the ITAT directed relief to the assessee under the provision of Section 206C(1) only for the sale of scrap arising from manufacturing activity in ship breaking.

2. The Assessing Officer treated the total sale of goods by the assessee as scrap under Section 206 of the Act, holding the assessee liable for penalty and interest for failure to deduct tax collected at source. The ITAT observed that the items sold by the assessee, although commercially known as "scrap," were usable products obtained from ship breaking activity and did not fall within the definition of scrap as per Section 206C(1). The ITAT emphasized that the items were not "waste and scrap" as they were usable and did not meet the criteria of being unusable due to breakage or other reasons. The ITAT directed the Assessing Officer to grant relief to the assessee under Section 206C(1) for the sale of scrap arising from manufacturing activity in ship breaking, after providing a hearing to the assessee. Consequently, the appeal filed by Revenue was allowed for statistical purposes.

This detailed analysis of the judgment highlights the issues involved, the arguments presented by both parties, and the reasoning behind the decision rendered by the ITAT, providing a comprehensive understanding of the legal aspects and implications of the case.