2018 (4) TMI 1961 - AT - Income Tax

Levying tax u/s 201(1) and interest u/s 201(1A) - treating the assessee company in default - failure to collection of tax at source u/s 206C on the sale of material as scrap - HELD THAT - The word waste and scrap are one item. Thereafter, the word used is from the manufacture or mechanical working of material. It would mean that the waste and scrap being one item should arise from the manufacture or mechanical working of material. It is, therefore, necessary to read the words waste and scrap together which are generated out of manufacturing process of the assessee. The words waste and scrap should have nexus with the manufacturing or mechanical working of material. Thereafter, 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 . The word waste which is denotes to singular item and thus the singular item would be waste and scrap. As gone through the details of scrap sold which shows that the assessee has sold Plastic Kabrs, Old Tyre weighing scale, M S Barrel Gunny Bags, rubber tubes, M S Scrap ceiling wires which can be re used. These items of scrap sold are not generated out of manufacturing processes of sugar factory, therefore, such items sold are not filing under the definition given under explanation (b) to 206C - The words waste and scrap thus cannot be read differently as is considered by ld. CIT (A). The list of scrap sold by the assessee is reproduced above which are not connected with manufacture or mechanical working of material. The findings of the learned CIT(A) are based on presumption only that since the assessee is engaged in manufacture of sugar, therefore, entire scrap is generated out of its manufacturing activities. The findings of the learned CIT(A) are not based on any material or evidence. By the nature of the scrap items noted above, the same cannot be used while manufacturing gases or doing any mechanical working of the material for the gases. The items of the scrap in the case of the assessee would not form part of the definition of the scrap as is provided in Explanation (b) to section 206C - Thus, the Explanation is wrongly applied in the case of the assessee. Reliance placed by the assessee on the decision of Navine Fluorine International Ltd. 2011 (2) TMI 1110 - ITAT, AHMEDABAD also supports thus, view wherein it was held the assessee has sold certain scrap of consisting of plastic drums, wooden scrap , plates materials, used oil, electric cables etc. was not held to be covered by the definition of scrap as defined under section 206C of the Act. Authorities below have wrongly applied the meaning of scrap as is provided in Explanation (b) to section 206C of the Income-tax Act in the case of the assessee. Therefore, the assessee cannot be held to be in default. The assessee is not required to deduct tax u/s 206C(6) of the Income-tax Act on the items of scrap as noted above. Assessee cannot be treated a assessee in within the meaning of section 206C - Ex-consequenti, no tax could be raised under section 201(1) and no interest could be charged under section 201(1A) - Appeal of the assessee allowed.

Summary

Issues Involved:
1. Tax liability under section 201(1) and interest under section 201(1A) for failure to collect tax at source on the sale of material as scrap.

Analysis:

Issue 1: Tax liability under section 201(1) and interest under section 201(1A) for failure to collect tax at source on the sale of material as scrap.

The appeal was filed against the order of the Commissioner of Income-tax (Appeals) regarding the assessment year 2008-09, arising from the Income-tax Officer's order under section 201(1) and 201(1A) of the Income Tax Act, 1961. The dispute centered around the treatment of the assessee company as defaulting in tax collection at source under section 206C of the Act for not deducting tax on the sale of scrap material. The Assessing Officer considered the scrap material sold by the assessee as arising from manufacturing activity, leading to tax liability and interest. The Commissioner differed with a previous decision and held that the scrap sold by the assessee fell under the definition of scrap as per section 206C of the Act.

The assessee argued that the items sold were not generated from the manufacturing process of sugar and its by-products and cited legal precedents supporting this claim. The Tribunal analyzed the definition of "scrap" as per Explanation (b) to section 206C, emphasizing that waste and scrap should be generated from the manufacturing or mechanical working of material and must not be reusable due to breakage, cutting up, wear, or other reasons. The Tribunal reviewed the items sold by the assessee and concluded that they were not connected to the manufacturing processes of a sugar factory, thus not falling under the definition of scrap as provided in the Act. The Tribunal held that the lower authorities had incorrectly applied the definition of scrap and ruled in favor of the assessee, relieving them from tax liability and interest under sections 201(1) and 201(1A) of the Income Tax Act.

In conclusion, the Tribunal allowed the appeal of the assessee, overturning the tax liability and interest imposed by the lower authorities.