2016 (5) TMI 640 - AT - Income Tax

Tax Collection at Source (TCS) - Violation of provisions of section 206C - assessee in default - levy and collection of tax at source in respect of profits and gains of trading in Sawn timber - Held that - The sawn timber were sold by the assessee to the persons who were engaged in manufacturing and processing furniture and such other products. Hence the assessee s case falls under the exception provided in provisions of section 206C(1A) of the Act. Sale of sawn timber does not fall under the ambit of tax collection at source within the meaning of section 206C of the Act - Decided in favour of assessee

Summary

Issues:
Violation of provisions of section 206C of the Income Tax Act, 1961 regarding collection of tax at source on sale of sawn timber.

Detailed Analysis:

1. Background and Issue: The appeals of the revenue and cross objection of the assessee pertain to the violation of section 206C of the Act concerning the collection of tax at source on the sale of sawn timber. The primary issue revolves around whether the assessee breached the provisions of section 206C.

2. Facts and Arguments: The Assessing Officer (AO) found during survey proceedings that the assessee failed to collect income tax on the sale of sawn timber as per section 206C. The assessee contended that sawn timber is distinct from timber, and hence, the tax collection provisions do not apply. The AO treated the assessee as in default. The CIT(A) ruled in favor of the assessee, emphasizing the difference between timber and sawn timber.

3. Judicial Interpretation: The ITAT analyzed the definition of timber and sawn timber, highlighting that the term 'timber' is not explicitly defined in the Act. Relying on precedents and documents, the ITAT concluded that sawn timber is a different commodity produced from timber, not subject to tax collection at source under section 206C.

4. Legal Precedents: The ITAT referred to various legal precedents, including the decision of the Hon'ble Calcutta High Court and the interpretation of 'manufacture' by the Supreme Court. These references supported the conclusion that sawn timber does not fall under the purview of tax collection at source as per section 206C.

5. Final Decision: Considering the arguments, precedents, and the nature of the business process involved in converting timber into sawn timber, the ITAT upheld the CIT(A)'s decision. The ITAT ruled that the sale of sawn timber does not attract tax collection at source under section 206C, thereby allowing the appeals of the revenue and dismissing the cross objection of the assessee.

6. Conclusion: The ITAT's detailed analysis and reliance on legal interpretations and precedents led to the conclusion that the provisions of section 206C were not applicable to the sale of sawn timber by the assessee. The judgment clarified the distinction between timber and sawn timber, providing a comprehensive understanding of the tax implications in such transactions.