2016 (8) TMI 952 - AT - Income Tax

Application of section 206C applicable on traders of scrap - scrap generated from the mechanical working of the material (breaking of the ship) - Held that - The only condition of the scrap is that the scrap should be waste and scrap from the manufacturing or mechanical working of material, which is definitely not usable as such on account of breakage, cutting up, wear and other reasons. In our opinion, the provisions of Section 206C of the Act are applicable to the present case as the assessee is a trader and dealing in the scrap generated from the mechanical working of the material (breaking of the ship). Further it is not necessary that such mechanical working (breaking of the ship) should be carried out by the assessee himself. The assessee is, therefore, liable to deduct tax at source U/s 206C of the Act on the sale of scrap. In fact, the admission of the assessee is the best evidence to admit the liability. The assessee himself has admitted that the assessee is dealing in the scrap generated from the breaking of the ship and had purchased the scarp. The contention of the ld AR that since the iron scrap like steel, ingots, iron etc. is being used by the industries without any change, is not correct as the nature of goods shall remain same, therefore, it comes under the definition of the scrap. In our view, the material sold by the assessee cannot be used as such without any modification by the buyer of the said scrap. As the said material/goods come from the breaking of the ship, these goods were sold to the manufacturer/rerolling mills, as scrap therefore, the goods (scrap) sold by the assessee were not usable as such and therefore, the assessee was required to deduct TCS from the buyer. In view thereof, the ground No. 1 of the assessee s appeal is decided against the assessee. Calculation of the TCS U/s 206 - Held that - The consequences of failure to file the declaration in the requisite format as mentioned in the Rules should be provided by the IT Act and not by the Rules. The Rules, in our opinion, cannot extend or restrict the provisions of the Parent Act. The Rules are framed by the Legislature by exercising its power under the Act and therefore, if any penalty provision by way of the exclusion of declaration benefit and submission of the declaration belatedly should be provided by the Act and the rules. The provision of sub-Section (1A) of section 206C, in our view, do not provide the consequences of the delayed filing of the declaration. Though, it provides that it is to be filed on or before the 7th day of the next following month in which declaration is furnished to him. Therefore, though there is delay in issuing the declaration by the buyer, the assessee cannot be penalized or deprived from the benefit of the declaration given by the buyer. The only duty cast upon the seller to submit declaration in the following month in which the declaration received. No time limit has been provided by the statute on the buyer to submit the declaration in Form 27. In view thereof, the ground is required to be allowed. In the light of above, we deem it appropriate to remand the matter back to the file of the Assessing Officer with direction to verify whether the declaration has been filed by the assessee in the requisite form and what will the effect of filing of this declaration on the calculation of the TCS U/s 206 of the Act. It is, however, again clarified that the delay in filing the declaration shall not be a ground to the Assessing Officer to deny the benefit of the declaration to the assessee. In view thereof, the ground No. 2 of the appeal is allowed for the statistical purposes only. Charging interest u/s 206C(7) - Held that - The assessee is duty bound to collect the TCS from the buyers in terms of Section 206C of the Act. However, the collection of TCS and deposit of the TCS is only exempted in respect of the cases where the declaration is being filed by the assessee in view of sub-section (1A) of Section 206C of the Act. In view thereof, the revenue is only entitled to the recovery of the interest on the unpaid tax amount/deposit/short tax deposited by the buyer. If the taxes deposited by the buyer is fair and more than the tax required to be deducted by the assessee then in that eventuality, no interest is payable. However, if the tax deposited by the buyer was found to be less than the amount to be deposited by the assessee then the assessee is liable to pay the interest up to the month in which the returns were been filed by such buyers. Since the declaration is required to be submitted in terms of Rule 37 read with Form 27, therefore, if the tax is not deposited up to the date when the TCS was required to be deducted then the assessee is liable to pay the interest, for example if the TCS is required to be deducted and paid and the due date as per rule 37 was 30th July of the year 2008 and the advance tax was deposited on 01/2/2009, then the assessee is liable to pay interest for the period 01/8/2008 up to the date of deposit of the advance tax. In the light of the above observation, this issue is also remanded back to the file of the Assessing Officer with direction to (i) to verify as to the date when the TCS was due by the seller/assessee, (ii) the date on which the advance tax was paid/deposited by the buyer, (iii) in case the advance tax is deposited prior to the due date of TCS, then no interest shall be charged. However, if the advance paid after the due date then the interest shall be charged for the intermediary period. The ld Assessing Officer is directed to verify all these facts in respect of both the assessment years. In view thereof, this ground of the appeal is also allowed for statistical purposes only.

Summary

Issues Involved:
1. Applicability of Section 206C on traders of scrap.
2. Liability to collect tax at source (TCS) under Section 206C due to late submission of Form No. 27C.
3. Charging of interest under Section 206C(7) despite taxes being paid by buyers.
4. Directions to give credit for usable scrap items and timely filed Form No. 27C.

Issue-wise Detailed Analysis:

1. Applicability of Section 206C on Traders of Scrap:
The assessee contended that Section 206C, which mandates tax collection at source (TCS) on scrap, applies only to manufacturers and not to traders. The assessee argued that scrap must arise from manufacturing or mechanical working and should not be usable as such. The Tribunal, however, held that Section 206C applies to traders as well, noting that the definition of "seller" includes resellers and that the provision covers profits and gains from trading in specified goods, including scrap. The Tribunal concluded that the assessee, being a trader in scrap, was required to collect TCS.

2. Liability to Collect TCS Due to Late Submission of Form No. 27C:
The assessee argued that they should not be liable for TCS as they had collected Form No. 27C declarations from buyers, albeit submitted late. The Tribunal referred to various case laws and concluded that the benefit of Form No. 27C should be given even if submitted late, provided the declarations are genuine and meet the prescribed format. The Tribunal remanded the matter back to the Assessing Officer to verify the declarations and their impact on TCS liability, emphasizing that delay in submission should not deny the benefit.

3. Charging of Interest Under Section 206C(7):
The assessee contended that interest under Section 206C(7) should not be charged as the buyers had already paid taxes. The Tribunal noted that interest should be charged only if there was a delay in tax payment by the buyers. It directed the Assessing Officer to verify the dates of TCS due and the actual tax payments by buyers. If taxes were paid on time, no interest should be charged. If there was a delay, interest should be charged for the period between the due date and the actual payment date.

4. Directions to Give Credit for Usable Scrap Items:
The assessee claimed that some scrap items sold were usable and should not attract TCS. The Tribunal agreed that credit should be given for usable scrap items if Form No. 27C was filed on time. The Tribunal directed the Assessing Officer to verify and give credit for such items, ensuring that the liability for TCS is correctly determined based on the nature of the scrap.

Conclusion:
The Tribunal allowed the appeals partly, providing relief on grounds of late submission of Form No. 27C and directing verification of interest calculations and usable scrap items. The Tribunal emphasized that procedural delays should not negate the substantive compliance with TCS provisions. The matter was remanded back to the Assessing Officer for detailed verification and appropriate adjustments.