2022 (7) TMI 1271 - HC - Income Tax

Tax Collection at Soruce (TCS) - Addition u/s 206C(6)/206C(7) - Tribunal held that Swan timber is different from timber when there is no distinction drawn under Section 206C except in the case of timber obtained under forest lease - liability under Section 206C of the Act does not arise in case of traders in Sawn timber - HELD THAT - The effect of the said provision continue to remain the same even after the amendment in the year 2003 wherein the proviso stood substituted. However, this condition was inserted by way of sub-Section (1A) of the Act which states that notwithstanding anything contained in sub-Section (1) of Section 206C(1), no collection of tax shall be made in the case of a buyer who is a resident in India and if such buyer furnishes to the person responsible for collecting tax, a declaration in writing to the effect that goods referred to in Column 2 of the table contained under Section 206C(1) are to be utilized for the purposes of manufacturing, processing or producing articles or things and not for trading. Thus, if the timber is being sized, sawn into logs of different dimensions and shapes in activities carried on saw mills authorised by the Government, it would amount to a different produce. Even in respect of timbers which are procured as described in table, if it is used in the process of manufacturing, the provision of Section 206C(1) of the Act would not be applicable due to the fact that the product ceased to be a forest produce. As mentioned earlier, the facts in the case of Y. Moideen Kunhi Ors. ( 1985 (11) TMI 58 - HIGH COURT OF KARNATAKA AT BANGALORE are different from the case on hand as the question in the said case was whether sawing of timber logs into different sizes, planks, beams would amount to manufacture within the meaning of Section 2(f) of the Central Excise and Salt Act, 1944. In the instant case, we are considering the effect of a special provision namely, Section 206(C) of the Act and the said decision cannot be applied to the case on hand. For all the above reasons, we agree with the ultimate conclusion arrived at by the tribunal in dismissing the appeal filed by the revenue but for the reasons assigned by us in the earlier paragraphs. In the result, the appeal filed by the revenue is dismissed.

Summary

Issues Involved:
1. Deletion of additions made under Section 206C(6)/206C(7) of the Income Tax Act, 1961.
2. Distinction between swan timber and timber under Section 206C of the Income Tax Act.
3. Non-collection of TCS without required declaration in Form no.27C.
4. Liability under Section 206C for traders in swan timber.

Issue-wise Detailed Analysis:

1. Deletion of Additions under Section 206C(6)/206C(7):
The revenue challenged the deletion of additions made by the Assessing Officer under Section 206C(6)/206C(7) of the Income Tax Act, 1961. The Assessing Officer had issued an order against the assessee for not collecting tax on the sale of timber obtained by modes other than forest lease, as per Section 206C(1). The assessee contended that TCS is applicable only on raw timber, not on processed wood (sawn timber) imported from countries like Indonesia, Malaysia, and Burma. The Tribunal and CIT(A) granted relief to the assessee, and the High Court upheld this decision, agreeing that the assessee did not deal with forest produce, thus not attracting Section 206C.

2. Distinction between Swan Timber and Timber:
The revenue argued that swan timber and timber are the same under Section 206C, except for timber obtained under forest lease. The High Court examined the legislative intent behind Section 206C, noting it was meant for forest produce. The Court found that the assessee traded in processed timber, not raw forest timber, and therefore, the provision did not apply. The Court referred to the Andhra Pradesh High Court's decision in Andhra Pradesh Forest Development Corporation Ltd. vs. Assistant Commissioner of Income Tax, which supported that Section 206C applies only to forest produce.

3. Non-collection of TCS without Required Declaration in Form no.27C:
The revenue contended that the assessee failed to collect TCS without obtaining the required declaration in Form no.27C from buyers. The Court noted that the provision under Section 206C(1A) exempts tax collection if the buyer provides a declaration that the goods are for manufacturing, processing, or producing articles, not for trading. The Court observed that the assessee's activities involved processing timber, which falls under manufacturing, thus exempting them from TCS collection under Section 206C(1A).

4. Liability under Section 206C for Traders in Swan Timber:
The revenue argued that traders in swan timber should be liable under Section 206C. The Court disagreed, noting that the provision targets forest produce. The Court emphasized that the assessee's processed timber (sawn timber) was not a forest produce, thus not subject to Section 206C. The Court referenced the decision in Andaman and Nicobar Islands Forest and Plantation Development Corporation Ltd. vs. Commissioner of Income Tax, which held that converting tree trunks into logs amounts to producing a new commercial article, supporting the assessee's position.

Conclusion:
The High Court dismissed the revenue's appeal, agreeing with the Tribunal and CIT(A) that the assessee's activities did not attract Section 206C as they did not deal with forest produce. The substantial questions of law were answered against the revenue, and the connected application for stay was also closed.