2025 (3) TMI 144 - AT - Income Tax

Liability for making TCS on compounding fees received from illegal miners illegal transporters and for illegal storage of minerals on which royalty is payable - CIT(A) confirmed AO order - HELD THAT - Authorized Representatives of both the parties in the backdrop of the order passed by the Tribunal in the case of District Mining Officer Bemetara 2023 (8) TMI 31 - ITAT RAIPUR as held that the assessee in the case before us had not only received royalty from the illegal miners/transporters of minerals as it would have in the normal course received in case of a regular lease or license but in fact was in receipt of 10 times of royalty amount from them therefore the contention of the Ld. AR that the assessee was not exigible for collection of tax at source (TCS) on the amounts received from the illegal miners/transporters of minerals being devoid and bereft of any substance is liable to be rejected. We thus in terms of our aforesaid observations finding no infirmity in the view taken by the lower authorities that the assessee who was liable to collect tax at source (TCS) on the amounts received from illegal miners/transporters having failed to do so was to be treated as assessee-in-default u/s. 206C(6) of the Act uphold the same. As the CIT(Appeals) had followed the view taken by the Tribunal qua the identical issues therefore finding no infirmity in the same we uphold his order. Decided against assessee.

ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment were:

Whether the appellant was liable to collect Tax Collected at Source (TCS) on compounding fees received from illegal mining, transportation, and storage of minerals under Section 206C(1C) of the Income-tax Act, 1961.
Whether the appellant was obligated to collect TCS on contributions made towards the District Mining Fund (DMF) and the National Mineral Exploration Trust (NMET) by the leaseholders.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: TCS on Compounding Fees from Illegal Activities

Relevant Legal Framework and Precedents: The legal framework revolves around Section 206C(1C) of the Income-tax Act, which mandates the collection of TCS on certain transactions. The Tribunal referenced its prior decision in the case of District Mining Officer, Bemetara Vs. DCIT (TDS), Raipur, which interpreted the term "transfer" in the context of illegal mining activities.
Court's Interpretation and Reasoning: The Tribunal concluded that the receipt of compounding fees from illegal miners constituted a "transfer" of interest in the mine, as defined under Section 2(47) of the Act. The broad interpretation of "transfer" includes parting with an interest in an asset, even without a formal agreement.
Key Evidence and Findings: The Tribunal noted that the assessee collected fees equivalent to ten times the royalty from illegal miners, indicating a transfer of interest. The Tribunal found that this arrangement effectively allowed the illegal use of the mines for business purposes.
Application of Law to Facts: The Tribunal applied the broad definition of "transfer" to conclude that the assessee was liable to collect TCS on the compounding fees received from illegal miners.
Treatment of Competing Arguments: The appellant argued that compounding fees were not equivalent to royalty and thus not subject to TCS. However, the Tribunal rejected this argument, emphasizing the nature of the transaction as a transfer of interest.
Conclusions: The Tribunal upheld the lower authorities' decision that the appellant was in default for not collecting TCS on compounding fees from illegal mining activities.

Issue 2: TCS on Contributions to DMF and NMET

Relevant Legal Framework and Precedents: The obligation to collect TCS on contributions to DMF and NMET was examined under the provisions of the Income-tax Act and the Mines and Minerals (Development and Regulation) Act, 1957.
Court's Interpretation and Reasoning: The Tribunal directed the Assessing Officer (A.O.) to verify whether contributions to DMF and NMET were made directly by leaseholders or received by the appellant. The Tribunal clarified that if payments were made directly by leaseholders, the appellant had no obligation to collect TCS.
Key Evidence and Findings: The Tribunal noted discrepancies in the appellant's accounts, which suggested potential receipt of contributions. The Tribunal emphasized the need for factual verification by the A.O.
Application of Law to Facts: The Tribunal applied the provisions of the Mines and Minerals (Development and Regulation) Act to determine the appellant's obligations concerning TCS on contributions to DMF and NMET.
Treatment of Competing Arguments: The appellant contended that contributions were made directly by leaseholders, negating the need for TCS collection. The Tribunal required verification of this claim by the A.O.
Conclusions: The Tribunal remanded the issue to the A.O. for verification and directed that TCS obligations be determined based on the factual findings regarding the receipt of contributions.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The assessee by receiving the aforesaid amount i.e. 10 times of, royalty from the illegal miners/transporters of minerals had, in turn, clearly vested/parted with the interest and right in the mine in their favour, which the latter had undeniably used for the purpose of her business."
Core Principles Established: The judgment reinforced the broad interpretation of "transfer" under Section 2(47) of the Income-tax Act, emphasizing that even informal arrangements that result in the use of assets for business purposes can trigger TCS obligations.
Final Determinations on Each Issue: The Tribunal dismissed the appeal regarding TCS on compounding fees, affirming the appellant's default. For contributions to DMF and NMET, the Tribunal remanded the matter for factual verification by the A.O., with specific instructions on determining TCS obligations.

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