2015 (7) TMI 1028 - HC - Income Tax

Tax Collection at Source (TCS) u/s 206C - import of timber from abroad - assessee-in-default - circumstances under which ss. 44AC and 206C were brought into the statute book about 2 1/2 decades ago and the subsequent deletion of s. 44AC alone, w.e.f. 1st April, 1992; however retaining s. 206C - Held that - Though timber under specified circumstances was intended to be included under s. 44AC, in the context of fixing presumptive income, it cannot be said that it has lost its significance, on deletion of s. 44AC, as it stands separately covered and dealt with under s. 206C clubbing along with several other items including tendu leaves and scrap for collection of tax at source. In other words, the law makers had independent application of mind with regard to the items, which were to be included under s. 206C, in respect of which tax had to be collected at source at the specified rate, which includes timber as well. This being the position, the contention of the petitioners that the circumstance under which s. 44AC was incorporated and the consequence in furtherance to deletion of the said provision w.e.f 1st April, 1992 is having a bearing with regard to the exigibility of tax to the very same item mentioned in the Table under 206C, is having no merit or significance. Collection of tax at source is discernible under other similar circumstances as well, as referred to hereinbefore. This being the position, the circumstance under s. 44AC was introduced or the consequence of deletion of the said provision w.e.f. 1st April, 1993, cannot have a bearing in non- satisfying the requirement by the concerned dealers under s.. 206C of the Act, in respect of the commodities specified in the Table given under the said provision.For clarity and convenience, rate of tax to be collected is also specified under s. 206C, in respect of the concerned commodities, to be adjusted against the actual tax payable by the buyer under the regular assessment. This being the position, the source from which timber came to the hands of the petitioners does not have any relevance at all, and it very much satisfies the term obtained by another mode , as envisaged under the relevant provisions of law. The version of the petitioners is that it has to be read and understood giving restrictive meaning referring to the circumstances under which s. 44AC was introduced w.e.f 1st April, 1988, does not hold any water at all. This Court does not find any merit in the writ petitions and no ground raised in support of the same could be held as tenable. - Decided against assessee.

Issues Involved:
1. Applicability of Section 206C of the IT Act to timber importers.
2. Consequences of failure to collect tax at source under Section 206C.
3. Interpretation of the term "timber obtained by any mode other than under a forest lease".
4. Impact of the deletion of Section 44AC on Section 206C.
5. Constitutional validity and legislative intent behind Sections 44AC and 206C.
6. Classification of timber importers and their transactions under Section 206C.
7. Relevance of the source of timber (domestic vs. imported) under Section 206C.
8. Legal precedents and statutory interpretation related to tax collection at source.

Detailed Analysis:

1. Applicability of Section 206C of the IT Act to Timber Importers:
The primary issue is whether Section 206C of the Income Tax Act applies to dealers importing timber from abroad for the purpose of tax collection at source. The petitioners argued that the term "timber obtained by any mode other than under a forest lease" should be restricted to timber procured from Indian soil, not imported timber. However, the court found that Section 206C does not distinguish between timber grown in India and timber imported from abroad. The provision's aim is to prevent tax evasion, and it applies to all timber transactions, including imports.

2. Consequences of Failure to Collect Tax at Source under Section 206C:
The petitioners admitted they did not collect tax at source as required by Section 206C(1). Consequently, the department issued show-cause notices and deemed the petitioners as "assessee-in-default" under Section 206C(6), demanding tax and interest. The court upheld this action, stating that non-collection of tax at source, as mandated by Section 206C, results in liability for the sellers.

3. Interpretation of the Term "Timber Obtained by Any Mode Other than Under a Forest Lease":
The petitioners contended that this term should be interpreted to exclude imported timber. However, the court rejected this argument, emphasizing that the statute does not differentiate between domestic and imported timber. The legislative intent is to include all timber transactions to prevent tax evasion, irrespective of the timber's origin.

4. Impact of the Deletion of Section 44AC on Section 206C:
The petitioners argued that the deletion of Section 44AC, which dealt with presumptive income, should affect the applicability of Section 206C. The court clarified that Section 206C stands independently and was retained even after the deletion of Section 44AC. The purpose of Section 206C is to collect tax at source, not to assess presumptive income, and its applicability remains unaffected by the deletion of Section 44AC.

5. Constitutional Validity and Legislative Intent Behind Sections 44AC and 206C:
The court noted that the constitutional validity of Sections 44AC and 206C had been upheld by various courts, including the Supreme Court. The legislative intent behind these provisions was to address tax evasion in specific commodities, including timber. The court emphasized that the deletion of Section 44AC did not undermine the legislative intent or the applicability of Section 206C.

6. Classification of Timber Importers and Their Transactions under Section 206C:
The petitioners argued that as importers, they should be classified differently and exempted from Section 206C. The court disagreed, stating that the nature of the commodity (timber) and the potential for tax evasion justified the inclusion of all timber transactions under Section 206C. The court emphasized that the provision aims to ensure tax collection at the source, regardless of whether the timber is imported or domestically sourced.

7. Relevance of the Source of Timber (Domestic vs. Imported) under Section 206C:
The court found that the source of timber (whether domestic or imported) is irrelevant under Section 206C. The provision's focus is on the commodity and the need to prevent tax evasion. The court highlighted that the legislative intent was to cover all timber transactions to safeguard revenue, and the petitioners' argument for a restrictive interpretation was without merit.

8. Legal Precedents and Statutory Interpretation Related to Tax Collection at Source:
The court referred to various legal precedents and statutory interpretations to support its decision. It noted that the principle of "noscitur a sociis" (a word is known by the company it keeps) and other interpretative principles did not support the petitioners' arguments. The court emphasized that the legislative history and amendments to Section 206C demonstrated a clear intent to include all timber transactions, including imports, for tax collection at source.

Conclusion:
The court dismissed the writ petitions, upholding the applicability of Section 206C to timber importers and the consequences of failing to collect tax at source. The court emphasized that the provision aims to prevent tax evasion and applies to all timber transactions, regardless of the timber's origin. The petitioners were deemed "assessees-in-default" and liable for tax and interest as mandated by Section 206C. The court also clarified that the deletion of Section 44AC did not affect the applicability of Section 206C, which stands independently to ensure tax collection at source.

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