2019 (9) TMI 851 - AT - Income Tax

Assessee in default u/s. 206C(6A) - non-collection of tax at source on sale of heavy scrap - Period of limitation - as alleged default u/s 206C after the end of four years from the financial year in which the default was allegedly committed - as contented by assessee scrap imported from other countries have been sold in the domestic market without involving any manufacture or mechanical working of materials carried out by the assessee and thus do not fall within the sweep of Explanation (b) to Section 206C - HELD THAT - No such limitation provision has been enacted with regard to tax collection at source as provided in Section 206C till date. Under the circumstances, where no time limit has been prescribed by the statute for passing order in respect of default in collection of tax at source, a guidance can be possibly obtained from judicial precedents laying down a reasonable time limit as implicit for imposition of levy of tax at source. We notice that the judicial precedents cited on behalf of the assessee have read a period of four years to be reasonable time limit. The liability of the Collector of tax on behalf of the Government (assessee herein) is a vicarious liability and cannot be allowed to remain hanging on his head for all times to come where the department decides not to take action either by proceedings u/s 206C or by making assessment on the deductee. The show cause notice in the instant case has been issued after five years from the end of the relevant F.Y. 2008-09. Thus, in the absence of statutory time limit prescribed for passing order with reference to collection of taxes, we follow the suit and read reasonable time limit to be four years from the end of the financial year for passing the order under sec. 206C in tune with the judicial precedents in NHK Japan Broadcasting Corpn. s case 2008 (4) TMI 182 - DELHI HIGH COURT and Hutchison Essar Telecom Ltd. s case 2010 (4) TMI 45 - DELHI HIGH COURT In view of the judicial fiat available in this regard which is beneficial to the assessee qua the time period prescribed for deduction of tax at source in Section 201(3) of the Act, we would give primacy to the judicial precedents in the absence of express statutory provision towards time limit in respect of obligation attached to Section 206C - Decided in favour of assessee

Summary

Issues involved:
1. Whether the assessee can be treated as an assessee in default under sec. 206C(6A) of the Income Tax Act for failure to collect tax at source on the sale of scrap.
2. Whether the order imposing tax and interest under sec. 206C(6A)/206C(7) of the Act is time-barred.

Issue 1: The controversy revolves around whether the assessee can be deemed an "assessee in default" under sec. 206C(6A) of the Act for not collecting tax at source on the sale of scrap. The assessee argued that the scrap sold did not meet the statutory definition of scrap as waste or scrap from manufacturing or mechanical working, thus not falling under the purview of sec. 206C. The AO imposed a demand for tax and interest under sec. 206C(6A)/206C(7) on the assessee, which was upheld by the CIT(A). The Tribunal analyzed the provisions of sec. 206C and held that the assessee cannot be treated as an assessee in default under sec. 206C, thereby quashing the liability imposed on the assessee.

Issue 2: The second issue pertains to the timeliness of the order passed under sec. 206C of the Act. The assessee contended that the show cause notice for default under sec. 206C was issued beyond a reasonable period of four years, rendering it time-barred. The Tribunal observed that while no statutory time limit was prescribed for passing orders under sec. 206C, judicial precedents indicated a reasonable time limit of four years from the end of the relevant financial year. Citing relevant case laws, the Tribunal held that the order passed after five years from the relevant financial year was beyond the reasonable time limit. Consequently, the Tribunal set aside the order of the CIT(A) and directed the AO not to treat the assessee as an assessee in default under sec. 206C, thereby quashing the tax and interest liability imposed on the assessee.

In conclusion, the Tribunal allowed the appeal of the assessee based on the above reasonings, emphasizing the importance of a reasonable time limit for passing orders under sec. 206C of the Income Tax Act and clarifying the scope of liability under sec. 206C(6A) concerning tax collection at source on the sale of scrap.