Facts of the Case :-
Assessing Officer opined that when it effected sale of wood pulp, assessee was obliged to collect tax at source under section 206C . He thus, concluded that assessee was in default for short collection within meaning of section 206C(6A) .
HELD
since as per section 206C(IB), obligation of assessee to file declaration arises only when declaration is furnished to him by buyer and not on month or date when sale is effected by assessee, impugned order was not sustainable particularly when it was only a technical breach .
Section 206C does not mandate that declaration from buyers in Form 27C for non-collection of TCS has to be obtained at very same moment when sale is effected
IN THE ITAT BANGALORE BENCH ‘C’
Karnataka Forest Development Corpn. Ltd.
v.
Income-tax Officer, TDS Ward, Davangere
AND ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
STAY PETN. NOS. 27 TO 29 (BANG.) OF 2015
IT APPEAL NOS. 1144 TO 1146 (BANG.) OF 2014
[ASSESSMENT YEARS 2009-10 TO 2011-12]
APRIL 17, 2015
S. Ananthan, CA for the Appellant. T.S.N. Murthy, CIT (DR) for the Respondent.
ORDER
Abraham P. George, Accountant Member – In these appeals filed by the assessee, it assails being treated as one in default under section 206C(6A) of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’ for short].
2. Facts apropos are that assessee had during the previous years relevant to the impugned assessment years sold wood pulp to three concerns namely (i) Mysore Paper Mills Ltd., Bhadravathi, (ii) West Coast Paper Mills Ltd., Dandeli and (iii) Harihar Poly Fibres Ltd.,Kumarapallanam. Assessee is a State Government undertaking and has, as per its website the following objects:
| “1. | To develop land for raising forest plantations and in particular Eucalyptus, Bamboo, Tropical Pines, Rubber, Cashewnut, Cocoa, Tea, Coffee and such other suitable species in the State of Karnataka, for the purpose of development of industries based on their produce. | |
| 2. | To plant, grow, cultivate, produce and raise plantations of all kinds of varieties of forest plants, trees and crops and natural products of every kind and other agricultural crops and to buy, sell, export, import, process, distribute or otherwise deal in all kinds of forest plants, tree crops, natural products and agricultural crops. | |
| 3. | To carry on the business of planters, cultivators, sellers and dealers in time, plywood, pulpwood, matchwood and such other products of every description and to manufacture, dispose off, sell and deal in products of such plantations and other forest crops of every description. | |
| 4. | To establish, administer, own and run industries for manufacturing forest products. | |
| 5. | To promote the development of Forest Industries, to operate suitable schemes and for that purpose to prepare and get or cause to be prepared reports, blue prints, statistics, feasibility studies and project reports and other information. | |
| 6. | To promote companies, firms, establishments, concerns or undertakings for the purpose of development of industries based on forest produce and to assist and finance any individual firms or company with capital, loan, credit resources etc. | |
| 7. | To take up construction of buildings in furtherance of forests. | |
| 8. | To take up research and sponsor work relating to forestry including tissue culture and allied activities. | |
| 9. | To conduct tours in relation to Wildlife Sanctuaries and other places of interest. “ |
3. The Assessing Officer (AO) was of the opinion that assessee, when it affected the sale of wood pulp, was obliged to collect tax at source under section 206C, but had failed to do. He put the assessee on notice. Reply of the assessee was that:
| i. | The buyers were manufacturers and not traders and the wood pulp was used for manufacture. | |
| ii. | Wood pulp sold by it was not a forest produce. | |
| iii. | Wood used for pulping was not spontaneous growth, but cultivated by the assessee on leased forest land. |
Along with the above reply assessee also filed a declaration from the buyer in Form 27C in which they affirmed that the wood pulp was being used for their manufacturing activity only.
4. However, the AO was not impressed by the above reply.
According to him:
| i. | Wood pulp was a type of goods falling under item (v) of the Table given in section 206C(1), viz., forest produce | |
| ii. | Declaration in Form 27C filed by the assessee was not complete since part II was missing. | |
| iii. | Copy of the declaration was not delivered by the assessee to the Chief Commission or Commissioner, as mandated in section 206(1B) of the Act. |
Nevertheless he dropped the proceeding in so far as supplies to M/s. Mysore Paper Mills Ltd., was concerned, since it was a Government company. After verifying the sales made to the other two parties, he concluded that assessee was one in default within the meaning of section 206C(6A) for short collection of tax of Rs. 22,03,232/- for assessment year 2009-10, Rs. 14,48,680/- for assessment year 2010-11 and Rs. 23,49,112/- for assessment year 2011-12 and for interest of Rs. 11,11,774/- for assessment year 2009-10, Rs. 5,56,074/- for assessment year 2010-11 and Rs. 7,14,618/- for assessment year 2011-12 under section 206(7) of the Act.
5. Aggrieved, assessee moved in appeal before the CIT(A) for all the years. It reiterated its contention that pulp wood was a cultivated produce on lands leased from Government which involved organized activity, that Form 27C was filed albeit late, that the breach if any was technical since the buyers had used the wood pulp only for their manufacturing work. However, the CIT(A) was unimpressed by the above, and proceeded to confirm the orders of the AO.
6. Now before us, ld AR strongly assailing the order of the lower authorities, through his submissions endeavored to drive home the following points:
| i. | Declaration in Form 27C as prescribed in Rule 37 of the Income-tax Rules 1962 was filed before the AO during the course of the proceedings. | |
| ii. | Delay in filing copy of the declaration can invite penalty under section 272A(2)(j) of the Act but cannot render the assessee, one in default. | |
| iii. | Form 27C was filed for both the parties viz., West Coast Paper Mills Ltd., and Harihar Polyfibres Ltd., but these were brushed aside only for a technical reason of delay. | |
| iv. | Once the buyer were using the wood pulp for their manufacturing process, the seller was not bound to collect tax at source from the buyer. |
The ld.AR relied on a judgment of Hon’ble Madras High Court in the case of CIT v. Adisankara Spg. Mills (P.) Ltd. [2014] 362 ITR 233 in support of his argument that delay in filing Form 27C was only a technical breach, liable to be condoned. In support of his contention that section 206C applied only to a forest produce he relied on a judgment of Hon’ble Andhra Pradesh High Court in the case of Andhra Pradesh Forest Development Corpn. Ltd. v. Asstt. CIT [2005] 272 ITR 245
7. Per contra, learned Departmental Representative submitted that Form No.27C was filed by the assessee late, only when proceedings were initiated for the default. This, as per the ld.DR, was done only to circumvent the consequence of the default. As per the ld. DR, if the Form was not filed in time, Revenue lost a valuable right of proceeding against the buyer and section 206C(1B) stood violated. As per the ld. DR, assessee, having sold forest produce without collecting tax at source and without obtaining Form No.27C, was rightly held to be one in default. Ld. DR stressed that the said declaration was to be obtained at the time of sale and not later.
8. We have perused the orders and heard the rival contentions. It is not disputed that assessee had filed the declaration from the buyer, as mandated in section 206C(1A) only when show cause notices were issued by the AO, pointing out failure to collect tax at source. However, it remains a fact that assessee had produced Form No.27C obtained from both the parties. Copies of these Forms have been placed on record at paper book pages 1 to 66. Both Part I and Part II of the Forms have been filled up. At this juncture, it is necessary to have a reading of section 206C(1A), 206(1B) and rule 37C which prescribed Form 27C.
“206C. Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc.— (1) Every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax:
TABLE
| Sl. No. | Nature of goods | Percentage | |
| (i) | Alcoholic Liquor for human consumption | One per cent | |
| (ii) | Tendu leaves | Five per cent | |
| (iii) | Timber obtained under a forest lease | Two and one-half per cent | |
| (iv) | Timber obtained by any mode other than under a forest lease | Two and one-half per cent | |
| (v) | Any other forest produce not being timber or tendu leaves | Two and one-half per cent | |
| (vi) | Scrap | One per cent: |
Provided that every person, being a seller shall at the time, during the period beginning on the 1st day of June, 2003 and ending on the day immediately preceding the date on which the Taxation Laws (Amendment) Act, 2003 comes into force, of debiting of the amount payable by the buyer to the account of the buyer or of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table as it stood immediately before the 1st day of June, 2003, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax in accordance with the provisions of this section as they stood immediately before the 1st day of June, 2003.
(1A) Notwithstanding anything contained in sub-section (1), no collection of tax shall be made in the case of a buyer, who is resident in India, if such buyer furnishes to the person responsible for collecting tax, a declaration in writing in duplicate in the prescribed form2 and verified in the prescribed manner to the effect that the goods referred to in column (2) of the aforesaid Table are to be utilised for the purposes of manufacturing, processing or producing articles or things and not for trading purposes.
(1B) The person responsible for collecting tax under this section shall deliver or cause to be delivered to the Chief Commissioner or Commissioner one copy of the declaration referred to in sub-section (1A) on or before the seventh day of the month next following the month in which the declaration is furnished to him.”
“Declaration by a buyer for no collection of tax at source under section 206C(1A).
37C. (1) A declaration under sub-section (1A) of section 206C to the effect that any of the goods referred to in the Table in sub-section
| (1) | of that section are to be utilised for the purposes of manufacturing, processing or producing articles or things and not for trading purposes shall be in Form No. 27C and shall be verified in the manner indicated therein. | |
| (2) | The declaration referred to in sub-rule (1) shall be furnished in duplicate to the person responsible for collecting tax. | |
| (3) | The person referred to in sub-rule (2) shall deliver or cause to be delivered to the Chief Commissioner or Commissioner, one copy of the declaration referred to in sub-rule (1) on or before the seventh day of the month next following the month in which the declaration is furnished to him. |
Explanation.- For the purposes of sub-rule (3), the Chief Commissioner or Commissioner means the Chief Commissioner or Commissioner to whom the Assessing Officer, having jurisdiction to assess the person referred to in sub-rule (2), is subordinate.”
9. Section 206C(1A) mandates that any person responsible for collecting tax under section 206C(1) need not do so if he obtains a declaration from the buyer that he is purchasing the goods for use in manufacturing, processing or producing articles or things. It does not say that such declaration has to be obtained at the very same moment when a sale is affected. A reading of sub section (1B) clearly brings out this since obligation of the assessee to file a copy of the declaration arises only when the declaration is furnished to him by the buyer. The point of reference is furnishing of declaration by the buyer and not the month or date on which sale is affected by the assessee. Even if we consider that there is a breach on the part of the assessee in not obtaining the declaration from the buyer the moment a sale was affected, and in filing it before the CCIT or CIT, as the case may be, a similar breach was considered to be only technical and one that could be condoned by Hon’ble Madras High Court in the case of Adisankara Spg. Mills (P.) Ltd. (supra). In the said case, assessee had filed Form 27C subsequent to the proceedings, through a rectification petition under section 154, but still considered to be sufficient compliance, which view of the Tribunal was confirmed by Hon’ble Madras High Court. Proceedings on the assessee for the alleged default here were initiated on 10/10/2011 and assessee had before 31/10/2012 filed the Forms. Assessment years involved were assessment year 2009-10 to 2011-12 and there was much time left with the Revenue to verify whether the buyers were indeed using the wood pulp for manufacturing, processing or producing article or thing and not for trading and to proceed against them if they had furnished false declaration. We are therefore of the opinion assessee could not have been deemed as one in default under section 206C(6D) of the Act or liable for interest under section 206(7). Orders of the lower authorities were set aside.
10. Appeals of the assessee are allowed.
11. Since appeals are disposed off stay petitions filed by the assessee have become infructuous and are dismissed.