IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : B : NEW DELHI
BEFORE SHRI R.S. SYAL, AM AND SHRI C.M. GARG, JM
ITA No.6023/Del/2013
Assessment Year : 2008-09
Divisional Forest Officer, Vs. ITO (TDS),
Bageshwar Forest Division, Haldwani.
Bageshwar.
PAN: MRTD01065B
(Respondent)
(Appellant)
Assessee By : Shri V.P. Gupta, Advocate
Department By : Smt. Parwinder Kaur, Sr. DR
Date of Hearing : 10.04.2015
Date of Pronouncement : 13 .04.2015
ORDER
PER R.S. SYAL, AM:
This appeal by the assessee is directed against the order passed by
the CIT(A) on 12.08.2013 in relation to the assessment year 2008-09.
The solitary issue raised in this appeal through various grounds is
ITA No.6023/Del/2013
against the sustenance of demand against the assessee u/ss 206C(6) and
206C(7) of the Income-tax Act, 1961 (hereinafter also called `the Act').
2. Briefly stated, the facts of the case are that the assessee, a
Government undertaking, sold Lisa during the financial year 2007-08 to
buyers u/s 206C(1) of the Act amounting to Rs.7,66,82,453/-. The
Income-tax Officer (TDS) observed that a sum of Rs.19,17,061/- was
required to be collected at source, which the assessee did not collect. On
being called upon to explain as to why it be not deemed to be an
assessee in default for such non-collection of tax at source in terms of
section 206C(6A), the assessee stated that all the Lisa purchasers were
manufacturers and Form no. 27Cs were obtained from them. The
assessee furnished such forms, which were admittedly not collected by
the assessee from the buyers at the time of receipt of sale consideration
or debiting their accounts, whichever is earlier. The ITO (TDS) held
that in view of the assessee not collecting tax at source, in the absence of
receipt of such forms from the respective buyers, at the time of sale of
the goods, it committed default as per section 206C, for which it was
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liable to be treated as assessee in default. The amount of short collection
of tax at source was determined at Rs.19,17,061/- and the consequential
interest at Rs.11,50,236/-, thereby raising total demand of Rs.30,67,297/-
for the year under consideration. The ld. CIT(A) upheld the order
passed by the ITO (TDS).
3. We have heard the rival submissions and perused the relevant
material on record. It is an admitted position that the assessee sold
forest produce, not being timber or tendu leaves, in the terms as
described in clause (v) of the Table given in section 206C(1) of the Act
without collecting tax at source. Sub-section (1) of section 206C
provides that : ` 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
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income-tax..'. Going by the mandate of sub-section (1), any seller of the
forest produce is required to collect tax at source from the buyers at the
time of debiting the amount payable to their accounts or at the time of
receipt of such amount, whichever is earlier. Then there is sub-section
(1A) of section 206C which provides that : ` 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 form 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 or for the purposes of generation of power
and not for trading purposes'. The prescribed form of the said
declaration is Form no. 27C. When we read sub-section (1) in
conjunction with sub-section (1A), the position which becomes evident
is that there is a requirement on the seller to collect tax at source at the
prescribed rates on the prescribed goods sold by him to the buyer. Such
collection is to be made at the time of debiting of the amount to the
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account of the buyer or at the time of receipt of such amount from the
buyer, whichever is earlier. However, if the buyer of the specified goods
furnishes to the seller a declaration in Form no. 27C in duplicate, that the
goods purchased by him are to be utilized for the purpose of
manufacturing, processing or producing articles or things, etc., and not
for trading, then, such requirement of collection of tax at source is
dispensed with. Sub-section (1B) of section 206C further provides that
the person responsible for collecting tax at source shall deliver to the
Commissioner one copy of such Form no. 27C on or before the seventh
day of the month next following the month in which the declaration is
furnished to him.
4. Thus, sub-section (1A) of section 206C saves the seller from
collecting tax at source at the time of receiving the amount or debiting
the account of the buyer, whichever is earlier, on the latter furnishing a
declaration in Form No. 27C in duplicate, before or at the time when
the liability for collection of tax at source has arisen. It, therefore,
transpires that the liability of the seller to collect tax at source is waived
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only on the buyer submitting Form no. 27C to him at the time of
debiting the account of buyer or the receipt of payment, whichever is
earlier. This shows that, firstly, there should be submission of Form No.
27C by the buyer and secondly, such Form should be submitted at the
earliest of the occasion of the debiting of his account by the seller or the
receipt of payment. Unless these conditions are cumulatively fulfilled,
the seller is obliged to collect tax at source at the rates prescribed and
deposit the same into the exchequer at the material time. These
conditions must be fulfilled in letter and spirit without any sort of
distortion or dilution or their substitution with other alike conditions as
per the convenience of the parties.
5. Adverting to the facts of the extant case, we find that the buyers
did not submit Form no. 27Cs at the time of debit to their accounts by
the assessee or on their making payment to the assessee, whichever is
earlier. The simple fact of non-receipt of Form no. 27Cs by the assessee
before the above time frame made it liable for default in not collecting
tax at source. The contention of the ld. AR that all the buyers were
registered as manufacturers of the resin products under the relevant Act
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and their furnishing of such Registration certificates to the assessee at
the time of purchase of the goods should be construed as fulfillment of
the requirement of submission of Form no. 27Cs, is devoid of merit.
When the Act clearly stipulates for furnishing of Form no. 27C, there
can be no question of substituting such requirement with the furnishing
of any other document or Registration certificate issued under any other
Act. The obligation of law can be said to have been properly complied
with only on a buyer tendering Form no. 27C in duplicate to the seller at
the relevant time.
6.1. The next argument of the ld. AR was that since Form no. 27Cs
were duly filed with the ITO (TDS) during the course of proceedings
before him, the requirement of the law in furnishing such declarations
should be deemed to be complied with. He harped on the factum of the
buyers tendering such declarations, albeit belatedly. A view was put
forth for acceptance that the time limit for the filing of Form no. 27C is
only directory and not mandatory.
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6.2. It is an undisputed fact that the buyers did not tender Form No.
27Cs at the material time. The assessee collected the same from the
buyers and submitted when the ITO (TDS) took up the instant
proceedings for treating it as assessee in default. We are unable to
concur with the view canvassed by the ld. AR about the requirement of
receiving Form No. 27C as declaratory. It is axiomatic from the
language of sub-section (1A) that no collection of tax at source shall be
made if the buyer furnishes to the seller a prescribed declaration in
writing. When we advert to the stage of collection of tax at source as per
sub-section (1), it becomes palpable that the same is the earliest of the
debiting the account of buyer or receipt of payment. The liability of the
person responsible to collect or not to collect tax at source is wholly and
solely dependent on the availability or otherwise of Form no. 27C at the
time when collection of tax at source is mandated. If such declaration is
not available at the earliest of the receipt of payment or debiting the
account of buyer, the relevant part of the provisions of sub-section (1) of
section 206C becomes operative, making it obligatory for the person
responsible to collect tax at source so as to avoid it from being treated as
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an assessee in default. It is vivid that once the dictate of sub-section (1)
has operated and tax is collected at source due to the non-availability of
Form no. 27C at the time as aforesaid, the late furnishing of such
declaration by the buyer will not bring the arms of the clock back, so as
to entitle the buyer to claim that no tax ought to have been collected
earlier and resultantly, the amount so collected be now refunded on his
furnishing the declaration to the seller after the relevant time. Thus, it is
evident that by no stretch of imagination, the furnishing of Form no. 27C
by the buyer at the time when collection of tax at source is contemplated
under the Act, can be construed as anything other than mandatory. The
argument of the ld. AR to interpret the requirement of submission of
such declaration at the aforesaid time as declaratory, so as to avoid
collection of tax at source on its late furnishing, evidently does not hold
water. The same is, therefore, repelled.
7. One needs to appreciate the vital difference between submitting the
declaration in Form No. 27C before or at the time of the arising of the
liability to collect tax at source on one hand and not submitting at all or
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late submitting such declaration after the liability has already arisen.
When we read sub-section (1) in juxtaposition to sub-section (1A) of
section 206C, it follows that the liability to collect tax at source gets
crystallized at the time of debiting the account of buyer or the receipt of
payment, whichever is earlier, save and except where the buyer
furnishes a declaration in Form no. 27C to the seller at that point of time.
Receipt of such declaration at the material time immunes the seller from
collecting tax at source. What is relevant is the stage of the
crystallization of liability for collecting tax at source. Once that stage
crosses without collection of tax at source, the consequences of non-
collection follow notwithstanding the receipt of declaration after the
relevant time. In fact, there is no material difference in the consequences
of two situations, viz., in which either Form no. 27C is not at all
received or is received belatedly after the passing of the time of debiting
the account of buyer or receipt of payment, whichever is earlier. Both
these situations make the seller liable for default of non-collection of tax
at source. Instantly, we are confronted with a case of late submission of
Form no. 27Cs, which for all practical purposes, is akin to non-
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submission of such declaration for this purpose, thereby inviting
consequences of non-collection of tax at source.
8. One more fact needs to be highlighted. The requirement under the
provision is to furnish Form no. 27C by the buyer to the seller in
duplicate and, then, the seller is obliged to deliver one copy of such
declaration to the Commissioner on or before the seventh day of the
month next following the month in which the declaration is furnished to
him. This requirement of furnishing a copy of the declaration to the
Commissioner by the seller cannot be satisfied by merely giving it to the
ITO (TDS). The assessee in the instant case submitted copies of Form
No. 27Cs only to the ITO (TDS) and, that too, during the course of
current proceedings before him without submitting the same to the
Commissioner.
9. Since the assessee failed to collect tax at source from the buyers
without receipt of Form no. 27Cs at the time of debiting their accounts
or receiving the amounts, whichever is earlier, there can be no escape
from the consequences flowing from such default.
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10. The next line of the argument of ld. AR was that all the buyers
were assessed to tax and the income from the purchase of Lisa and the
sale of the manufactured goods with the use of such material was
properly offered for taxation. In the backdrop of this fact, it was put
forth that the collection of tax at source at this stage from the assessee
would amount to double collection of tax on the same amount of
income, which is impermissible. On the other hand, the ld. DR opposed
the said contention.
11. Section 206C is not a charging provision but a provision for
collection of tax. Any tax collected under this provision is allowed credit
against the tax liability of the person on whose behalf such tax at source
was collected. In other words, the amount of tax collected at source has
to be adjusted against the tax liability of the buyer. Sub-section (4) of
section 206C recognizes this position, inasmuch as it states that : ` Any
amount collected in accordance with the provisions of this section and
paid to the credit of the Central Government shall be deemed to be a
payment of tax on behalf of the person from whom the amount has been
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collected and credit shall be given to such person for the amount so
collected in a particular assessment year in accordance with the rules as
may be prescribed by the Board from time to time.' If due to one reason
or the other, the buyer has no liability to pay tax or his tax liability is
less than the amount so collected, then such amount of tax collected at
source or the excess, as the case may be, is refunded to the buyer after
his assessment. If however, the buyer has paid the tax on his total
income including the income from the transaction which necessitated the
collection of tax at source and the seller failed to collect tax at source,
the amount of tax collected later on by treating the seller as assessee in
default, will not get adjustment anywhere because of the discharge of
total tax liability by the buyer. It is axiomatic that the amount of tax
collected at source cannot remain in limbo. In such circumstances, there
can be no rationale in collection of tax at source from the seller by
treating him as an assessee in default, knowing fully well that the
amount of tax so collected will not get adjustment either in the hands of
the buyer or the seller.
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12. The Hon'ble Supreme Court in the case Hindustan Coca Cola
Beverage (P) Ltd. Vs. CIT (2007) 293 ITR 226 (SC) has held that where
the payee has already paid tax on the income on which there was a short
deduction of tax at source, then no recovery of tax should be made once
again from the tax deductor. The Hon'ble jurisdictional High Court in
CIT vs. Majestic Hotel Ltd. (2007) 293 ITR 18 has also laid down to the
same effect. The essence of these judgments is that when the deductee
has included the transaction requiring the deductor to deduct/collect tax
at source, in his total income and has paid the tax thereon, then, there is
no logic in once again collecting tax at source from the deductor
inasmuch as said amount, if now collected, would remain unadjusted
because the deductee would not be able to avail the benefit of such tax
against his income, which has already been assessed to tax. A person
responsible becomes assessee in default in case of TDS provisions, when
he makes the payment without deduction of tax at source at the point of
making payment or crediting the account of the payee, as the case may
be under the relevant provision; and in case of TCS provisions, when
he receives the payment without collecting tax at source at the point of
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receiving the payment or debiting the account of the payer, whichever
is earlier. Ergo, the provisions for treating the assessee in default in view
of the non-deduction of tax at source are analogous on this aspect to the
provisions of non-collection of tax at source. The above decisions
rendered in the context of TDS provisions apply with full force to the
TCS provisions as well.
13. At this juncture, it is relevant to mention that considering the ratio
decidendi of the judgment of the Hon'ble Supreme Court in the case of
Hindustan Coca Cola Beverage (P) Ltd. (supra) and other judgments
rendered by various Hon'ble High Courts uniformly in not treating the
person responsible as assessee in default when the other person has paid
due tax on his total income by including income from such transactions,
the legislature has stepped in by inserting first proviso to section 206C
(6A) by the Finance Act, 2012 w.e.f. 1.7.2012, reading as under :-
`(6A) If any person responsible for collecting tax in accordance with the
provisions of this section does not collect the whole or any part of the tax or
after collecting, fails to pay the tax as required by or under this Act, he shall,
without prejudice to any other consequences which he may incur, be deemed
to be an assessee in default in respect of the tax:
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Provided that any person, other than a person referred to in sub-section (1D),
responsible for collecting tax in accordance with the provisions of this
section, who fails to collect the whole or any part of the tax on the amount
received from a buyer or licensee or lessee or on the amount debited to the
account of the buyer or licensee or lessee shall not be deemed to be an
assessee in default in respect of such tax if such buyer or licensee or lessee--
(i) has furnished his return of income under section 139;
(ii) has taken into account such amount for computing income in such return
of income; and
(iii) has paid the tax due on the income declared by him in such return of
income,
and the person furnishes a certificate to this effect from an accountant in
such form as may be prescribed:'
14. A circumspect perusal of sub-section (6) transpires that if any
person responsible for collecting tax in accordance with the provisions
of this section fails to collect the whole or any part of the tax or after
collecting, fails to pay the tax as required by or under this Act, he shall,
be deemed to be an assessee in default in respect of the tax. However,
the first proviso in case of failure to collect tax at source at the material
time, erases the tag of `assessee in default', if the buyer has furnished
his return of income u/s 139(1) by taking into account the transaction
covered under this provision and paying the tax due on the income
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declared and necessary certificate in the prescribed form is issued.
Though this proviso has been inserted by the Finance Act, 2012 from
1.7.2012, but, it is nothing, but reiteration of the law laid down by the
Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage
(P) Ltd. (supra). There is hardly any need to accentuate that the Hon'ble
Courts do not legislate, but declare the law, which declaration is
considered to be effective from the date on which the relevant provision
was brought on the statute. Since the proviso to section 206C(6A) is an
echo of the law propounded by the Hon'ble Supreme Court and the other
Hon'ble High Courts as discussed above, it has to be considered as
retrospective.
15. Adverting to the facts of the instant case, the ld. Counsel for the
assessee contended that all the buyers had taken into account the
purchases made from the assessee for computing income in their
respective returns filed u/s 139 of the Act after paying tax due thereon.
However, he was unable to adduce necessary material before us in this
regard. The assertion so made cannot be inferred in the absence of any
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positive material to prove it. There can be no presumption about the
buyers having paid tax on the income by including the transactions of
purchases covered u/s 206C. This position needs to be specifically
demonstrated by the assessee. Under such circumstances, we are of the
considered opinion that the ends of justice would meet adequately if the
impugned order is set aside and the matter is restored to the file of ITO
(TDS) for considering the details, which the assessee seeks to file for
divulging that the buyers had included the income from the instant
purchase transactions in their total income and filed returns u/s 139 of
the Act after paying tax due thereon. We want to make it clear that if the
assessee fails to specifically prove this position, then, the Officer would
be fully entitled to treat it as assessee in default in terms of section 206C.
Further, the liability of interest u/s 206C(7) would be fastened on the
assessee from the date on which the assessee was required to collect tax
at source up to the date on which the amount of tax was paid by the
buyers. Needless to say, the assessee will be allowed a reasonable
opportunity of being heard in such proceedings.
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16. In the result, the appeal is allowed for statistical purposes.
The order pronounced in the open court on 13.04.2015.
Sd/- Sd/-
[C.M. GARG] [R.S. SYAL]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated, 13th April, 2015.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
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