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Divisional Forest Officer, Bageshwar Forest Division, Bageshwar. Vs. ITO (TDS), Haldwani.
April, 14th 2015
         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


                                     2
                                                            ITA No.6023/Del/2013


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


                                      3
                                                           ITA No.6023/Del/2013


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
                                     4
                                                             ITA No.6023/Del/2013


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


                                      5
                                                           ITA No.6023/Del/2013


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
                                      6
                                                          ITA No.6023/Del/2013





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.




                                    7
                                                           ITA No.6023/Del/2013


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
                                     8
                                                            ITA No.6023/Del/2013


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


                                      9
                                                           ITA No.6023/Del/2013


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-
                                     10
                                                         ITA No.6023/Del/2013


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.

                                   11
                                                          ITA No.6023/Del/2013


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


                                    12
                                                          ITA No.6023/Del/2013


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.



                                    13
                                                          ITA No.6023/Del/2013


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
                                    14
                                                                  ITA No.6023/Del/2013





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:


                                         15
                                                                 ITA No.6023/Del/2013


   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


                                        16
                                                         ITA No.6023/Del/2013


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


                                   17
                                                             ITA No.6023/Del/2013


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.



                                      18
                                                                 ITA No.6023/Del/2013


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.




                                          19

 
 
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