Principal Commissioner Of Incometax (Tds) Kolkata v. Nirmal Kumar Kejriwal

ITAT/376/2016 IA No.GA/1/2016 (Old No.GA/3344/2016) IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction (Income Tax)ORIGINAL SIDE PRINCIPAL COMMISSIONER OF INCOMETAX (TDS) KOLKATA -Versus- NIRMAL KUMAR KEJRIWAL Appearance:Mr. Soumen Bhattacharyya, Adv....for the appellant. Mr. J. P. Khaitan, Sr. Adv.Mr. Ananda Sen, Adv....for the respondent. BEFORE: The Hon’ble JUSTICE T.S. SIVAGNANAM -And- The Hon’ble JUSTICE BIVAS PATTANAYAK Date : 22[nd] July, 2022. The Court : This appeal filed by the revenue underSection 260A of the Income Tax Act, 1961 (the ‘Act’ for brevity)is directed against the order dated 6[th] April, 2016 and thecorrigendum dated 12[th] May, 2016 passed by the Income Tax AppellateTribunal, B” Bench, Kolkata in ITA Nos.249 to 253/Kol/2013 for theassessment years 2005-06 to 2009-10 and CO No.39/Kol/2013 for theassessment year 2005-06. The revenue has raised the following substantial questionof law for consideration: i) Whether on the facts and in the circumstances ofthe case the Learned Tribunal erred in facts aswell as in law in deleting the additions made bythe Assessing officer under Section206C(6)/206C(7) of the Income Tax Act, 1961 ?the case the Learned Tribunal erred in facts aswell as in law in deleting the additions made bythe Assessing officer under Section206C(6)/206C(7) of the Income Tax Act, 1961 ? ii)Whether on the facts and in the circumstances ofthe case the Learned Tribunal erred in law inholding that Swan timber is different from timberwhen there is no distinction drawn under Section206C of the Income Tax Act, except in the case oftimber obtained under forest lease ?the case the Learned Tribunal erred in law inholding that Swan timber is different from timberwhen there is no distinction drawn under Section206C of the Income Tax Act, except in the case oftimber obtained under forest lease ? iii)Whether on the facts and in the circumstances ofthe case the Learned Tribunal erred in law and infacts in giving relief to the assessee for nocollecting TCS from the buyers without making anyenquiry about the no filing of the requireddeclaration in Form no.27C from the buyers whichis mandatory for getting exemption under Section206C of the Income Tax Act ?the case the Learned Tribunal erred in law and infacts in giving relief to the assessee for nocollecting TCS from the buyers without making anyenquiry about the no filing of the requireddeclaration in Form no.27C from the buyers whichis mandatory for getting exemption under Section206C of the Income Tax Act ?iv)Whether on the facts and in the circumstances ofthe case the Learned Tribunal erred in law and infacts in holding that liability under Section 206Cof the Act does not arise in case of traders inSawn timber ?the case the Learned Tribunal erred in law and infacts in holding that liability under Section 206Cof the Act does not arise in case of traders inSawn timber ? We have heard Mr. Soumen Bhattacharyya, learned standingcounsel for the appellant/revenue and Mr. J. P. Khaitan, learned senior counsel assisted by Mr. Ananda Sen, learned Advocateappearing for the respondent/assessee. We have heard Mr. Soumen Bhattacharyya, learned standingcounsel for the appellant/revenue and Mr. J. P. Khaitan, learned senior counsel assisted by Mr. Ananda Sen, learned Advocateappearing for the respondent/assessee. An order dated 28[th] March, 2011 was passed against therespondent/assessee under Section 206C(6)/206C(7)of the Act on theground that the assessee did not collect any tax on the sale oftimber obtained by any other mode other than forest lease in termsof Section 206C(1) of the Act. Before issuance of such order,show cause notice was issued calling upon the assessee to state asto why he should not be deemed to be an assessee in default fornon-collection of tax on sale of timber as per provision ofSection 206C(1). The assessee submitted their reply and the casewas discussed.The first objection raised by the assessee was that thetax collected at source is applicable on raw timber which meantimber logs that is obtained from the forest produce. Apart fromthat they had stated that they were trading in processed woodwhich are imported from countries like Indonesia, Malaysia andBurma. Further it was stated that ‘sawn timber’ or in other words‘processed timber’ is derived from timber logs which are cut indifferent sizes and then planned by a process involving labour andpower and the saw mills which undertake such exercise arerecognised by the Government of India and they are extendedvarious concessions from various Governmental departments. Thereply given by the assessee was not accepted by the assessing officer primarily for the ground that swan timber continues toremain as timber for all purposes and tax should have beencollected at the post of sale. Aggrieved by such order, theassessee preferred appeal before the Commissioner of Income Tax(Appeals)-I, Kolkata, (CIT(A). By order dated 19[th] November, 2012,the appeal was allowed and the order passed by the assessingofficer was set aside. Aggrieved by such order, the revenuepreferred appeal before the tribunal which has been dismissed bythe impugned order. After elaborately hearing the learned Advocates appearingfor the parties, we are of the view that the tribunal as well asCIT(A) rightly granted relief in favour of the assessee. In otherwords, we agree with the ultimate conclusion arrived at by theCIT(A) and the learned tribunal, but we would like to assign ourown reasons as how such a conclusion was correct. The argument on behalf of the revenue is based upon thedecision of the High Court of Karnataka in the case of Y. MoideenKunhi & Ors. vs. Collector of Central Excise, reported in 1986(23) ELT 293, Kar. which decision was affirmed by the Hon’bleDivision Bench in the case of Collector of Central Excise,Bangalore-I vs. Y. Moideen Kunhi & Co. reported in (2004) 163 ELT299, Kar.-DB. In the said decision, the decision of the Hon’bleSupreme Court in the case of State of Orissa & Ors. vs. TitaghurPaper Mills Co. Ltd. &b Anr. reported in AIR 1985 SC 1293 was referred to. This decision was pressed into service by thelearned standing counsel for the department to state that thetimber and sized or dressed logs are one and the same commercialcommodity and, therefore, the assessee though stated to have dealtwith sawn timber, it continues to remain as a timber and theassessing officer rightly treated the assessee as the assessee indefault. On going through the decision in Y. Moideen Kunhi & Ors.(supra), we find that the facts in the said case are quitedifferent and distinct from the facts before us. To justify ourdecision, we are required to refer to Section 206C of the Act.Since there has been amendments to the said provision, we arerequired to take note of the said amendments. The provision as itstood as on 1990 is as follows: “Profits and gains from the business of trading inalcoholic liquor, forest produce scrap, etc. “Profits and gains from the business of trading inalcoholic liquor, forest produce scrap, etc. 206C (1) Every person, being a seller referred to insection 44AC, shall atthe time of debiting of the amount payable by thebuyer referred to in that section to the account of thebuyer or at the time of receipt of such amount from thesaid buyer in cash or by the issue of a cheque or draft orby any other mode, whichever is earlier, collect from thebuyer 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 thesaid Table, of such amount as income tax on incomecomprised therein. T A B L E Providedthat where the Assessing Officer, on anapplication made by the buyer, gives a certificate in theprescribed form that to the best of his belief any of thegoods referred to in the aforesaid Table are to be utilisedfor the purposes of manufacturing processing or producingarticles or things and not for trading purposes, theprovisions of this sub-section shall not apply so long asthe certificate is in force.” In 1992, the provision stood substituted by Finance Act,1992 w.e.f. 1.4.1992. In 1996, the change which was brought aboutin the provision was to add the product “tendu leaves” in tableunder Section 206(1) of the Act. In 2003, the provision stoodsubstituted by Finance Act, 2003 w.e.f. 1.6.2003. In 2005, therewas a radical change made to the proviso and also insertion ofsub-Section 1(A) to Section 206C. The proviso and inserted sub-Section (1A) to Section 206C are as follows: Provided that every person, being a seller shall at thetime, during the period beginning on the 1[st] day of June,2003 and ending on the day immediately preceding the dateon which the Taxation Laws (Amendment) Act, 2003 comes intoforce of debiting of the amount payable by the buyer to theaccount of the buyer or of receipt of such amount from thesaid buyer in cash or by the issue of a cheque or draft orby any other mode, whichever is earlier, collect from thebuyer of any goods of the nature specified in column (2) ofthe Table as it stood immediately before the 1[st] day ofJune, 2003 , a sum equal to the percentage, specified inthe corresponding entry in column (3) of the said Table, ofsuch amount as income-tax in accordance with the provisionsof this section as they stood immediately before the 1[st] dayof June, 2003. “[(1A) Notwithstanding anything contained in sub-section (1), no collection of tax shall be made in the caseof a buyer, who is resident in India, if such buyerfurnishes to the person responsible for collecting tax, adeclaration in writing in duplicate in the prescribed formand verified in the prescribed manner to the effect thatthe goods referred to in column (2) of the aforesaid Tableare to be utilised for the purposes of manufacturing,processing or producing articles or things and not fortrading purposes.” Thereafter, the provision remained as such. The objectfor introducing the said provision namely, Section 206 of the Actby Finance Act, 1988 was intended to levy and collect presumptivetax in the case of trading in certain goods to remove hardship andto remove the lacuna. The trades mentioned therein are alcoholicliquor for human consumption; timber obtained under a forest Thereafter, the provision remained as such. The objectfor introducing the said provision namely, Section 206 of the Actby Finance Act, 1988 was intended to levy and collect presumptivetax in the case of trading in certain goods to remove hardship andto remove the lacuna. The trades mentioned therein are alcoholicliquor for human consumption; timber obtained under a forest lease; timber obtained by any mode other than under forest leaseand any other forest produce not being timber, at different rates.The object of introduction of the new provisions for working outthe profits on presumptive basis was to get over the problemsfaced in assessing the income and recovering the tax in the caseof persons trading in the above mentioned items. Further, it wasfound that large number of persons who are engaged in theseactivities do not maintain any books of accounts and locating suchpersons after the contract or agreement becomes impossible in manycases and even in cases where assessment had been completed by thedepartment, it became extremely difficult to collect taxes fromthem. Therefore, the provisions were brought into the statute notonly to estimate the profits on presumptive basis but also tocollect the tax on such transactions at specified rates mentionedin Section 206C of the Act. Thus, we are to bear in mind theobject behind insertion of the provision by Finance Act, 1988 asthe provision clearly states that Section 206C falls in Chapter-XVII of the Act which deals with collection and recovery of tax.Sub-Chapter BB deals with collection at source. Section 206Cdeals with profits and gains from business of trading in alcoholicliquor, forest produce, scrap etc. In the instant case, we arenot concerned with the alcoholic liquor or scrap or tendu leavesor other products but concerned only about timber. The tableunder Section 206(1) of the Act leased out four products as of 1990 of which serial No.(ii) deals with timber obtained under aforest lease for which percentage of tax is 15%. Serial no.(iii)deals with timber obtained by any mode other than under a forestlease for which the percentage of tax is 5%. Serial No.(iv) dealswith any other forest produce not being timber and the rate of taxis 15%. Thus, what has to be borne in mind is that, thepresumptive tax is collectible on a forest produce. This specialprovision was inserted by Finance Act, 1988 on account ofdifficulties experienced by the department for levying andcollecting taxes on such transactions. Therefore, the test iswhether the respondent/assessee had dealt with a forest produceand the test is not whether the timber and sawn timber are one andthe same. In fact, such a test is not required to be applied inthe case on hand as the same is not the subject-matter. In fact,the assessee, while submitting their reply to the show causenotice at the first instance, pointed out that collection of taxin terms of Section 206C would be applicable only in respect oftimber obtained from forests. In effect, the assessee meant tosay that they had not dealt with forest produce. Our view is dulysupported by the decision of the Hon’ble Division Bench of theAndhra Pradesh High Court in the case of Andhra Pradesh ForestDevelopment Corporation Ltd. vs. Assistant Commissioner of IncomeTax & Anr. reported in 2005(2) ITR 245. The facts in the saidcase was also more or less identical and the only difference being the appellant/assessee, which was Forest Development Corporationof the State of Andhra Pradesh, took a stand that the product wasan agricultural produce. Therefore, Section 206(1) of the Actwould have no application to the case. The submission made onbehalf of the assessee was accepted and it was held as follows: the appellant/assessee, which was Forest Development Corporationof the State of Andhra Pradesh, took a stand that the product wasan agricultural produce. Therefore, Section 206(1) of the Actwould have no application to the case. The submission made onbehalf of the assessee was accepted and it was held as follows: “The provisions of section 206C of the Act would apply onlywith reference to the timber obtained under a forest lease; or timber obtained by any mode other than under a forestlease ; and any other forest produce not being timber. Fromthe above provision, it is clear that the Legislatureintends to apply this provision in respect of timber andother produce obtained from the forest and it is notintended to apply to any produce. Therefore, in order toattract the provisions of section 206C of the Act, one hasto examine whether the items sold by the petitioner-corporation are forest produce or not. In fact, thecontention advanced by learned standing counsel for theDepartment would not reflect from the impugned order. Onthe other hand, the stand of the second respondent is thatthe provisions of section 206C of the Act are applicableonly with reference to the forest produce. But, accordingto him, the items of produce sold by the petitioner-corporation would fall under items (ii) and (iii) specifiedin the Table in section 206C of the Act. Therefore, thereis absolutely no merit in the contention of learnedstanding counsel that even if the produce is not forestproduce, still the petitioner-corporation is underobligation to collect the tax at the time of effecting thesale. * * * * * * * * *Basically, forest produce is the produce grownspontaneously, may be at the subsequent stages some human effort and skill may be applied in order to protect andextract the resultant produce which could be considered asa forest produce. As is evident from the relevantprovisions, the tax collection at the time of sale isintended only to be applied in respect of forest produceand not with reference to agricultural produce. Therefore,in order to hold that the assessee is liable to collect thetax at source, the authorities have to give a finding thatit is forest produce.” The above decision would squarely apply to the facts andcircumstances of the present case and we respectfully agree withthe reasoning given by the Hon’ble Division Bench. While on thisissue, it would be relevant to take note of the decision of thisCourt in Andaman and Nicobar Islands Forest and PlantationDevelopment Corporation Ltd. vs. Commissioner of Income Taxreported in (2006) 280 ITR 118 (Cal) wherein it was held that de-embarking and seasoning tree trunks and converting them into logswould amount to production of a new commercial article or thingwithin the meaning of Sections 32AB, 80HH and 80J of the Act.This decision would be of relevance on account of the proviso ascontained under Section 206C(1) which states that where theassessing officer, on an application made by the buyer, gives acertificate in the prescribed form that to the best of his beliefany of the goods referred to in the table are to be utilised forthe purpose of manufacturing, processing or producing articles orthings and not for trading purposes, the provision of sub-Section (1) of Section 206 shall not apply so long as the certificate isin force. The effect of the said provision continue to remain thesame even after the amendment in the year 2003 wherein the provisostood substituted. However, this condition was inserted by way ofsub-Section (1A) of the Act which states that notwithstandinganything contained in sub-Section (1) of Section 206C(1), nocollection of tax shall be made in the case of a buyer who is aresident in India and if such buyer furnishes to the personresponsible for collecting tax, a declaration in writing to theeffect that goods referred to in Column 2 of the table containedunder Section 206C(1) are to be utilized for the purposes ofmanufacturing, processing or producing articles or things and notfor trading. Thus, if the timber is being sized, sawn into logsof different dimensions and shapes in activities carried on sawmills authorised by the Government, it would amount to a differentproduce. Even in respect of timbers which are procured asdescribed in table, if it is used in the process of manufacturing,the provision of Section 206C(1) of the Act would not beapplicable due to the fact that the product ceased to be a forestproduce.As mentioned earlier, the facts in the case of Y. MoideenKunhi & Ors. (supra) are different from the case on hand as thequestion in the said case was whether sawing of timber logs intodifferent sizes, planks, beams would amount to manufacture within the meaning of Section 2(f) of the Central Excise and Salt Act,1944. In the instant case, we are considering the effect of aspecial provision namely, Section 206(C) of the Act and the saiddecision cannot be applied to the case on hand. For all the above reasons, we agree with the ultimateconclusion arrived at by the tribunal in dismissing the appealfiled by the revenue but for the reasons assigned by us in theearlier paragraphs. In the result, the appeal filed by therevenue (ITAT/376/2016) is dismissed and the substantial questionsof law are answered against the revenue. Consequently, the connected application for stay (GA/1/2016) also stands closed. (T.S. SIVAGNANAM, J.) (BIVAS PATTANAYAK, J.)