Section 206C tax collection depends on proving the goods are forest produce, not cultivated agricultural produce.

Section 206C applies to timber and other forest produce only if the goods sold are first established as forest produce within the statutory description; the decisive factual inquiry is whether the produce was in fact raised through agricultural operations. The note states that, without a finding on that basic character, tax collection at source cannot be conclusively fastened. It also explains that the seller's obligation to collect and remit tax is reinforced by sub-section (6), which operates as a machinery provision and is not defeated by the absence of an express defaulting clause. Objections based on delay were rejected as not beyond a reasonable time, and the revisional order was set aside for fresh determination of the produce's true nature.

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Issues: (i) Whether the items sold by the assessee-corporation were forest produce so as to attract tax collection at source under section 206C of the Income-tax Act, 1961; (ii) whether the impugned action could be sustained despite objections based on absence of an express defaulting provision and alleged delay.

Issue (i): Whether the items sold by the assessee-corporation were forest produce so as to attract tax collection at source under section 206C of the Income-tax Act, 1961.

Analysis: Section 206C applies only to timber obtained under a forest lease, timber obtained by any other mode, and other forest produce not being timber. The decisive enquiry is therefore whether the goods sold were in fact forest produce or were agricultural produce grown through cultivation and agricultural operations. The finding recorded by the revisional authority rested largely on the Forest Act and did not determine the basic factual question whether the produce had been raised by agricultural operations. In the absence of such a factual finding, the applicability of section 206C could not be conclusively upheld.

Conclusion: The issue was not finally established against the assessee, and the matter required reconsideration on the true nature of the produce.

Issue (ii): Whether the impugned action could be sustained despite objections based on absence of an express defaulting provision and alleged delay.

Analysis: The provision obliges the seller to collect and remit tax, and sub-section (6) makes the seller liable notwithstanding failure to collect. The Court treated the provision as a machinery provision to be construed so as not to frustrate the legislative object. On the facts, the notice and order were not held to be beyond a reasonable time.

Conclusion: The objections on lack of jurisdiction and limitation were rejected.

Final Conclusion: The revisional order was set aside and the matter was sent back for a fresh determination of the character of the produce, with the assessee obtaining relief to that extent and the legal objections to collection liability otherwise rejected.

Ratio Decidendi: Tax collection at source under section 206C applies only if the goods sold are established to be forest produce or timber within the statutory description, and the factual character of the produce must be determined before fastening liability.

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