2004 (11) TMI 23 - HC - Income Tax

Court remands case to Assessing Officer to differentiate agricultural from forest produce, clarifying tax exemption.

Andhra Pradesh Forest Development Corporation Ltd. Versus Assistant Commissioner Of Income-Tax And Another.

The court set aside the Commissioner's order and remanded the case to the Assessing Officer to determine if the produce sold was agricultural or forest ... Authority to pass an order u/s 206C - Applicability of provision of section 206C – Seller fails to collect the tax - slight lacuna in the provisions, such as absence of specific authority empowered to pass an order under section 206C - agricultural income – forest produce - petitioner-corporation was obligated to collect tax from the buyers of timber and other forest produce at the rates specified under section 206C of the Act. Therefore, the first respondent initiated proceedings proposing to treat the petitioner-corporation as an assessee deemed to be in default and to collect the tax which it failed to collect - when there is an obligation on the part of the seller as contemplated under section 206C in respect of the items specified therein, the seller has to collect the tax and remit to the Central Government – however, if the income of the petitioner-corporation is accepted as agricultural income and exempted from tax, the question of applying the provision of section 206C of the Act, would not arise. Issues Involved:1. Applicability of Section 206C of the Income-tax Act, 1961, to the petitioner-corporation's produce.2. Classification of the produce as agricultural or forest produce.3. Jurisdiction and authority to pass orders under Section 206C.4. Limitation period for passing orders under Section 206C.Detailed Analysis:1. Applicability of Section 206C of the Income-tax Act, 1961:The primary issue was whether the items sold by the petitioner-corporation attracted the provisions of Section 206C of the Income-tax Act, 1961. The Assessing Officer and the Commissioner of Income-tax held that the petitioner-corporation was obligated to collect tax from buyers of timber and other forest produce under Section 206C. The petitioner contended that the produce sold, such as bamboo, cashew, eucalyptus, pepper, and firewood, were agricultural products and thus exempt from Section 206C. The court noted that Section 206C applies to timber and other forest produce, and it was essential to determine whether the items sold were indeed forest produce.2. Classification of the Produce as Agricultural or Forest Produce:The petitioner-corporation argued that the produce was agricultural, cultivated through human efforts, fertilizers, and pesticides, and thus should not attract Section 206C. The Commissioner, however, classified items like eucalyptus, bamboo, and firewood as forest produce based on the Andhra Pradesh Forest Act, while accepting coffee and cashew as non-forest produce. The court emphasized that the nature of the produce must be examined to determine if it was forest produce. Citing the Supreme Court's decision in CIT v. Raja Benoy Kumar Sahas Roy, the court highlighted the distinction between agricultural operations and forest produce, noting that agricultural produce results from human cultivation, whereas forest produce grows spontaneously.3. Jurisdiction and Authority to Pass Orders under Section 206C:The petitioner-corporation contended that there was no specific provision declaring it as an assessee deemed to be in default for failing to collect and remit tax under Section 206C. The court examined Section 206C and found that it imposed an obligation on the seller to collect tax from buyers of specified goods and remit it to the Central Government. The court also noted that machinery provisions should be interpreted liberally to fulfill the principal objective of the statute, referencing the Supreme Court's decision in Fertilizer Corporation of India Limited v. State of Bihar. Thus, the Assessing Officer had jurisdiction to pass orders under Section 206C.4. Limitation Period for Passing Orders under Section 206C:The petitioner-corporation argued that the orders were passed long after the relevant periods, making them liable to be quashed on the ground of limitation. The court observed that the notice was issued in December 1994, and the order was passed in 1995, which was within a reasonable time frame. Therefore, the contention regarding the limitation period was not upheld.Conclusion:The court set aside the impugned order of the Commissioner and remanded the matter to the Assessing Officer to ascertain the nature of the produce sold by the petitioner-corporation. The Assessing Officer was directed to consider whether the produce was cultivated through agricultural operations or was forest produce. The court clarified that if the income from the produce was accepted as agricultural income and exempted from tax, Section 206C would not apply. The writ petition was allowed, and the matter was restored to the Assessing Officer for further consideration.