Bar operator not liable for penalty under Section 271CA as empty bottles don't constitute scrap from mechanical working
The Madras HC held that penalty under Section 271CA for failure to collect tax at source under Section 206C was not applicable to the petitioner operating bars on contract/license basis. The court determined that empty bottles left by consumers could not be considered scrap from mechanical working of materials as contemplated under Section 206C. The petitioner neither owned the bottles nor generated scrap through manufacturing or mechanical working activities. Opening/uncorking bottles by consumers was not mechanical working of materials. Since Section 206C was inapplicable, provisions under Sections 206CC, 206CCA, and interest under Section 206C(7) were also not attracted. The writ petition was allowed.
Issues involved:
1. Whether "empty bottles" can be considered as scrap.
2. Whether TASMAC can be termed as a seller of scrap.
3. Whether the successful bidders of contracts for running the bars can be termed as "buyers" of scrap.
4. Whether only 1% of the license fee, i.e., the agency commission, accrues as the income of TASMAC.
Issue 1: Whether "empty bottles" can be considered as scrap.
The court concluded that empty bottles satisfy the conditions to be termed as 'scrap' as per Section 206(1) of the Act. The bottles are in the nature of waste and scrap, as they are not usable as such and can only be made usable through recycling. The process of opening the bottled liquor involves mechanical working, and the bottles are not usable as such due to breakage, cutting up, wear, and other reasons.
Issue 2: Whether TASMAC can be termed as a seller of scrap.
The court observed that TASMAC is a corporation established by an Act of the State Government with a significant turnover from the sale of eatables and collection of empty bottles. TASMAC continues to have rights over the empty bottles by giving tenders for collecting and selling them, thus making it a "seller" as per Section 206C of the Act.
Issue 3: Whether the successful bidders of contracts for running the bars can be termed as "buyers" of scrap.
The court noted that TASMAC bar contractors obtain the right to sell eatables and collect and sell empty bottles through tenders. The term "buyer" includes those who obtain goods or the right to receive goods through auction or tender. The court concluded that bar contractors are buyers as they get the benefit of collecting empty bottles, which they do not use for personal consumption but sell to vendors.
Issue 4: Whether only 1% of the license fee, i.e., the agency commission, accrues as the income of TASMAC.
The court found that there is no condition requiring TASMAC to collect 99% of the license fee separately for the State Government. TASMAC is responsible for collecting the tender amount from successful tenderers and remitting it to the Government. The liability to collect TCS/TDS arises at the time of making specified receipts/payments, regardless of whether any income is earned.
Conclusion:
The court held that the invocation of Sections 206C, 206CC, and 206CCA of the Income Tax Act, 1961, against the petitioner was misplaced and unwarranted. The petitioner is neither the owner of the bottles nor generates scrap as contemplated under the Income Tax Act. The activity of opening and uncorking bottles is not a "mechanical working of material." Therefore, the impugned orders were quashed, and the writ petitions were allowed.