Strict construction of TCS provisions excludes compounding fees for illegal mining from tax collection at source.

Section 206C(1C) of the Income-tax Act, 1961 is analysed as a charging provision that applies only to amounts connected with a lease, licence, contract, or transfer of rights in a mine or quarry. The compounding fee or fine imposed for illegal mining or unauthorized transportation of minerals under Section 23A of the Mines and Minerals (Development and Regulation) Act, 1957 and Rule 71(5) of the Chhattisgarh Minor Mineral Rules, 2015 is described as a penal levy distinct from royalty. On a strict construction of fiscal statutes, tax collection at source cannot be extended by implication to that compounding amount, so TCS, interest, and penalty are stated to be unsustainable.

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Issues: Whether tax collection at source under Section 206C(1C) of the Income-tax Act, 1961 applies to compounding fee or fine collected for illegal mining or unauthorized transportation of minerals under Section 23A of the Mines and Minerals (Development and Regulation) Act, 1957 read with Rule 71(5) of the Chhattisgarh Minor Mineral Rules, 2015.

Analysis: Section 206C(1C) fastens the obligation to collect tax at source on a person who grants a lease or licence, enters into a contract, or otherwise transfers any right or interest in a parking lot, toll plaza, mine, or quarry, and the collection is referable to amounts payable by the licensee or lessee. The compounding amount under Section 23A of the Mines and Minerals (Development and Regulation) Act, 1957 and Rule 71(5) of the Chhattisgarh Minor Mineral Rules, 2015 is imposed for an offence of illegal mining or transportation, and its legal character is distinct from royalty. Applying the strict and literal construction applicable to fiscal statutes, no words can be added to extend the charging provision to amounts not expressly covered by it. The statutory scheme does not create a mandate to deduct or collect TCS from compounding fee or fine recovered for an offence, and royalty and compounding fee operate in different fields.

Conclusion: Section 206C(1C) of the Income-tax Act, 1961 does not apply to compounding fee or fine collected for illegal mining or unauthorized transportation of minerals, and the demand of TCS, interest, and penalty could not be sustained.

Ratio Decidendi: A charging provision in a fiscal statute must be construed strictly, and tax collection at source cannot be extended by implication to a compounding amount for an offence where the statute does not expressly bring such amount within its scope.

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