Strict construction of TCS law bars collection on compounding fees for illegal mining offences.

Tax collection at source under section 206C(1C) does not extend to compounding fee or fine collected for illegal mining and 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. The provision applies only where tax is collected from a person granted a lease, licence, contract, or transfer of right in a mine or quarry and liable to pay royalty. Because compounding amounts arise from the offence-compounding mechanism and are not royalty, strict construction of the charging provision barred extending TCS by implication. The demand, interest, and penalty were therefore unsustainable.

---

---

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 and 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) applies where a lease, licence, contract, or transfer of right or interest in a mine or quarry exists, and the person from whom tax is collected is one to whom such right has been granted and who is liable to pay royalty. The compounding amount collected for illegal mining is not royalty and arises under the compounding mechanism for offences. The provisions governing compounding under section 23A of the Mines and Minerals (Development and Regulation) Act, 1957 and rule 71(5) of the Chhattisgarh Minor Mineral Rules, 2015 operate in a different field. Applying the strict construction applicable to fiscal statutes, no liability can be read into section 206C(1C) beyond its express language.

Conclusion: TCS under section 206C(1C) is not leviable on compounding fee or fine collected for illegal mining, and the demand, interest, and penalty could not be sustained.

Final Conclusion: The tax appeals succeeded and the orders treating the assessee as in default were set aside.

Ratio Decidendi: A charging provision in a taxing statute must be construed strictly, and tax collection at source cannot be extended by implication to amounts that are not expressly covered by the statutory language.

---