TaxTMI 
TaxTMI 
TaxTMI 
2016 (3) TMI 859
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....ty of reference, we take the lead case as ITA No. 1542/Ahd/2013 for AY 2009-10. The Revenue has raised following grounds of appeal in ITA No. 1542/Ahd/2013 for Assessment Year 2009-10:- 1. The Ld. CIT(A) has erred on facts and in law because while passing the order he has completely violated the Rule 46(A) hence his order is null and void, 2. The Ld. CIT(A) has erred on facts and in law in deleting the additions made u/s. 206C(6)/206C(7) of the I.T. Act on non collection of TCS of Rs. 8,16,68,350/- on sale of DOC (de-oiled cake), maize husk and cotton waste inspite of the fact that those items were scrap as defined u/s 206(c). 3. The Ld. CIT (A) has erred on facts and in law in holding that the above items were "by products and there by failed to appreciate that even by products like Molasses and bagasses have been held as scrap within the definition of scrap u/s 206(c) as the definition is of wider import to cover even by product within it's sphere. 4. The Ld. CIT(A) has erred on facts and in law in deleting the addition made u/s 206C(6) / 206C(7) by wrongly relying on the I.T.A.T decision in the case of Navin Flourine Industries vs. A.C.I.T, TDS Circle in I.T.A. No. 1213 ....
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....ssessment Years and upto the date of survey is as under: (Rs. Crores) Unit Type of scrap Asst. Year 2009-10 2009-10 Asst. Year 2010-11 Asst.Year 2011-12 Asst, Year 2012-13 Total Bio Himmatnagar Maize Husk 8.05 11.24 7.47 2.13 28.89 Bio Uttaranchal Maize Husk 0.99 4.64 6.48 2.58 14.6 Cotspin Himmatnagar Cotton Waste 20.56 27.44 30.69 11.26 89.95 DOC All Units DOC 533.63 303.69 413.36 65.54 1316.22 Total 566.23 347.01 458.20 81.51 1452.75 4.1 During the course of survey, statement of Shri N. Giridhar, CFO was also recorded, inter alia, he submitted that the assessee-company has neither collected TCS on sale of cotton waste, maize husk and DOC. It was further submitted that no declaration in form No. 27C was submitted to the office of Chief Commissioner of Income-tax, Ahmedabad as per provisions of Section 206C(1B) of the Act. Before the Assessing Officer, various contentions were raised on behalf of the assessee. The stand of the assessee has been that they are manufacturer and exporter dealing with agro based products. It was submitted that the manufacturing process with respect to solvent extraction and refinery division, c....
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....ellant was not manufacturing any of these materials. It is further submitted that packing materials are purchased by the company which is used for packing the finished goods in local as well as in export market as per the requirement of the buyer. The damaged packing material/gunny bags, which are of no use are sold out by company as defective. Thus, such items are not generated from manufacturing/mechanical working as required in the definition of scrap, the said fact and position of law is clarified by the Hon'ble ITAT, Ahmedabad in the case of Navin Fluorine International Ltd. Maize Husk (Fiber) is scrap/waste or not? In the maize processing plant, maize seeds are processed and the products viz. maize starch, gluten, germs, fiber (husk) and maize oil are produced. Further from starch various value added derivatives are produced viz. Liquid Glucose, dextrose, maltose, sorbitol, etc. The complete anatomy of maize grain is enclosed as Exhibit-4 which clearly specifies that the various products are generated during various stages of maize processing, which are used as such. Thus, maize husk (fibre) is a product manufactured and it is saleable product and it is not a scrap or wa....
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....he assessee as well as its buyer was covered within the definition of seller and buyer respectively as provided in Section 206C of the Income-tax Act. The Assessing Officer rejected the contentions of the assessee vide para-8 of his order which is reproduced herein as under, for the sake of convenience:- "In the instant case, the De-Oiled Cake (DOC) as admitted by the assessee is mainly used as animal feed is not sold to the actual user i.e. the animal keepers. The fact is that DOC is sold to other traders or intermediates who in turn sales it to the actual users because De-Oiled Cake (DOC) is of no use to the traders as such. Similarly, Cotton Waste and Husk were also sold to other traders/intermediatories. As alternative argument, in case, the assessee company is selling the above items, which it terms as solvable/manufactured product to actual users/manufacturers. Then, the company should have obtained declaration in Form 27C from the buyer and should have furnished the same within 7 days of the next month in the office of concerned CCIT/CIT(TDS) which is not the case here". 4.3. Thus, the basic dispute has arisen because of the fact that the Assessing Officer categorized DOC,....
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....ee-company is manufacturer and exporter of Agro waste products. In the case of assessee a survey u/s 133A of the Act was carried out on 09.08.2011 and during the course of survey, it was noticed by the Assessing Officer that the assessee-company was mainly engaged in extraction of solvent from soya seeds, mustard seeds, castor seeds, cotton seeds, etc. On processing of these seeds the assessee besides oil received de-oiled cake (DOC) which is mainly used as cattle feed. The assessee also has units at Himmatnagar and Uttaranchal which processes maize. The processing of maize besides starch generates liquid glucose, dextrose, sorbitol and other products including maize husk (fibre). The assessee-company also has unit at Himmatnagar which manufactures cotton yarn and re-processable raw cotton. The main raw material used in this unit is raw cotton from which cotton yarn is manufactured. In the process the lower quality of cotton is separated which is scrap and waste. The Assessing Officer observed that the DOC, Maize husk and cotton waste generated during the manufacturing activity at various units of the assessee company where of the nature of "Scrap" which falls within the ambit of p....
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....le as such. According to the Departmental Representative, this observation is also strengthens the stand of the department because the so called by products could not be definitely usable as such like the raw material which was used in the process of manufacturing for example. De Oil Cake cannot be used as raw material and also no oil will come out from DOC by inputting the same in the manufacturing process as raw material hence, it cannot be definitely usable as such. Hence, he submitted that the CIT(A) was not correct in his observation that the by-products generated from manufacturing process are not covered by above definition since same could be used as such by other consumers. He has further erred in holding that DOC is a by-product and it certainly cannot be categorized as scrap and waste having its own market value because he has failed to appreciate that even scrap and waste has also have its own market value and the same cannot be sold on no or nil value. Likewise, the observation of CIT(A) was also not correct that scrap is either thrown out or sold at cheaper rate because if the same is thrown then there will be no value and question of attracting provisions of section ....
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....ified in column (2) of the Table below, a sum equal to the percentage specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax. The nature of goods specified at serial No.(vi) is scrap, and the percentage provided is 1%. The expression of scrap is defined under clause (b) to the Explanation to section 206 of the Act, to mean waste and scrap from manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons. On a plain reading of the said expression, it is evident that any material which is usable as such would not fall within the ambit of the expression "scrap" as envisaged under clause (b) of the Explanation to section 206C of the Act. 8. The Tribunal, in the impugned order, has recorded that the items/products in question obtained from the activity of ship breaking are usable as such and, therefore, do not fall within the definition of scrap. However, since the assessee had not collected tax at source on items other than items obtained out of the manufacturing activity in the course of ship breaking, the Tribunal has remitted the matter to the Assessing Offi....
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.... the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax: TABLE Sl. No. Nature of goods Percentage (1) (2) (3) (i) Alcoholic Liquor for human consumption One per cent (ii) Tendu leaves Five per cent (iii) Timber obtained under a forest lease Two and one-half per cent (iv) Timber obtained by any mode other than under a forest lease Two and one-half per cent (v) Any other forest produce not being timber or tendu leaves Two and one-half per cent (vi) Scrap One per cent (vii) Minerals, being coal or lignite or iron ore One per cent:] [Explanation.-For the purposes of this section,- (a) "accountant"......; (aa) "buyer" ..... (i) sub-section (1) means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the Table in sub-section (1) or the right to r....
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....ie be given their ordinary meaning. It is yet another rule of construction that when the words of the statute are clear, plain and unambiguous, then the Courts are bound to give effect to that meaning, irrespective of the consequences. It is said that the words themselves best declare the intention of the law giver. The Courts have adhered to the principle that efforts should be made to give meaning to each and every word used by the legislature and it is not a sound principle of construction to brush aside words in a statute as being inapposite surpluses, if they can have a proper application in circumstances conceivable within the contemplation of the statute." 10.1 By following the above decision, the Hon'ble High Court held as under : "It is now a well-settled principle of law that a literal meaning should be attributed to a statute. The golden rule of interpretation should ordinarily be adhered to." 11. The ordinary meaning of scrap and waste as have been provided in Oxford English Dictionary provides : (a) Scrap-small piece or amount of something especially one that is leftover after greater part has been used-material discarded for reprocessing. (b) Waste-eliminated....
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.... items of the scrap in the case of the assessee would not form part of the definition of the scrap as is provided in Expln. (b) to s. 206C of the IT Act. Thus, the Explanation is wrongly applied in the case of the assessee. 5.2 According to this judgement, the ITAT-Ahmedabad has held that waste and scrap are one item and it is necessary to read waste and scrap together. It is further pointed by the Tribunal that waste and scrap is a singular item, same arise out of the manufacturing/mechanical working on the material and same is not usable as such. It was also pointed out by the Tribunal that fundamentally scrap and waste is small or lesser quantity of material which is left after the greater part is used in manufacturing process. According to American dictionary, DOC is defined as "the solid residue that is left after certain oily seeds, such as cotton seeds and linseeds have been pressed of their oil. It is ground and used as cattle feed or fertilizer". Further, in an order by the Government of India namely "The solvent extracted oil, De-oiled Meal and edible Flour (Control) order of 1967' defines De-oiled Meal (another nomenclature of DOC) as " De-oiled Meal means the resid....
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.... Blue Industries Pvt Ltd (supra). 5.3 Regarding the raw cotton being treated as scrap, the CIT(A) has referred to the manufacturing process of cotton yarn which is reproduced below:- "Under this division company manufactures Cotton Yarn, Reprocessable raw cotton, etc., manufacturing process is furnished in the Exhibit-2. The main raw material is Raw Cotton. In Cotton Yarn division raw cotton is processed and cotton yarn is generated, which is also largely exported. In that process the lower quality of cotton is separated, which is usable as such. From such lower quality cotton thick qualify cotton yarn is manufactured or such cotton is sold out to the manufacturers of cotton yarn. During the process the lower quality cotton is separated at various processes, which are called as Dropping, Comber Noil, and Flat & Hard sweeping Cotton, which are sold out as cotton and fetches good value of the raw material. In process micro dust and invisible waste are generated, which are approximately 2% to 2.5% of inputs and broken yarn are generated which are called as waste." It shows that the assessee company manufactures cotton yarn of specific quality from raw cotton. It was submitted that....
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....l as was pointed out by the assessee. Therefore, these reasoned finding of the CIT(A) need no interference from our side, which is confirmed. 5.4 Regarding Maize Husk (Fiber), the stand of the assessee has been that it is a by-product and is sold off commercially. The manufacturing process suggests that the maize seeds are processed and various products like maize starch, blulan, gems, fiber (husk) and maize Oil are produced. From maize starch, various value added products like liquid glucose, dextrose, maltos, sorbitol, etc are produced. Even maize husk is a liquid or in a dry form after due processing as per the requirement of the customers. The percentages of husk as a by-product is close to 10% and it is mainly used in poultry farm, animal food and pharma industries. Since maize husk fiber is itself subjected to various manufacturing stages and as enormous economic value, it is one product manufactured and cannot be considered as a waste or scrap within the manufacturing process. In view of the above, the CIT(A) was justified in holding that main husk is a by-product and the same cannot be considered as scrap and waste as provided in the Explanation to Section 206C of the Inco....
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....15 dated 08-08-1995, the clarification on various provisions relating to TDS were given in the form of questions and answers, Q. No. 6 & 7 are reproduced with replies: Question 6: Whether payment under of contract for carriage of goods or passengers by any mode of transport would include payment made to a travel agent for purchase of a ticket or payment made to a clearing and forwarding agent for carriage of goods? Answer: The provision of section 194C shall, however, apply when a plane or a bus or any other mode of transport is chartered by one of the entities mentioned in section 194C of the Act As regards payments made to clearing and forwarding agent for carriage of goods, the same shall be subjected to tax deduction at source under section 194C of the Act. Question 7: Whether a travel agent/clearing and forwarding agent would be required to deduct tax at source from the sum payable by the agent to an airline or other carrier of goods or passengers? Answer: The travel agent, issuing tickets on behalf of the airlines for travel of individual passengers would not be required to deduct tax at source as the acts on behalf of the airlines. The position of clearing and forwarding....
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.... respect to Circular No. 715 dated 8.8.1995, the Assessing Officer observed that question No. 6 of the Circular refers to payments made to C & F agents for carriage of goods and not for documentation or paper work done by C & F agents. The Assessing Officer thus rejected the contention of the assessee and held that for such payments under the head 'port charges', TDS @ 10% as provided u/s. 194J should have been deducted. 6.2 Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of the assessee. The ld. Authorized Representative for the assessee before the CIT(A) pointed out the recent decision of ITAT-Delhi Bench in the case of Glaxo Smithkline Consumer Health Care Pvt. Ltd. Vs ITO, 12 SOT 221 (Delhi) wherein it was held that payment to C&F agents in pursuant to agreement entered with them would attract TDS u/s. 194C and not 194J. The relevant portion of the decision is reproduced below:- "Section 194C, read with section 194J of the Income-tax Act, 1961 - Deduction of tax at source- Contractors /sub-contractors, payment to - Assessment year 2000-01 to 2003-04 - Whether of clearing and forwarding agents are neither profe....
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....r alia, relating to storage, dispatch, transportation, loading and unloading of goods, etc., the assesses had rightly deducted tax at source under section 194C. [Para 7]" 6.3 In this background, the CIT(A), having considered the aforesaid submissions of the assessee, allowed the claim of the assessee as claimed and the same has been opposed before us on behalf of the Revenue, inter alia, submitting that the CIT(A) erred in deleting the addition made u/s. 201(1)/201(1A) of the Act for AY 2009-10, on short deduction of tax at source of 1,56,24,221/- by applying provisions of section 194C of the IT Act instead of 194J of the Act on payment of 'Port Charges' made to C&F agents. On the other hand, ld. Authorized Representative for the assessee supported the order of the CIT(A) and relied upon various judicial pronouncements to support the same. 6.4 We have heard the rival contentions and perused the material on record. The issue before us is whether the provisions of Section 194C or 194J to be made applicable for the payment made to C&F Agents? Out of the total port charges for any given assessment year; most of the port charges are paid directly to various services provided l....
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....,765 BREAK-UP OF PAYMENT TO C & F AGENTS I.E.. REIMBURSEMENTS AND AGENCY CHARGES NAME OF C&F AGENT REIMBURSEMENTS AGENCY CHARGES TOTAL ASHAPURA FORWARDERS PVT LTD 3,808,202 1,555,849 5,364,051 KHIMJI POONJA FREIGHT FORWARDERS PVT. LTD, 3,231,357 3,006,252 6,237,609 S RAMDAS PRAGJI FORWARDERS PVT LTD 28,476,689 1,049,433 29,526,122 LILADHAR PASOO FORWARDERS P LTD 3,105,067 785,561 3,890,628 TOTAL 38,621,314 6,397,095 45,018,409 6.5 From the aforesaid table, it is clear that for AY 2009-10 the assessee has made payments four C&F agents as is evident from the tabular sheet. The payment made to one of the C&F agents, namely, S, Ramdas Pragji Forwarders Pvt. Ltd, the assessee has made a total payment of Rs. 2,95,26,122/- which consists of Rs. 2,84,76,689/- being the expenditure which are directly reimbursed by the assessee and the agency charges for this C&F agent amounting to Rs. 10,49,433/-. The assessee has given further breakup of payments to this C&F agent before the lower authorities wherein they have shown TDS @ 0.26% as per the lower deduction certificate furnished by this C&F agent u/s. 1....