TaxTMI 
TaxTMI 
2016 (8) TMI 952
X X X X Extracts X X X X
X X X X Extracts X X X X
....erred on facts and in law in upholding the order of the AO in charging interest u/s 206C(7) by not accepting the contention of the assessee that since all the persons to whom scrap is sold have paid the tax with interest or claimed refund of tax, there is no loss of interest to revenue and therefore no demand u/s 206C(7) should be raised on assessee. He has further erred in ignoring the various case laws relied upon by the assessee. 4. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in giving the directions to the AO to give credit to the assessee in respect of those items of scraps which are of useable nature and for which Form No. 27C were also filed in time ignoring the fact that provisions of section 206C is applicable only on those items which are not useable as such." 2. Both the appeals of the assessee are being heard together, therefore, for the sake of convenience, common order is being passed. 3. The assessee is a trader of iron scrap and in the course of business had purchased major portion of scrap from Alang, Bhavnagar, Gujarat wherein it was generated from ship breaking. On such purchases from Alang, Bhavnagar, Gujarat, he has paid ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts case. (c) He has further contended on the basis of the above that he does not fall within the definition of seller and buyer for the purchase/sale of scrap. (d) He has also argued that the scrap generated from ship breaking is not scrap as per the definition of 'scrap' given in Sec. 206C. According to him, when a ship is discarded, due to some bye-laws, technical issues or environment issues, it has to be broken by the ship breakers and the discarded ship is called "scrap ship" in commercial language, and after dismantling the ship, all the material which is extracted from the ship was called, "scrap/waste generation from ship scrapping. There is no raw material in this process (there should be some raw material for manufacturing) & the final product is only scrap, "which may be cast iron scrap, non ferrous metal scrap, wooden scrap, melting scrap, machinery scrap, rerolling scrap etc. All these items are known as scrap in the commercial market. Disposal of these scrap item can be made only in scrap market. (e) He has placed reliance on decision of the Hon'ble ITAT Ahmadabad Bench in case of Navine Fluorine International Vs. ACIT, TDS, Circle Surat ITA No.1213, 1214/Ahd....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Inspector, it is clear that the material sold by the assessee to the rerolling mills is used to produce other materials and the material sold by the assessee is not used as such by the purchaser. The sale of such material is therefore considered as "scrap" since it cannot be said that it has been used "as such" by the rerolling mills. Similarly, the ld Assessing Officer has held that in cases where the declaration was submitted by the assessee, the benefit of proviso to sub-Section (6A) of Section 206C of the Act was extended, however, in respect of buyers, whose declaration has not been provided no demand U/s 206C(6A) of the Act is being raised. It was held that the interest U/s 206C(7) shall be charged up to the month in which the returns have been filed by such buyers. 4. Being aggrieved by the order of the ld Assessing Officer, the assessee carried the matter before the ld CIT(A), who had partly allowed the appeal by observing as under:- "4.4 I have carefully considered the findings of the AO as also submission of the appellant. It may be noted that the main issue under consideration to be adjudicated is that whether the assessee who is trading in sale in purcha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... also subject to TCS. Therefore I find merit in the findings of the AO that the appellant was required to collect TCS on the sale of scrap except the scrap that was subsequently useable. As regards the another contention of the appellant that when the scrap has been sold to the manufacturers who has used the same for manufacturing purposes and not for trading and in such cases TCS was not be collected provided that From No. 27C are furnished, it may be noted that though such provision is there in the Act as per sec. 206C(1A) but such credit can only be given when the Form No. 27C are furnished within the prescribed time and before a prescribed authority. In the Rule 37 it is clearly provided that such declarations shall be furnished on or before 1.1th day of the month next following to die month in which the declaration is furnished. The World 'Shall' indicate that furnishing of such declaration in the prescribed time is mandatory and the AO may not have any discretion on the same. As regards, the contention of the appellant that in some items of scrap which are useable and for which credit has been given in a particular assessment year and for the same item the credit was no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....out by the assessee, therefore, the assessee cannot be considered a person dealing in the scrap. It was held that the definition of scrap itself facilitates the first sale and not the subsequent sale. It was submitted that since the assessee is intermediary and waste/scrap sold to the third party, therefore, provisions of Section 206C of the Act are not attracted. It was submitted that the sale made by the assessee do not attract the provision of Section 206 of the Act. It was further contended that the scrap seller do not include the reseller of the scrap and therefore, provisions of Section 206C of the Act should not be applied to the assessee. It was further submitted that the material sold should not be usable as such. It was submitted that the scrap sold by the assessee consists of various usable items/materials like MS bar, angel, channel, M.S. Ingot, Pig Iron, Sillico Manganese etc. which are usable in nature. Therefore, it was contended that the provisions of Section 206C of the Act should not apply. It was further submitted that the executive instruction issued by the CBDT bearing No. F. No. 275/86/2011-IT(B) dated 18/05/2012 is not binding and cannot override the stated p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table as it stood immediately before the 1st day of June, 2003, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax in accordance with the provisions of this section as they stood immediately before the 1st day of June, 2003. (1A) Notwithstanding anything contained in sub-section (1), no collection of tax shall be made in the case of a buyer, who is resident in India, if such buyer furnishes to the person responsible for collecting tax, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the goods referred to in column (2) of the aforesaid Table are to be utilised for the purposes of manufacturing, processing or producing articles or things or for the purposes of generation power and not for trading purposes. ------------------------------------------------------------- ------------------------------------------------------------- 11) The Board may, having regard to the convenience of assessees and the interests of rev....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in Alcohol, liquor, forest produce, scrap etc., therefore, the contention of the ld AR for the assessee that the provisions of Section 206C are not applicable to the assessee, as he is merely a subsequent trader, in our view, is not correct, as the heading of section uses the word " trading ". Moreover, the definition of seller reproduced hereinabove clearly shows that the seller includes a reseller also, who is into trading of scrap. Sub-section (1A) of Section 206C of the Act clearly defines the exceptions for not collecting the TCS , only in such cases when the scrap is used for the purposes of manufacturing, processing or producing articles or things or for the purposes of generation of bar and not for trading purposes. Thus, bare reading of Section clearly provides that if the goods of the nature specified in table are being traded, then the exemption from collecting the TCS are not attracted. Therefore, in our view, the contention of the ld AR is required to be rejected as the assessee is trading into the scrap and therefore, the provisions of Section 206C of the Act are attracted and the assessee was duty bound to collect the TCS on the sale on the "nature of goods" (scrap)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee himself. The assessee is, therefore, liable to deduct tax at source U/s 206C of the Act on the sale of scrap. In fact, the admission of the assessee is the best evidence to admit the liability. The assessee himself has admitted that the assessee is dealing in the scrap generated from the breaking of the ship and had purchased the scarp. The contention of the ld AR that since the iron scrap like steel, ingots, iron etc. is being used by the industries without any change, is not correct as the nature of goods shall remain same , therefore, it comes under the definition of the scrap. In our view, the material sold by the assessee cannot be used as such without any modification by the buyer of the said scrap. As the said material/goods come from the breaking of the ship, these goods were sold to the manufacturer/rerolling mills, as scrap therefore, the goods (scrap) sold by the assessee were not usable as such and therefore, the assessee was required to deduct TCS from the buyer. In view thereof, the ground No. 1 of the assessee's appeal is decided against the assessee. 8. The 2nd ground of the assessee's appeal is with respect to declaration in Form No. 27C is not furnished ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rm NO. 27D if the collectee has lost the original certificate so issued and makes a request for issuance of a duplicate certificate and such duplicate certificate is certified as duplicate by the collector. Further Rule 37 of the Rules, requires that every person meaning the person responsible for deducting tax under Chapter XVII-B shall, in respect of previous year, deliver or cause to be delivered to the Director General of Income Tax (Systems), the returns mentioned in column (1) of the Table below in Form No. specified in the corresponding entry in column (2) of the said Table by the end of the month falling in the financial year immediately following the previous year. Since the assessee has furnished the details on 23/12/2013 and 25/2/2014, therefore, the ld CIT(A) has not given the benefit of the declaration submitted by the assessee , as the declaration was filled with delay of several years . The ld AR of the assessee has submitted that it is an admitted position that the assessee has collected declaration form and submitted on 23/12/2013 and 25/2/2014, therefore, though, the assessee has submitted declaration at the appellate stage but in view of the judgments passed b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oods in question are to be utilized for the purposes of manufacturing process or producing articles or things or for the purpose of generation of power and not for trading purposes. The declaration to be made in sub-section (1A) of section 206C thus would enable the Revenue authorities to, as and when the need so arises make proper verifications. This sub-section itself does not provide for any time limit within which, such declaration is to be made. The time limit, of course, would be found in Rule 37C of Income Tax Rules, 1962. The main thrust of sub-section 1A of section 206C thus is to make a declaration as prescribed, upon which, the liability to collect tax at source under sub-section (1) would not apply. When there was no dispute about such a declaration being filed in a prescribed format and there was no dispute about the genuineness of such declaration, mere minor delay in filing the said declaration would not defeat the very claim. The Tribunal therefore, viewed such delay liberally and in essence held that there was substantial compliance with the requirement of filing the declaration." 3. Karnataka Forest Development Corporation Ltd. Vs. ITO, TDS 2015 ITL 1007 (Bang.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....generation of power and not for trading purposes. Thus, in a case where such a declaration is furnished by the buyer to the seller, the seller is not obliged to collect TCS from such buyer and consequently the seller assessee cannot be treated as an assessee in default in respect of not collecting TCS from such buyer. We find that the Commissioner of Income Tax (Appeals) upheld the treatment of assessee as assessee in default in respect of those parties from whom the assessee already received declaration in Form 27C on the ground that such declaration was not furnished by the assessee to the Chief Commissioner or Commissioner as required by the provisions of section 206C(1B) of the Act. 16. We find force in the contention of the assessee that once the declaration referred to in section 206C(1A) was received by the assessee, then thereafter the assessee could not legally collect the TCS from such buyers and consequently the assessee cannot be treated as an assessee in default for not collecting TCS from such buyers. The above view finds support from the decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Valibhai Khanbhai Mankad (2013) 261 CTR 538 (Guj.) wherein....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... parties and perused the material available on the record. In our view, the appeal is continuation of the assessment proceedings and even if the declaration is filed by the assessee at the appellate stage in the prescribed format by disclosing all information as contemplated under Form 27 read with Rule 37 of the Rules, the benefit of declaration should be given to the assessee. The ld Assessing Officer/CIT(A) should extend the benefit of declaration to the assessee. Rule 27 though is couched in the mandatory language by using the word "Shall" but the Rule 37 has not given the consequences of not filing the declaration within time. In our view, the consequences of failure to file the declaration in the requisite format as mentioned in the Rules should be provided by the IT Act and not by the Rules. The Rules, in our opinion, cannot extend or restrict the provisions of the Parent Act. The Rules are framed by the Legislature by exercising its power under the Act and therefore, if any penalty provision by way of the exclusion of declaration benefit and submission of the declaration belatedly should be provided by the Act and the rules . The provision of sub-Section (1A) of section 206....
X X X X Extracts X X X X
X X X X Extracts X X X X
....been filed by the buyer of the scrap and said buyers have already paid the advance tax /TDS, which was more than the tax due, therefore, the finding of the authorities below have charging the interest, is without any basis as the tax, which is required to be collected by the assessee had already been deposited by the buyers and therefore, there is no loss of interest. 12. The ld DR has relied upon the orders passed by the authorities below. 13. We have heard the rival contentions of both the parties and perused the material available on the record. In our view, the assessee is duty bound to collect the TCS from the buyers in terms of Section 206C of the Act. However, the collection of TCS and deposit of the TCS is only exempted in respect of the cases where the declaration is being filed by the assessee in view of sub-section (1A) of Section 206C of the Act. In view thereof, the revenue is only entitled to the recovery of the interest on the unpaid tax amount/deposit/short tax deposited by the buyer. If the taxes deposited by the buyer is fair and more than the tax required to be deducted by the assessee then in that eventuality, no interest is payable. However, if the tax de....