Karnataka Forest Development ... vs Assessee

Karnataka Forest Development Corporation Ltd. Near RTO Office, Shivamogga. ... Petitioner/ PAN: BLREO1277D Appellant

Vs.

Income-tax Officer, TDS Ward, Davangere. ... Respondent

Assessee by: Shri S.Ananthan, CA. Respondent by: Shri T.S.N.Murthy, CIT(DR).

Date of hearing : 19-03-2015. Date of pronouncement: 17-04-2015. O R D E R

Per ABRAHAM P GEORGE, AM:

In these appeals filed by the assessee, it assails being

treated as one in default under section 206C(6A) of the Income-

tax Act, 1961 [hereinafter referred to as 'the Act' for short].

2. Facts apropos are that assessee had during the previous

years relevant to the impugned assessment years sold wood pulp

to three concerns namely (i) Mysore Paper Mills Ltd., Bhadravathi,

(ii) West Coast Paper Mills Ltd., Dandeli and (iii) Harihar Poly ITA No.1153/Bang/2014 Dr.Hajjaji Krishnamurthy Anand Page 2 of 9 Fibres Ltd.,Kumarapallanam. Assessee is a State Government

undertaking and has, as per its website the following objects:

"1. To develop land for raising forest plantations and in particular Eucalyptus, Bamboo, Tropical Pines, Rubber, Cashewnut, Cocoa, Tea, Coffee and such other suitable species in the State of Karnataka, for the purpose of development of industries based on their produce.

2. To plant, grow, cultivate, produce and raise plantations of all kinds of varieties of forest plants, trees and crops and natural products of every kind and other agricultural crops and to buy, sell, export, import, process, distribute or otherwise deal in all kinds of forest plants, tree crops, natural products and agricultural crops.

3. To carry on the business of planters, cultivators, sellers and dealers in time, plywood, pulpwood, matchwood and such other products of every description and to manufacture, dispose off, sell and deal in products of such plantations and other forest crops of every description.

4. To establish, administer, own and run industries for manufacturing forest products.

5. To promote the development of Forest Industries, to operate suitable schemes and for that purpose to prepare and get or cause to be prepared reports, blue prints, statistics, feasibility studies and project reports and other information.

6. To promote companies, firms, establishments, concerns or undertakings for the purpose of development of industries based on forest produce and to assist and finance any individual firms or company with capital, loan, credit resources etc.

7. To take up construction of buildings in furtherance of forests.

8. To take up research and sponsor work relating to forestry including tissue culture and allied activities.

9. To conduct tours in relation to Wildlife Sanctuaries and other places of interest. "

3. The Assessing Officer (AO) was of the opinion that

assessee, when it affected the sale of wood pulp, was obliged to ITA No.1153/Bang/2014 Dr.Hajjaji Krishnamurthy Anand Page 3 of 9 collect tax at source under section 206C, but had failed to do. He

put the assessee on notice. Reply of the assessee was that:

i. The buyers were manufacturers and not traders and the wood pulp was used for manufacture.

ii. Wood pulp sold by it was not a forest produce.

iii. Wood used for pulping was not spontaneous growth, but cultivated by the assessee on leased forest land.

Along with the above reply assessee also filed a declaration from

the buyer in Form 27C in which they affirmed that the wood pulp

was being used for their manufacturing activity only.

4. However, the AO was not impressed by the above reply.

According to him:

i. Wood pulp was a type of goods falling under item (v) of the Table given in section 206C(1), viz., forest produce

ii. Declaration in Form 27C filed by the assessee was not complete since part II was missing.

iii. Copy of the declaration was not delivered by the assessee to the Chief Commission or Commissioner, as mandated in section 206(1B) of the Act.

Nevertheless he dropped the proceeding in so far as supplies to

M/s.Mysore Paper Mills Ltd., was concerned, since it was a

Government company. After verifying the sales made to the other

two parties, he concluded that assessee was one in default within

the meaning of section 206C(6A) for short collection of tax of ITA No.1153/Bang/2014 Dr.Hajjaji Krishnamurthy Anand Page 4 of 9 Rs.22,03,232/- for assessment year 2009-10, Rs.14,48,680/- for

assessment year 2010-11 and Rs.23,49,112/- for assessment

year 2011-12 and for interest of Rs.11,11,774/- for assessment

year 2009-10, Rs.5,56,074/- for assessment year 2010-11 and

Rs.7,14,618/- for assessment year 2011-12 under section 206(7)

of the Act.

5. Aggrieved, assessee moved in appeal before the

CIT(A) for all the years. It reiterated its contention that pulp

wood was a cultivated produce on lands leased from Government

which involved organized activity, that Form 27C was filed al beit

late, that the breach if any was technical since the buyers had

used the wood pulp only for their manufacturing work. However,

the CIT(A) was unimpressed by the above, and proceeded to

confirm the orders of the AO.

6. Now before us, ld AR strongly assailing the order of the

lower authorities, through his submissions endeavored to drive

home the following points:

i. Declaration in Form 27C as prescribed in Rule 37 of the Income-tax Rules 1962 was filed before the AO during the course of the proceedings.

ii. Delay in filing copy of the declaration can invite penalty under section 272A(2)(j) of the Act but cannot render the assessee, one in default.

iii. Form 27C was filed for both the parties viz., West Coast Paper Mills Ltd., and Harihar Polyfibres Ltd., but these were brushed aside only for a technical reason of delay.

ITA No.1153/Bang/2014 Dr.Hajjaji Krishnamurthy Anand Page 5 of 9 iv. Once the buyer were using the wood pulp for their manufacturing process, the seller was not bound to collect tax at source from the buyer.

The ld.AR relied on a judgment of Hon'ble Madras High Court in

the case of CIT vs. Adisankar Spinning Mills (P) Ltd., (2014) 362

ITR 233 in support of his argument that delay in filing Form 27C

was only a technical breach, liable to be condoned. In support of

his contention that section 206C applied only to a forest produce

he relied on a judgment of Hon'ble Andhra Pradesh High Court in

the case of Andhra Pradesh Forest Development Corporation Ltd.

vs. ACIT (2005) 272 ITR 245.

7. Per contra, learned Departmental Representative

submitted that Form No.27C was filed by the assessee late, only

when proceedings were initiated for the default. This, as per the

ld.DR, was done only to circumvent the consequence of the

default. As per the ld. DR, if the Form was not filed in time,

Revenue lost a valuable right of proceeding against the buyer and

section 206C(1B) stood violated. As per the ld. DR, assessee,

having sold forest produce without collecting tax at source and

without obtaining Form No.27C, was rightly held to be one in

default. Ld. DR stressed that the said declaration was to be

obtained at the time of sale and not later.

8. We have perused the orders and heard the rival

contentions. It is not disputed that assessee had filed the

declaration from the buyer, as mandated in section 206C(1A) only ITA No.1153/Bang/2014 Dr.Hajjaji Krishnamurthy Anand Page 6 of 9 when show cause notices were issued by the AO, pointing out

failure to collect tax at source. However, it remains a fact that

assessee had produced Form No.27C obtained from both the

parties. Copies of these Forms have been placed on record at

paper book pages 1 to 66. Both Part I and Part II of the Forms

have been filled up. At this juncture, it is necessary to have a

reading of section 206C(1A), 206(1B) and rule 37C which

prescribed Form 27C.

"206C. Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc.- (1) Every person, being a seller shall, at the time of debiting of the amount payable by 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

i) Alcoholic Liquor for human One per cent consumption

ii) Tendu leaves Five per cent

iii) Timber obtained under a Two and one-

forest lease half per cent iv) Timber obtained by any Two and one- mode other than under a half per cent forest lease v) Any other forest produce not Two and one- being timber or tendu leaves half per cent

vi) Scrap One per cent:

Provided that every person, being a seller shall at the time, during the period beginning on the 1st day of June, 2003 and ending on the day immediately preceding the date on which the Taxation Laws (Amendment) Act, 2003 comes into force, of debiting of the amount payable by the buyer to the account of the buyer or of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other ITA No.1153/Bang/2014 Dr.Hajjaji Krishnamurthy Anand Page 7 of 9 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 form2 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 and not for trading purposes.

(1B) The person responsible for collecting tax under this section shall deliver or cause to be delivered to the Chief Commissioner or Commissioner one copy of the declaration referred to in sub-section (1A) on or before the seventh day of the month next following the month in which the declaration is furnished to him."

"Declaration by a buyer for no collection of tax at source under section 206C(1A).

37C. (1) A declaration under sub-section (1A) of section 206C to the effect that any of the goods referred to in the Table in sub-section (1) of that section are to be utilised for the purposes of manufacturing, processing or producing articles or things and not for trading purposes shall be in Form No. 27C and shall be verified in the manner indicated therein.

(2) The declaration referred to in sub-rule (1) shall be furnished in duplicate to the person responsible for collecting tax.

(3) The person referred to in sub-rule (2) shall deliver or cause to be delivered to the Chief Commissioner or Commissioner, one copy of the declaration referred to in sub-rule (1) on or before the seventh day of the month next following the month in which the declaration is furnished to him.

Explanation.--For the purposes of sub-rule (3), the Chief Commissioner or Commissioner means the Chief Commissioner or Commissioner to whom the Assessing ITA No.1153/Bang/2014 Dr.Hajjaji Krishnamurthy Anand Page 8 of 9 Officer, having jurisdiction to assess the person referred to in sub-rule (2), is subordinate. "

9. Section 206C(1A) mandates that any person responsible

for collecting tax under section 206C(1) need not do so if he

obtains a declaration from the buyer that he is purchasing the

goods for use in manufacturing, processing or producing articles

or things. It does not say that such declaration has to be obtained

at the very same moment when a sale is affected. A reading of

sub section (1B) clearly brings out this since obligation of the

assessee to file a copy of the declaration arises only when the

declaration is furnished to him by the buyer. The point of

reference is furnishing of declaration by the buyer and not the

month or date on which sale is affected by the assessee. Even if

we consider that there is a breach on the part of the assessee in

not obtaining the declaration from the buyer the moment a sale

was affected, and in filing it before the CCIT or CIT, as the case

may be, a similar breach was considered to be only technical and

one that could be condoned by Hon'ble Madras High Court in the

case of Adisankar Spinning Mills (P) Ltd., (supra). In the said

case, assessee had filed Form 27C subsequent to the proceedings,

through a rectification petition under section 154, but still

considered to be sufficient compliance, which view of the Tribunal

was confirmed by Hon'ble Madras High Court. Proceedings on the

assessee for the alleged default here were initiated on 10/10/2011

and assessee had before 31/10/2012 filed the Forms. Assessment

years involved were assessment year 2009-10 to 2011-12 and ITA No.1153/Bang/2014 Dr.Hajjaji Krishnamurthy Anand Page 9 of 9 there was much time left with the Revenue to verify whether the

buyers were indeed using the wood pulp for manufacturing,

processing or producing article or thing and not for trading and to

proceed against them if they had furnished false declaration. We

are therefore of the opinion assessee could not have been deemed

as one in default under section 206C(6D) of the Act or liable for

interest under section 206(7). Orders of the lower authorities

were set aside.

10. Appeals of the assessee are allowed.

11. Since appeals are disposed off stay petitions filed by the

assessee have become infructuous and are dismissed.

Pronounced in the open court on 17th April, 2015

sd/- sd/-

(Rajpal Yadav) (Abraham P.Jeorge) JUDICIAL MEMBER ACCOUNTANT MEMBER eksrinivasulu

Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order

Assistant Registrar Income-tax Appellate Tribunal Bangalore