TCS on Scrap Sales Gross amount including VAT or Not

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 11 February 2011

TCS to be charged inclusive of excise / vat value.

2 Like

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 11 February 2011

100% agreed with U S Sharma.

Thanks and regards,

Manoj B. Gavali

CA Manikandan.A.V (FINANCE & ACCOUNTS) (789 Points)
Replied 11 February 2011

Please give me supporting reasons for your answer, can be a notification/circular/caselaw.

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 11 February 2011

⁷[BB.—Collection at source

Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc.

⁸206C. ⁹[¹⁰(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 amount¹¹ 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:

¹²[TABLE

SI. No	Nature of contract or licence or lease etc.	Percentage
(1)	(2)	(3)
(i)	Alcoholic liquor for human consumption and tendu leaves	Ten per cent
(ii)	Tenduleaves	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 :]

¹³[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 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.]]

¹⁴[(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 form¹⁵ 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.]

¹⁶[(1C) Every person, who grants a lease or a licence or enters into a contract or otherwise transfers any right or interest either in whole or in part in any parking lot or toll plaza or mine or quarry, to another person, other than a public sector company (hereafter in this section referred to as “licensee or lessee”) for the use of such parking lot or toll plaza or mine or quarry for the purpose of business shall, at the time of debiting of the amount payable by the licensee or lessee to the account of the licensee or lessee or at the time of receipt of such amount from the licensee or lessee in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the licensee or lessee of any such licence, contract or lease 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

SI. No	Nature of contract or licence or lease etc.	Percentage
(1)	(2)	(3)
(i)	Parkinlot	Two per cent
(ii)	Toll plaza	Two per cent
(iii)	Mininig and quarrying	Two per cent]

(2) The power to recover tax by collection under sub-section (1) ¹⁷[or sub-section (1C)] shall be without prejudice to any other mode of recovery.

(3) Any person collecting any amount under sub-section (1) ¹⁷[or sub-section (1C)] shall pay within ¹⁸[the prescribed time] the amount so collected to the credit of the Central Government or as the Board directs :

¹⁹[Provided that the person collecting tax on or after the 1st day of April, 2005 in accordance with the foregoing provisions of this section shall, after paying the tax collected to the credit of the Central Government within the prescribed time, prepare quarterly statements for the period ending on the 30th June, the 30th September, the 31st December and the 31st March in each financial year and deliver or cause to be delivered to the prescribed income-tax authority^19a, or the person authorised by such authority, such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed.²⁰]

(4) Any amount collected in accordance with the provisions of this section and paid under sub-section (3) shall be deemed as payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to him for the amount so collected on the production of the certificate furnished under sub-section (5) in the assessment made under this Act for the assessment year for which such income is assessable :

²¹[Provided that where any amount is collected in accordance with the provisions of this section on or after the 1st day of April, ²²[2008] and paid under sub-section (3) to the credit of the Central Government, the amount of tax collected and specified in the statement referred to in the second proviso to sub-section (5) shall be deemed as payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to him for the amount so collected in the assessment made under this Act for the assessment year for which such income is assessable without the production of certificate.]

(5) Every person collecting tax in accordance with the provisions of this section shall within ²³[such period as may be prescribed²⁴from the time of debit] or receipt of the amount furnish to the buyer ²⁵[or licensee or lessee] to whose account such amount is debited or from whom such payment is received, a certificate to the effect that tax has been collected, and specifying the sum so collected, the rate at which the tax has been collected and such other particulars as may be prescribed²⁴ :

²⁶[Provided that no certificate may be furnished in a case where tax has been collected in accordance with the foregoing provisions of this section on or after the 1st day of April, ²⁷[2008] :

Provided further that the prescribed income-tax authority or the person authorised by such authority referred to in sub-section (3) shall, within the prescribed time after the end of each financial year ^28a[beginning on or after the 1st day of April, 2008], prepare and deliver to the buyer referred to in sub-section (1) or, as the case may be, to the licensee or lessee referred to in sub-section (1C), a statement in the prescribed form²⁸ specifying the amount of tax collected and such other particulars as may be prescribed.]

²⁹[(5A) Every person collecting tax ^29a[before the 1st day of April, 2005] in accordance with the provisions of this section shall ³⁰[prepare within the prescribed time after the end of each financial year], and deliver or cause to be delivered to the prescribed income-tax authority³¹ ³²[or such other authority or agency as may be prescribed] such returns in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed³³:]

³⁴[Provided that the Board may, if it considers necessary or expedient so to do, frame a scheme^33a for the purposes of filing such returns with such other authority or agency referred to in this sub-section.]

³⁵[(5B) Without prejudice to the provisions of sub-section (5A), any person collecting tax, other than in a case where the seller is a company, the Central Government or a State Government, may at his option, deliver or cause to be delivered such return to the prescribed income-tax authority³¹ in accordance with such scheme^35a as may be specified by the Board in this behalf, by notification in the Official Gazette, and subject to such conditions as may be specified therein, on or before the prescribed time after the end of each financial year, on a floppy, diskette, magnetic cartridge tape, CD-ROM or any other computer readable media (hereinafter referred to as the computer media) and in the manner as may be specified in that scheme³⁶:

Provided that where the person collecting tax is a company or the Central Government or a State Government, such person shall, in accordance with the provisions of this section, deliver or cause to be delivered, within the prescribed time after the end of each financial year, such returns on computer media under the said scheme.

(5C) Notwithstanding anything contained in any other law for the time being in force, a return filed on computer media shall be deemed to be a return for the purposes of sub-section (5A) and the rules made thereunder and shall be admissible in any proceedings made thereunder, without further proof of production of the original, as evidence of any contents of the original or of any facts stated therein.

(5D) Where the Assessing Officer considers that the return delivered or caused to be delivered under sub-section (5B) is defective, he may intimate the defect to the person collecting tax and give him an opportunity of rectifying the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the Assessing Officer may, in his discretion, allow; and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, such return shall be treated as an invalid return and the provisions of this Act shall apply as if such person had failed to deliver the return.]

(6) Any person responsible for collecting the tax who fails to collect the tax in accordance with the provisions of this section, shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government in accordance with the provisions of sub-section (3).

The following sub-section (6A) shall be inserted after sub-section (6) of section 206C by the Finance Act, 2006, w.e.f. 1-4-2007 :

(6A) If any person responsible for collecting tax in accordance with the provisions of this section does not collect the whole or any part of the tax or after collecting, fails to pay the tax as required by or under this Act, he shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the tax:

Provided that no penalty shall be charged under section 221 from such person unless the Assessing Officer is satisfied that the person has without good and sufficient reasons failed to collect and pay the tax.

(7) Without prejudice to the provisions of sub-section (6), if the ^36a[seller] does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest at the rate of ³⁷[one] per cent per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid ^37a[and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3)].

(8) Where the tax has not been paid as aforesaid, after it is collected, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (7) shall be a charge upon all the assets of the ^37b[seller].]

³⁸[(9) Where the Assessing Officer is satisfied that the total income of the buyer ³⁹[or licensee or lessee] justifies the collection of the tax at any lower rate than the relevant rate specified in sub-section (1) ³⁹[or sub-section (1C)], the Assessing Officer shall, on an application⁴⁰ made by the buyer ⁴¹[or licensee or lessee] in this behalf, give to him a certificate for collection of tax at such lower rate than the relevant rate specified in sub-section (1) ⁴¹[or sub-section (1C)].

(10) Where a certificate under sub-section (9) is given, the person responsible for collecting the tax shall, until such certificate is cancelled by the Assessing Officer, collect the tax at the rates specified in such certificate.

(11) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (9) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.]

⁴²[Explanation.—For the purposes of this section,—

(a) “buyer” 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 receive any such goods but does not include,—

⁴³[(i) a public sector company, the Central Government, a State Government, and an embassy, a high commission, legation, commission, consulate and the trade representation, of a foreign State and a club; or

(ii) a buyer in the retail sale of such goods purchased by him for personal consumption;]

⁴⁴[(b) “scrap” means waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons;

(c) “seller” means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society and also includes an individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) are sold.]]

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 11 February 2011

Sections 192 to 206C

Deduction/Collection of tax at source

Before issuing - Section 194

n The expression ‘before issuing’, as has been used in section 194, means ‘before sending out’ and tax has to be deducted by the company from the dividends paid before the date the dividend warrants are sent out to the shareholders and not at the point of time at which the dividends are declared or dividend warrants are prepared. Section 201(1A) provides that the assessee shall be liable to pay interest at the rate of 12 per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax was actually paid. As indicated above, in terms of section 194, the relevant date is the date on which dividend warrant is issued - CIT v. Hindustan General Industries Ltd. [2000] 113 Taxman 506 (Delhi).

Any person responsible for paying - Sub-section (1) of section 194A

n It is evident that the words ‘any person responsible for paying’ mentioned in section 194A must be understood in the context of section 204 which makes it clear that the responsibility for paying the tax in a case where the payer is a company, the responsibility is of the company itself including its principal officer - M.A. Unneerikutty v. Dy. CIT [1944] 120 CTR (Ker.) 486.

At any time...payee - Section 194A

n The words ‘at the time of credit of such income to the account of the payee’ in section 194A would take within their sweep the interest debited to ‘interest account’ or any other nominal account when the debit is for a specific amount calculated with reference to the deductor’s liability to a particular creditor in accordance with the terms and conditions of the loan - CIT v. Ranoli Investment (P.) Ltd. [1998] 146 CTR (Guj.) 745.

Income by way of interest - Section 194A

n The expression “income by way of interest” in section 194A would refer to the category of the income, viz., interest income and not the amount of income ultimately to be assessed in the hands of the payee - CIT v. S.K. Sundararamier & Sons [1999] 240 ITR 740 (Mad.).

Contractor - Section 194C

The word “contractor” in section 194C as used in the context of that provision refers to businessman who does contract work, and not professionals, like lawyers, chartered accountants, doctors, engineers, etc. - Moradabad Chartered Accountants Association v. CBDT [2003] 264 ITR 374 (All.).

Any work - Sub-section (1) of section 194C

n ‘Any work’ means any work and not a works contract. ‘Work’ envisaged in the sub-section has a wide import and covers ‘any work’ which one or the other of the specified organisations can get carried out through a contractor under a contract. It further includes obtaining by any of such organisations supply of labour under a contract with a contractor for carrying out its work which would have fallen outside the scope of work but for its specific inclusion in the sub-section - Associated Cement Co. Ltd. v. CIT[1993] 67 Taxman 347/201 ITR 435 (SC).

n The expression ‘any work’ used in section 194C means ‘works contracts’ and ‘contracts for work’, i.e., ‘labour contracts’ but not ‘service contracts’ or ‘transport contracts’ - Bombay Goods Transport Association v. CBDT [1994] 76 Taxman 334/210 ITR 136 (Bom.).

Carrying out any work - Sub-section (1) of section 194C

n The expression ‘carrying out any work’ is the soul of section 194C and the applicability of the section depends upon the interpretation of this expression. The word ‘any’ is a word which excludes the limitation and qualification and can mean ‘all’, ‘each’ and ‘every’. The meaning of this word given in the statute depends upon the context and the subject-matter of the statute and its generality can be restricted by the context in which it has been used. It has been used as a prefix to the word ‘work’ which means engagement in the performance of a task, duty or the likes. The term ‘work’ covers all forms of physical and mental exertions or both combined for the attainment of some object other than recreation or amusement. The dictionary meaning of the words ‘carrying on’ implies a repetition of acts - Birla Cement Works v. CBDT [1997] 95 Taxman 377 (Raj.).

rent - section 194-I

n The definition, for the purpose of the Income-tax Act, of the nomenclature ‘rent’ as expounded in the Explanation to section 194-I itself amply reveals that the same is projected as the generic term which includes within its ambit payment made on whatsoever account for occupation of a tenanted portion. After taking into account the definition of rent, it apparently appears to be a composite concept. Once the rent is comprehended as a composite concept then it is not capable of being fragmented - Smt. Bishaka Sarkar v. Union of India [1996] 219 ITR 327 (Cal.).

Any other sum chargeable under the provisions of the Act - Section 195

n The scheme of sub-sections (1), (2) and (3) of section 195 and section 197 leaves no doubt that the expression ‘any other sum chargeable under the provisions of this Act’ would mean ‘sum’ on which income-tax is leviable. In other words, the said sum is chargeable to tax and could be assessed to tax under the Act - Transmission Corpn. of A.P. Ltd. v.CIT [1999] 105 Taxman 742/239 ITR 587 (SC).

Royalty - Section 195

n The term ‘royalty’ normally connotes the payment made by a person who has exclusive right over a thing for allowing another to make use of that thing which may be either physical or intellectual property or thing. The exclusivity of the right in relation to the thing for which royalty is paid should be with the grantor of that right. Mere passing of information concerning the design of a machine which is tailor-made to meet the requirement of a buyer does not by itself amount to transfer of any right of exclusive user, so as to render the payment made therefor being regarded as ‘royalty’ - CIT v. Neyveli Lignite Corpn. Ltd. [2000] 109 Taxman 369/243 ITR 459 (Mad.)/CIT v. Neyveli Lignite Corpn. Ltd. [2000] 113 Taxman 206 (Mad.).

Such amount - Sub-section (1) of section 206C

n ‘Such amount’ referred to in section 206C cannot be any amount other than the ‘purchase price’ - Vishal Enterprises v. Union of India [1988] 41 Taxman 210/174 ITR 548 (Kar.).

Processing - Proviso to sub-section (1) of section 206C

n The word ‘processing’ has been used in different contexts in different Acts. The said word is of wide amplitude. It has various shades of meaning and it has been interpreted in different ways under various enactments. The word ‘processing’ came up for consideration before the apex court in the case of Chowgule & Co. (P.) Ltd. v. Union of India [1981] 47 STC 124 (SC). In that decision it was held that when any commodity or goods is subjected to a process as a result of which it undergoes a change the said operation or activities would amount to processing of the commodity. It was held that there is a difference between processing and manufacturing as in manufacturing the original commodity can no longer be regarded as the original commodity and becomes a new distinct commodity. It has different shades of meaning and it has been given different meanings while interpreting the word in a welfare legislation - North Koel Tendu Leaves and Mahulam Leaves v. Union of India [1997] 228 ITR 630 (Pat.).

CA Manikandan.A.V (FINANCE & ACCOUNTS) (789 Points)
Replied 11 February 2011

n ‘Such amount’ referred to in section 206C cannot be any amount other than the ‘purchase price’ - Vishal Enterprises v. Union of India [1988] 41 Taxman 210/174 ITR 548 (Kar.).

Sir Thnks for your interest... but here also it is not stated that "purchase price" is including VAT of not.

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 11 February 2011

incometax does not deals with vat/excise/service tax, but amouts , gross amount is subject to TCS, as the whole amount is related to the purchase of scrap for buyer, for more details u can search the case law ( reference cited there).

1 Like

CA Manikandan.A.V (FINANCE & ACCOUNTS) (789 Points)
Replied 11 February 2011

Vishal Enterprises vs Union Of India And Anr. on 19/3/1988

JUDGMENT

S.R. Rajasekhara Murthy, J.

1. The petitioner-firm is engaged in the business of buying and selling timber obtained from the State Government and its agencies and is an income-tax assessee. It has challenged, in this writ petition, the Press Note dated June 23, 1988, issued by the Ministry of Finance, a copy of which is produced as annexure A to the writ petition.

2. By the Finance Act of 1988, section 44AC, which is a special provision for computing profits and gains from the business of trading in certain goods, was inserted with effect from April 1, 1989, and made applicable to the period relevant for the assessment year 1989-90. By the application of this provision, a certain percentage of the purchase price paid or payable by the buyer in respect of specified goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods, chargeable to tax under the Income-tax Act.

3. In the case of assessees dealing in alcoholic liquor, a sum equal to 40% of the amount paid or payable by the buyer as the purchase price, shall be deemed to be the profits and gains of the buyer from that business.

4. In the case of assessees dealing in timber, a certain percentage of the purchase price, as mentioned in the table, is deemed to be the profits and gains of the buyer from that business.

5. Section 206C introduced by the same Finance Act provides for the procedure to collect the said sum from the buyer as specified in the table annexed to section 206C, with reference to each class of goods referred to therein. This has come into force on June 1, 1988.

6. A press note came to be issued by the Finance Ministry as per annexure A giving an illustration clarifying as to how the provisions of section 206C should be understood and implemented. The illustration given in the press note reads thus (See [1988] 172 ITR (St.) 21 at p. 23) :

"To illustrate, if the total amount payable by a buyer to the 'seller' is Rs. 100, the sum to be collected at source will be Rs. 10 in the case of timber obtained by any mode other than under a forest lease."

7. A circular was also issued by the Chief Conservator of Forests, Karnataka, in conformity with this circular.

8. In this writ petition, the petitioner has challenged the press note dated June 23, 1988. The petitioner's contention is that if the provisions of section 44AC are implemented as per the press note, the collection of tax would be 66 2/3 % of the income comprised in the purchase price. It is, therefore, argued on this premise, that such collection is wholly illegal and opposed to section 206C and section 2(29C) of the Act, which defines "maximum marginal rate".

9. I am unable to appreciate the argument of Sri Hanumantha Rao. What is deemed to be profits and gains of the petitioner under section 44AC is 15% or 10% of the purchase price depending upon the nature of lease and the manner of obtaining timber for business. Section 206C provides for collection of such deemed profits at source from the buyer of any goods and at rates specified in the table annexed to section 44AC. What is required to be collected from the buyer is a percentage of such amount towards income-tax. "Such amount" referred to in section 206C cannot be any amount other than the "purchase price" and the percentage of the purchase price which is deemed as the profits and gains of the buyer, is also specified in column 3 of the table.

10. The illustration in the press note is issued precisely for the purpose of clarification as to what should be treated as the deemed income and what should be the amount that should be collected by the seller from the buyer. There is absolutely no ambiguity in the provisions of section 206C and even if there is any doubt, it is clarified by the press note.

11. There is no reason for any apprehension by the petitioner that by the implementation of this scheme, it results in levy of tax at 66 2/3% on the deemed income of the petitioner. Hence, the writ petition is rejected.