INCOME TAX REVIEW

The object of enacting section 206C is to enable the Revenue to collect the legitimate dues of the State from the persons carrying on particular trades in view of the peculiar difficulties experienced in the past viz., the evasion of tax, legitimately due on the income arising from the trade or business. The said section was enacted so as to facilitate the collection of tax on that income which is bound to arise or accrue, at the very inception itself or at an anterior stage. It is akin to the Advance tax provision. The standard, by which the amount of tax is measured, being the Purchase price, will not in any way alter the nature and basis of levy, viz., that the tax is a tax on income. It cannot be labelled as a tax on Purchase of goods.

Applicability of the section:

Following conditions must be satisfied:

• The assessee is a ‘buyer’ of ‘specified goods’ in any sale, by way of auction, tender or any other mode; or, with effect from 1-1-2004, he is a lessee or licensee in relation to specified contracts.

• Specified goods are:

  1. Alcoholic Liquor for human consumption [Indian Made Foreign Liquor], or

  2. Tendu leaves, or

  3. Timber, or

  4. Any forest produce, or

  5. Scrap.

  With effect from 1-10-2004 specified contracts are:

  1. Parking lot,

  2. Toll plaza

  3. Mining or quarrying.

• Sale is conducted by any of the following persons, namely:

  1. Central Government,

  2. State Government,

  3. Local Authority,

  4. Statutory Corporation,

  5. Authority established by or under a Central, State or Provincial Act,

  6. Company,

  7. Firm,

  8. Co-operative society,

  9. An individual or HUF whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified in clause (a) or clause (b) of section 44AB during the FY immediately preceding the FY in which the said goods.

* ‘Buyer’ - The term ‘buyer’ stated in conditions above does not include the following:

1. A public sector company, Central Government, a State Government, an Embassy, a High Commission, legation, commission and consulate, trade representation of a foreign State.

2. A club.

3. A buyer in the retail sale of such goods purchased by him for personal consumption. With effect from 1-10-2004 the terms, licensee or lessee does not include a public sector company.

Meaning of the word "Scrap":

Expln. (b): waste and scrap which arises from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons.From the above definition, the scope of the word cannot be precisely spelled out and there is ample scope of litigation in respect of the same.

Seller (and, with effect from 1-10-2004, lessor or licensor) is to collect tax at source if conditions specified above are satisfied.

When tax has to be collected at source:

Tax has to be collected by the seller (and, with effect from 1-10-2004, lessor or licensor) at the time of debiting of the amount payable by the buyer (or, with effect from 1-10-2004,licensee or lessee) to the account of the buyer (or, with effect from 1-10-2004, licensee or lessee) or at the time of receipt of such amount form the buyer (or, with effect from 1-10-2004, licensee or lessee) in cash or by issue of cheque/draft or by any other mode, whichever is earlier.

Amount on which the tax is required to be collected at source:

The tax has to be collected at source at the prescribed rate on the cost price only, excluding the Duties and Cess payable in respect thereof.

Deposit of tax:

Tax collected under section 206C shall be deposited to the credit of the Central Government within one week from last day of the month in which collection is made.

Issue of certificate:

The certificate shall be furnished in Form No. 27D within one month from the end of month during which amount is debited to account of buyer (or, with effect from 1-10-2004, licensee or lessee) or payment is received from buyer. Where more than one certificate is required to be furnished to a buyer for tax collected at source in respect of the period ending on September 30 and March 31 in each financial year, the person collecting the tax, may (no request from such buyer), issue within one month from the end of such period, a consolidated certificate in Form No. 27D for tax collected during whole of such period. Where in a case, the certificate for tax collected at source in Form No. 27D is lost, the person collecting tax at source may issue a duplicate certificate of collection of tax at source on a plain paper giving necessary details as contained in Form No. 27D. The Assessing Officer before giving credit for tax collected at source on the basis of duplicate certificate, shall get the payment certified from the Assessing Officer designated in this behalf by the Chief Commissioner and shall also obtain an Indemnity Bond from the buyer.

Exemption from collection of tax at source:

No tax shall be collected at source if the buyer gives a declaration (in duplicate) to the effect that the specified goods will be utilised for the purpose of manufacturing, processing or producing articles or things and not for trading purposes; the declaration should be in Form No. 27C.

Regarding the scope of the words, manufacturing, processing or producing articles or things, one may consider the various pronouncements rendered for obtaining deductions under chapter VI -A.

The person collecting tax shall deliver to the Chief Commissioner/Commissioner one copy of the said declaration before the 7th day of the month next following the month in which the declaration is furnished.

Prior to 8-9-2003, buyers of specified goods solely for the purpose of manufacturing, processing or producing articles or things and not for trading purposes would have to obtain a certificate in Form No. 27C from the AO for non-collection of tax at source. However w.e.f.
8-9-2003, newly inserted sections 206(1A) and 206(1B) provide that, in such cases, the buyer, who is residing in India, can file a declaration with the seller at the time of purchase instead of approaching the AO.

Collection of tax at lower rate prescribed returns:

Buyer/licensee/ lessee may apply to AO in Form No. 13. The AO on receiving the application from buyer, may grant the relief if he is satisfied that the total income of the buyer justifies the collection of tax at a lower rate than the relevant rate. Such certificate shall remain in force for the period specified therein. The certificate shall be issued directly to the person responsible for collecting the tax, under advise to the buyer who applied for the same.

Up to 30-9-2004 every person collecting tax at source under section 206C is required to send half-yearly returns for the period ending on September 30 and March 31 in Form 27E.

The aforesaid returns shall be submitted within the time limit given below:

Returns on computer:

Use Form No. 27B [from 1-4-2005 compulsory for companies and Government and optional for others]. Returns to be filled on computer readable media.

PAN:

Every ‘buyer’ (and, w.e.f. 1-10-2004, licensee and lessee) is required to intimate his PAN to the ‘seller’ (and, w.e.f. 1-10-2004, licensee and lessee) and the ‘seller ‘, etc. is required to quote the PAN of the ‘buyer’, etc., in all certificates (in Form No. 27C or 27D) and returns in Form 27E.

Penalties:

If a seller,

– does not collect tax at source, or

– after collecting the tax fails to pay it

as required under this section; he shall be liable to pay simple interest @2% per month or part of month on the amount of tax, from the date on which such tax was collectable to the date on which such tax was actually paid.

If a person fails to

– issue the certificate of tax collection at source, or

– furnish the aforesaid return in time,