Nathulal P. Lavti v. Incometax Officer

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The Tax Publishers2012 TaxPub(DT) 0941 (Rkt-Trib) : (2012) 047 (II) ITCL 0208 : (2012) 143 TTJ 0509 : (2011) 048 SOT 0083 : (2012) 065 DTR 0133 INCOME TAX ACT, 1961 Tax deduction at source- Under section 206C-Assessee imported scrap and sold to manufacturers and other traders Assessee, an importer and dealer in recycled ferrous and non-ferrous metals, mainly brass and copper, sold the said recycled metals to manufacturers as well as to certain other traders. It was found during a survey at the premises of assessee that assessee sold scrap during relevant assessment years and it did not deduct tax at source on the said scrap sales. Therefore, AO passed order under section 206C(6)/206C(7) whereby he demanded one per cent of the sale consideration and interest thereon from the assessee. Commissioner (Appeals) was upheld the order of AO by observing that it was not necessary that the assessee was liable to deduct tax at source under section 206C only in case where the assessee was a manufacturer; and even a trader was subject to section 206C as title of section was 'Profits and gains from the business of trading. Commissioner (Appeals) was of view that assessee might have bought the scrap and sold the same but the scrap sold was generated due to manufacturing activity only. But assessee submitted that metal/scrap sold by it was not generated as a result of any manufacturing or mechanical working of materials and, therefore, as per Explanation (b ) to section 206C, it was not required to deduct tax at source from the buyer. *Held:*It was found that the nature of goods imported by the assessee was scrap from demolished buildings and others. That fact was supported by the facts noted by a chartered accountant while giving his opinion that the material imported by the assessee was scrap which was derived on the basis of dismantling of constructed residential buildings, factories and other superstructures and it was not generated out of some manufacturing process carried out by somebody. (Para 6) There was no dispute regarding the fact that goods (scrap) sold by assessee was not from the manufacturing or mechanical working of materials which was definitely not usable as such because of breakage, cutting up, wear and other reasons. The main thrust of argument of the assessee was that it was only trader, it was not into any manufacturing activity which would yield any scrap, and what it sold, was not scrap as defined in Explanation (b) to section 206C. (Para 7) As per the Explanation (b) to section 206C it appeared that to bind an assessee, who was a dealer in scrap, the scrap sold must be- (1)the material should be waste and scrap; (2)the material sold should be generated from the manufacture or mechanical working of materials; (3)the material sold was not usable as such because of breakage, cutting up, wear and other reasons. (Para 9) SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 0941 (Rkt-Trib) : (2012) 047 (II) ITCL 0208 : (2012) 143 TTJ 0509 : (2011) 048 SOT 0083 : (2012) 065 DTR 0133

INCOME TAX ACT, 1961

Tax deduction at source- Under section 206C-Assessee imported scrap and sold to manufacturers and other traders

Assessee, an importer and dealer in recycled ferrous and non-ferrous metals, mainly brass and copper, sold the said recycled metals to manufacturers as well as to certain other traders. It was found during a survey at the premises of assessee that assessee sold scrap during relevant assessment years and it did not deduct tax at source on the said scrap sales. Therefore, AO passed order under section 206C(6)/206C(7) whereby he demanded one per cent of the sale consideration and interest thereon from the assessee. Commissioner (Appeals) was upheld the order of AO by observing that it was not necessary that the assessee was liable to deduct tax at source under section 206C only in case where the assessee was a manufacturer; and even a trader was subject to section 206C as title of section was 'Profits and gains from the business of trading. Commissioner (Appeals) was of view that assessee might have bought the scrap and sold the same but the scrap sold was generated due to manufacturing activity only.

But assessee submitted that metal/scrap sold by it was not generated as a result of any manufacturing or mechanical working of materials and, therefore, as per Explanation (b ) to section 206C, it was not required to deduct tax at source from the buyer. Held:It was found that the nature of goods imported by the assessee was scrap from demolished buildings and others. That fact was supported by the facts noted by a chartered accountant while giving his opinion that the material imported by the assessee was scrap which was derived on the basis of dismantling of constructed residential buildings, factories and other superstructures and it was not generated out of some manufacturing process carried out by somebody. (Para 6)

There was no dispute regarding the fact that goods (scrap) sold by assessee was not from the manufacturing or mechanical working of materials which was definitely not usable as such because of breakage, cutting up, wear and other reasons. The main thrust of argument of the assessee was that it was only trader, it was not into any manufacturing activity which would yield any scrap, and what it sold, was not scrap as defined in Explanation (b) to section 206C. (Para 7)

As per the Explanation (b) to section 206C it appeared that to bind an assessee, who was a dealer in scrap, the scrap sold must be-

(1)the material should be waste and scrap;

(2)the material sold should be generated from the manufacture or mechanical working of materials;

(3)the material sold was not usable as such because of breakage, cutting up, wear and other reasons. (Para 9)