COLLECTOR MINING vs. THE DEPUTY COMMISSIONER OF INCOME TAX (TDS)

Facts

The appellant, the Deputy Director, Mineral Administration, Kanker, is the assessee, and the respondent is the Revenue. The assessment year in question is 2015-16. The appeal challenges the order of the Income Tax Appellate Tribunal (ITAT) dated 21-7-2023, which upheld the order of the Commissioner of Income Tax (Appeals) and the Assessing Officer. During a TDS survey on 24-9-2018, it was found that the assessee had not collected Tax Collected at Source (TCS) on compounding fees/fines recovered from illegal miners and transporters. An order was passed treating the assessee as an 'assessee-in-default' for non-collection of TCS under Section 206C(1C) of the Income Tax Act, 1961. The assessee's appeals before the CIT(A) and ITAT were dismissed on this issue, leading to the present appeal.

Held

The High Court held that Section 206C(1C) of the Income Tax Act, 1961, obliges the assessee to collect tax at source from persons to whom rights have been conferred and from whom royalty is payable to the State Government. The obligation to collect tax under this section cannot be extended to persons involved in illegal mining or transportation of illegal minerals. The section specifically mandates collection from leaseholders, license holders, or those with whom a contract or transfer of rights in a mine or quarry has been made. There is no legislative mandate to collect TCS from persons involved in illegal mining or transportation. Furthermore, compounding fees/fines collected under Section 23A of the MMDR Act read with Rule 71(5) of the Rules of 2015 have the effect of an acquittal, meaning no further proceedings can be taken. Therefore, compounding fees/fines cannot be subjected to TCS under Section 206C(1C) as there is no legislative command for it. The royalty and compounding fee are mutually exclusive. The ITAT was unjustified in holding that compounding fees/fines are chargeable under Section 206C(1C). The impugned order of the ITAT was set aside, and the substantial question of law was answered in favour of the assessee.

Key Issues

1. Whether the provisions of Section 206C(1C) of the Income Tax Act, 1961, are applicable for collecting TCS from offenders involved in illegal mining or transportation/storage without a lease or license, or who have not entered into a contract for the transfer of rights in mines or quarries, and from whom compounding fines are collected under Rule 71(5) of the Chhattisgarh Minor Mineral Rules, 2015? Assessee's Contention: The assessee argued that TCS under Section 206C(1C) is to be collected from leaseholders or license holders with whom a contract for transfer of rights in mines or quarries exists, and from whom royalty is payable. In cases of illegal mining, the offender is neither a leaseholder nor a license holder, and no contract exists. The amount collected is a fine to drop prosecution, not royalty, and is levied under Section 23A of the MMDR Act read with Rule 71(5) of the Chhattisgarh Minor Mineral Rules, 2015. Therefore, Section 206C(1C) is not applicable, and the assessee cannot be branded as an 'assessee in default'. Revenue's Contention: The Revenue contended that Section 206C(1C) is also applicable to offenders involved in illegal mining or transportation without a lease or license. The obligation to collect TCS does not presuppose the existence of a lease, license, or contract but also applies where a person has transferred any right or interest in a mine. The ITAT was justified in dismissing the appeals and upholding the demand.