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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI C.M.GARG & SHRI O.P.MEENA
आदेश /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. This appeal filed by the assessee is directed against the order of
Learned Commissioner of Income-tax (Appeals)-IV, Surat [in short “the
CIT(A)”] dated 15.10.2014 pertaining to Assessment Year 2008-09,
which in turn has arisen from the order dated 20.03.2013 passed by
the Income-tax Officer TDS-4, Surat (in short “the AO”) under section
201(1) & 201(1A) of Income Tax Act,1961 ( in short ‘the Act’).
Shree Mahuva Pradesh Sahkari Khand Udyog Mandli Ltd. v. Income-tax OfficerTDS-4 Surat /I.T.A. No. 117/Ahd/2015/A.Y.:08-09 Page 2 of 7
Ground no. 1 to 3 relates to levying tax of Rs. 50,960 under
section 201(1) and interest of Rs. 36,690 under section 201(1A) by
treating the assessee company in default for failure to collection of
tax at source under section 206C of the Act on the sale of material as
scrap even though it is not scrap within the meaning of explanation
given below to section 206C of the Act.
Short facts are that the assessee has sold scrap material of Rs.
amounting to Rs. 49,47,622 without deducting tax deducted at source
as required under section 206C of the Act. The AO after examining the
sale vouchers of scrap to Shree Ambica Trading Co. and Vishal
Corporation found that there was mention of sale of Ms. Scrap , M S
Turning scrap , C. I Solid scrap , Gani Metal solid scrap etc. . The AO
therefore, held that the scrap material sold by the assessee has arisen
out of manufacturing activity. The contention of the assessee that the
above scrap sold are not generated out of manufacturing activity is
not acceptable. Therefore, the assessee was considered as assesseein
default within the meaning of section 206C of the Act. Accordingly,
demand under section 201(1) and under section 201(1A) was raised.
Shree Mahuva Pradesh Sahkari Khand Udyog Mandli Ltd. v. Income-tax OfficerTDS-4 Surat /I.T.A. No. 117/Ahd/2015/A.Y.:08-09 Page 3 of 7
Being aggrieved, the assessee filed an appeal before the ld. CIT (A). The assessee has cited a decision in the case of Navine Flurorine International Ltd. [2011] 45 SOT 86 (Ahd) wherein the assessee has sold certain scrap of consisting of plastic drums, wooden scrap , plates materials, used oil, electric cables etc. was not held to be covered by the definition of scrap as defined under section 206C of the Act. However, the CIT (A) differed with the said decision and held the scrap should be interpreted in layman language which mean those items which could not be re used again in the manufacture of item produce by the assessee. Therefore, the scrap sold by the assessee falls under the definition of scrap as provided under section 206C of the Act. 5. Being, aggrieved the assessee filed this appeal before the
Tribunal. The learned Counsel submitted Explanation (b) to section
206C of the Act which categorically provides three conditions must be
satisfied for making liable the seller for collection of tax at source
which are 1. The material should be waste 2. The material sold should
be generated from manufacture or mechanical working material 3 the
material sold is not re usable as such because of breakage, cutting up,
wear and other reason. Therefore, it was argued that the assessee has
Shree Mahuva Pradesh Sahkari Khand Udyog Mandli Ltd. v. Income-tax OfficerTDS-4 Surat /I.T.A. No. 117/Ahd/2015/A.Y.:08-09 Page 4 of 7
sold various items consisted of plastic carabs, teens old weigh, scale ,
empty packages, old tyres , bullock carts , barrels which are of any
stretch of imagination cannot be said as generated from
manufacturing process of sugar and its by products. The ld. A.R. also
placed reliance on the decision of Hon’ble Gujarat High Court in the
case of CIT(TDS) v. Priya Blue Industries Pvt. Ltd. [2016] 65
taxmann.com 206 (Gujarat) wherein it was held that where products
obtained in course of ship breaking activity are usable as such , they
do not fall within the definition of scrap for the purpose of tax
collection at source on their sale. The ld. A.R. further placed reliance
on the decision of Dhasawala Traders v. ITO [2016] 74 taxmann.com
20 (Ahd ) and Navine Fluorine International Ltd. v. ACIT TDS- Surat
[2011] 45 SOT 86 (Ahd) which held the assessee has sold certain scrap
of consisting of plastic drums, wooden scrap , plates materials, used
oil, electric cables etc. was not held to be covered by the definition
of scrap as defined under section 206C of the Act, and Nathulal P Lavi
v. ITO [2011] 14 taxmann.com 94 (Rajkot) in support of his contention.
On the other hand, the ld. Sr. DR relied on the order of the AO .
Shree Mahuva Pradesh Sahkari Khand Udyog Mandli Ltd. v. Income-tax OfficerTDS-4 Surat /I.T.A. No. 117/Ahd/2015/A.Y.:08-09 Page 5 of 7
We have heard the rival submissions and perused the relevant material on record. To appreciate the legal position we have to examine the definition as given in "Explanation.—For the purposes of this section; (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;" 8. The above Explanation(b) to section 206C of the Income-tax Act provides the meaning of scrap means "waste and scrap" from manufacture or mechanical working of material which is definitely not usable as such because of breakage, cutting up, wear and other reasons. In the above definition the important words used in the definition of scrap are "waste and scrap" - "from manufacture" and "which is". The word "waste and scrap" are one item. Thereafter, the word used is "from" the manufacture or mechanical working of material. It would mean that the waste and scrap being one item should arise from the manufacture or mechanical working of material. It is, therefore, necessary to read the words waste and scrap together which are generated out of manufacturing process of the assessee. The words waste and scrap should have nexus with the manufacturing or mechanical working of material.Thereafter, the word used is "which is" definitely not usable. The word "is" as used in this definition of the scrap meant for singular item i.e., "waste and scrap". The word waste "which is" denotes to singular item and thus the singular item would be
Shree Mahuva Pradesh Sahkari Khand Udyog Mandli Ltd. v. Income-tax OfficerTDS-4 Surat /I.T.A. No. 117/Ahd/2015/A.Y.:08-09 Page 6 of 7
waste and scrap. We have gone through the details of scrap sold as reflected in Paper Book Page No. 17 to 41 which shows that the assessee has sold Plastic Kabrs, Old Tyre weighing scale, M S Barrel Gunny Bags, rubber tubes, M S Scrap ceiling wires which can be re used. It is further noticed that these items of scrap sold are not generated out of manufacturing processes of sugar factory, Therefore, such items sold are not filing under the definition given under explanation (b) to 206C of the Act. The words waste and scrap thus cannot be read differently as is considered by ld. CIT (A). The list of scrap sold by the assessee is reproduced above which are not connected with manufacture or mechanical working of material. The findings of the learned CIT(A) are based on presumption only that since the assessee is engaged in manufacture of sugar, therefore, entire scrap is generated out of its manufacturing activities. The findings of the learned CIT(A) are not based on any material or evidence. By the nature of the scrap items noted above, the same cannot be used while manufacturing gases or doing any mechanical working of the material for the gases. The items of the scrap in the case of the assessee would not form part of the definition of the scrap as is provided in Explanation (b) to section 206C of the Income-tax Act. Thus, the Explanation is wrongly applied in the case of the assessee. Reliance placed by the assessee on the decision of Co- ordinate Bench in the case of Navine Fluorine International Ltd. v. ACIT TDS-Surat[2011]45 SOT 86 (Ahd) also supports thus, view wherein
Shree Mahuva Pradesh Sahkari Khand Udyog Mandli Ltd. v. Income-tax OfficerTDS-4 Surat /I.T.A. No. 117/Ahd/2015/A.Y.:08-09 Page 7 of 7
it was held the assessee has sold certain scrap of consisting of plastic drums, wooden scrap , plates materials, used oil, electric cables etc. was not held to be covered by the definition of scrap as defined under section 206C of the Act. Considering the facts noted above, we are of the view that the authorities below have wrongly applied the meaning of scrap as is provided in Explanation (b) to section 206C of the Income-tax Act in the case of the assessee. Therefore, the assessee cannot be held to be in default. The assessee is not required to deduct tax under section 206C(6) of the Income-tax Act on the items of scrap as noted above. Resultantly, the assessee cannot be treated a assesse in within the meaning of section 206C of the Act. Ex-consequenti, no tax could be raised under section 201(1) and no interest could be charged under section 201(1A) of the Income-tax Act. We accordingly, allowed the grounds of appeal of the assessee. 9. In the result, the appeal of the assessee stands allowed.
Order pronounced in the open court on 18-04-2018.
Sd/- Sd/- (सी.एम.गग�) (ओ.पी.मीना) ( C.M. GARG) (O.P.MEENA) �याियक सद�य लेखा सद�य JUDICIAL MEMBER ACCOUNTANT MEMBER सुरत/ Surat: �दनांक /Dated : 18th April, 2018/opm Copy sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat