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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Per Shri A.T.Varkey, JM All these appeals filed by the assessee against the orders of Ld. CIT(A)-24, Kolkata dated 16.11.2015 for AYs. 2010-11 to 2012-13. Since grounds are identical and facts are common, we dispose of all these appeals by this consolidated order and takes the AY 2010- 11 as the lead case, and the result of it will be applied for all the assessment years.
The only issue to be decided in these appeals is as to whether the assessee could be said to have violated the provisions of section 206C of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) in the facts and circumstances of the case.
The brief facts of this issue are that the AO observed that the assessee is proprietor of M/s. Arvind Traders, who is engaged in the business of trading of timber who did not collect any tax u/s. 206C(1) of the Act on sale of ‘Timber obtained by any other mode other than under a forest lease’. Accordingly show cause letters were issued to the assessee to explain his position along with supporting documents as to why he should not be treated as an assessee in default as per provision of section 206C(6A) of the Act. The assessee tried to explain that no tax was collectible on sale of “sawn timber” as section 206C of the Act stipulates tax to be collected at source (TCS) and remitted only in respect of timber and not 2 Nirmal Kr. Kejriwal, AYs- 2010-11 to 2012-13 “sawn timber”. It was further explained that articles like “sawn timber” resulted different articles than timber as contained in table in section 206C(1) of the Act by operation of sawing machines and “sawn timber” could not be equated with timber which meant log or cutting pieces of timber. It was explained before the authorities below that when wood, planks or logs are sawed, what is produced is different thing from timber capable of being put to different uses. It was explained that a new kind of article is made out of timber. It was further explained before the AO that the sawn timber is sold by the assessee to various manufacturers and hence the provisions of section 206C of the Act cannot be imposed on the assessee. The AO not being satisfied with the replies of the assessee, treated the assessee as an assessee in default for failure to collect tax at source in terms of section 206C(1) of the Act. On first appeal, the Learned CIT(A) held that “sawn timber” is not different from “timber”. The ld CIT(A) noted that even in the submission of the assessee before the AO “sawn timber” is claimed to be different but after sawing the assessee still calls the sawed item as “sawn timber”. Accordingly, he held that the assessee’s claim that items being sold are not timber has no force and, therefore, he observed that there is no material to show that the AO’s order needs to be varied and, therefore, he dismissed the appeals of the assessee. Aggrieved, the assessee is in appeals before us by raising the similar grounds for the AYs. 2010-11 to 2012-13.
We have heard rival submissions and gone through the facts and circumstances of the case. At the time of hearing before us, the Ld. Counsel for the assessee submitted that the issue is squarely covered in favour of the assessee by the coordinate bench decision in assessee’s own case filed by the revenue in to 253/Kol/2013 for AYs 2005-06 to 2009-10 dated 06.04.2016. On the other hand, the Learned DR vehemently relied on the order of the Learned CIT(A). We note that the Coordinate Bench of this Tribunal in assessee’s own case, cited supra, has dealt the identical issue vide para 6 to 7 as under:
“6. We find that the issue involved here is related to levy and collection of tax at source in respect of profits and gains of trading in Sawn timber, wherein , every person, being a seller of the specified goods is required to collect income tax at source from the buyer at the specified rate. The tax so collected from the buyer shall be paid by the seller within the prescribed time to the account of the Central Government. Otherwise, the seller shall be treated as assessee in default. We find that the Learned AO had invoked the item no. (iv) of Table in Section 206C(1) of the Act i.e “timber obtained by any mode other than under a forest lease’. The Learned CIT(A) had given a categorical finding that the assessee had traded only in Sawn timber and not timber. We have to decide whether the timber could be 3 Nirmal Kr. Kejriwal, AYs- 2010-11 to 2012-13 different from sawn timber. The term ‘timber’ and ‘sawn timber’ is not defined in the Act. For this purpose, we find lot of force in the arguments of the Learned AR and the documents relied upon by him. We find from the tender document floated by Himachal Pradesh State Forest Development Corporation Limited for Timber, in para 14 under the caption “Restriction of Sale etc”, it is mentioned as below:- 14. No purchaser shall sell timber purchased by him to another party while such timber is lying in the Corporation depot. No sawing or conversion of timber is to be permitted in the depot premises under any circumstances what so ever.
This particular restrictive covenant in the tender document for timber proves that the term timber is different from sawn timber.
6.1. We find that when timbers are sawed out of logs or big size of timber, what is produced is a different thing for different uses. A new kind of commodity is manufactured because sawn timber made out of timber is not timber in its nascent state. We find that when a person cuts a tree, he gets timber. The said timber is sawed and cut into various sizes and kept in rectangular shape in order to make it a separate marketable commodity. This is called sawn timber. This process is not done by the assessee. The processed timber i.e sawn timber is bought by the assessee from the person who had converted the timber into sawn timber. Later the said sawn timber is sold by the assessee in its trading activity. 6.2. We also find that the term ‘manufacture’ is not defined in the Act. The Hon’ble Supreme Court in the case of Aspinwall and Co. Ltd vs CIT reported in 251 ITR 323 (SC) had held that :- “… The word ‘manufacture’ has not been defined in the Income-Tax Act. In the absence of a definition, the word ‘manufacture’ has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If the change made in the article results in a new and different article then it would amount to manufacturing activity. … ” 6.3. We find that the Learned CIT(A) had placed reliance on the decision of the Hon’ble Supreme Court in the case of Deputy CIT vs Pio Food Packers reported in 46 STC 63 SC, that :- Further, in the case of State of Orissa vs Patel Mills (37 STC 392 Ori) held that purchasing logs or timber, sawing them into planks, sleepers , etc., amount to manufacture.
Hence it could be safely concluded that the timber is different from sawn timber and hence the provisions of section 206C of the Act would not be applicable to the assessee. 6.4. We find that the Learned CIT(A) had given a categorical finding that the sawn timber were sold by the assessee to the persons who were engaged in manufacturing and processing furniture and such other products. Hence the assessee’s case falls under the exception provided in provisions of section 206C(1A) of the Act. This categorical finding given by the Learned CIT(A) is not controverted by the revenue before us. 6.5. We find that the Hon’ble Calcutta High Court in the case of Shaw Bros. and Co vs The State of West Bengal reported in 1963 14 STC 878 Cal dated 26.6.1963, wherein it was held that :-
4 Nirmal Kr. Kejriwal, AYs- 2010-11 to 2012-13 5. In my opinion, the observation quoted above will not help Mr. Bhattacharya. When planks are sawed out of logs, what is produced is a different thing from logs capable of being put to different uses. Therefore, when planks are made from logs or damaged wood, a new kind of commodity is manufactured because plank made out of timber is not timber in its nascent state. Though this decision was rendered in the context of sales tax proceedings, we find that there is nothing wrong in understanding the business process and the analogy drawn thereon in income tax proceedings.
In view of the aforesaid findings and various judicial precedents relied upon hereinabove, we find that the sale of sawn timber does not fall under the ambit of tax collection at source within the meaning of section 206C of the Act. Hence we find no infirmity in the order passed by the Learned CIT(A) in this regard.”
Respectfully following the aforesaid decision cited supra, and since the Ld. DR was unable to controvert the aforesaid finding of the Tribunal by bringing to our notice any change in fact or law, we set aside the order of the Ld. CIT(A) and are of the view that the “sawn timber” does not fall under the ambit of tax collection at source within the meaning of section 206C of the Act. Therefore, all the appeals of assessee are allowed.
In the result, all the appeals of the assessee are allowed.
Order is pronounced in the open court on 15th December. 2017.