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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: Shri M. Balaganesh, & Shri S.S Viswanethra Ravi
These appeals of the revenue and cross objection of the assessee arise out of the consolidated order of the Learned CIT(A)-I, Kolkata in Appeal Nos. 85-89 / CIT(A)-I/58(4)/11-12 dated 19.11.2012 against the consolidated order of the Learned AO framed for the Asst Years 2005-06 to 2009-10 u/s 206C(6)/206C(7) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’). Since the issue involved in all the appeals of the revenue are identical in nature, they are taken up together and disposed off by this consolidated order for the sake of convenience.
2. 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 Act in the facts and circumstances of the case.
The brief facts of this issue are that the Learned AO observed that the assessee is engaged in dealing in sawn timber from the previous year relevant to Asst Year 2005- 06. In the course of survey proceedings u/s 133A of the Act on 25.3.2009, the Learned AO found that the assessee failed to collect income tax (tax collected at source –TCS) from the buyers on sale of sawn timber in accordance with the provisions of section 206C 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 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 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 Learned 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 Learned AO not being satisfied with the replies of the assessee, treated the assessee as 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 different from timber as there was radical change from timber to sized timber. Accordingly, he held that the provisions of section 206C(1) is not applicable to the assessee. Aggrieved, the revenue is in appeal before us by raising the similar grounds for the asst years 2005-06 to 2009-10. The grounds raised for the Asst year 2005-06 are as below for the purpose of adjudication:- “That on the fact and circumstances of the case, the Ld. CIT(Appeal)-I, Kolkata has erred in holding that section 206C(1) & section 206C(6A) are not applicable in this case ignoring the following facts completely :-
The Provisions of section 206C (1) are very clear and unambiguous and provides for TCS on sale of all timber whether the same is obtained under the forest lease or other modes. Each and every timber which is obtained from tree is cut through by hand saw or mechanical saw machine and only by cutting through a saw machine the timber is detached from its plant/tree.
The sawn timber is the same timber with the same chemical, physical, core properties, same constituents, same internal bonding etc. and it is not a new product.
3. The CIT (A) was not justified in stating that the word timber cannot be extended to the meaning of the sawn timber, as there was radical change from timber to sawn timber, whereas the departmental circular 528 of 1988, clearly states that sawing of timber to smaller sizes is neither manufacturing or processing and squarely falls under the purview of Sec. 206C (1) of the Act.
The Learned AR vehemently relied on the order of the Learned CIT(A) and filed the following documents to prove that the timber is different from sawn timber :-
a) Tender document for timber floated by Himachal Pradesh State Forest Development Corpn. Ltd, wherein, in para 14 of the Tender document under the caption ‘Restriction of Sale etc’. b) Pictorial representation of business process of timber into sawn timber.
He further placed reliance on the decision of 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). He further argued that the sawn timber were sold to the persons who utilized goods for the purpose of manufacturing, processing and producing articles or things for the purposes of making furniture and all those transactions were excluded from collection of tax at source u/s 206C(1A) of the Act.
In respect of Cross objections of the assessee, the Learned AR without prejudice to his arguments above, argued that if the buyer of the sawn timber had filed his return of income u/s 139(1) of the Act ; had taken into account such amount for computing income in such return of income ; and had paid the tax due on the income declared by him in such return of income, then the seller of the sawn timber (assessee herein) shall not be treated as assessee in default. For this he placed reliance on the decision of the Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverage (P) Ltd vs CIT reported in 293 ITR 226 (SC).
5. The Learned DR vehemently relied on the order of the Learned AO and argued that the provisions of section 206C of the Act use the word timber, which includes all types of timber. He further stated that the decision relied upon by the Learned AR on the Hon’ble Calcutta High Court decision was rendered in the context of sales tax proceedings and hence the same cannot be applied in income tax proceedings.
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 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 :-
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.
CO No. 39/Kol/2013( arising out of Asst Year 2005-06
The assessee has filed cross objections for the Asst Year 2005-06. In view of our findings in Asst Year 2005-06, the cross objections of the assessee are dismissed as infructuous and we refrain to give our decision on the grounds raised thereon.
In the result, the appeals of the revenue are allowed and the cross objection of the assessee is dismissed as infructuous. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 6-4 - 2016