TCS -Tax Collected at Source

TCS Tax Collected at Source under Income Tax Act Section 206

Table of Contents on TCS

1.1 Who is responsible to collect tax at source under section 206C

Following persons are liable to collect tax at source :

♦   Every person, being a seller (see para 1.3), shall collect tax at source from the buyer (see para 1.4) of goods specified (see para 1.2) in section 206C(1)

♦   A lessor or licensor in respect of specified transactions is also liable to collect tax at source from lessee/licensee in respect of specified transactions referred to in section 206C(1A). [See para 1.5]

♦   With effect from 1-7-2012, a seller of jewellery for cash consideration is also liable to collect tax at source [See para 1.6].

♦   With effect from 1-6-2016, seller of any goods/services for cash consideration is liable to collect tax at source [See para 1.6].

♦   With effect from 1-6-2016, seller of any motor vehicle of value exceeding Rs. 10 lakhs. [See para 1.7].

Note  :-

State Government’ is covered under Every person

It has been held that a State Government comes within the ambit of ‘every person’ under section 206C, and hence is liable to collect tax at source from persons who have been granted mining and quarry leases by it, and to remit the same to the Central Government – Govt. of Madhya Pradesh v. TRO [2008]-MP

Written contract not necessary

Agra Development Authority v. Asstt. CIT (TDS) [2012] 138 ITD 127 (Agra – Trib.)

it was held that even where there is no written contract, liability to TCS arises.

Licensees Paid Tax ?

District Magistrate v. ITO (TDS) [2013]  (Agra – Trib.) it was held that to fix TCS liability of District Magistrate on royalty payment for mining quarrying, it is to be verified as to whether licensees or lessees of mines have paid tax dues.

1.2 Specified goods in Section 206C(1)

Goods specified in section 206C(1) are as follows :

♦             Alcoholic liquor for human consumption (including Indian made foreign liquor)

♦             Tendu leaves

♦             Timber obtained under a forest lease

♦             Timber obtained by any mode other than under a forest lease

♦             Any other forest produce not being timber or tendu leaves

♦             Scrap

♦             Minerals, being coal or lignite or iron ore

Note 1 : Timber

In Hillwood Furniture (P.) Ltd. v. ITO [2015] (Ker.) it was held that section 206C does not draw any distinction between ‘timber grown in India’ and ‘timber imported’ from abroad.

In Excel Timber (P.) Ltd. v. Dy. CIT and ITO [2015] (Ker.) it was held that where assessee was engaged in importing timber and thereupon selling it to registered dealers in India, assessee was required to collect tax at source from purchasers/dealers in terms of section 206C at time of sale.

Note 2: Forest produce

Basically, forest produce is the produce grown spontaneously, may be at the subsequent stages some human effort and skill is applied in order to extract the resultant product. Tax collection at the time of sale is intended to be applied only in respect of forest produce and not with reference to agricultural produce. Therefore, the assessing authorities must first give a finding as to whether an item is categorisable as forest produce, before taking the view that the seller was liable to collect tax at source. There is absolutely no merit in the contention that even if the produce is not forest produce, still the seller is under obligation to collect tax at the time of effecting the sale – A.P. Forest Dev. Corpn. Ltd. v. Asstt. CIT [2005] 272 ITR 245

Note 3 Meaning of Scrap

Explanation (b) to section 206C provides that ‘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.

Read : Products generated out of ship breaking is not Scrap, Not liable for TCS u/s 206C

The crucial requirement prescribed for collecting tax at source is that the scrap which is sold is generated as a result of some ‘manufacturing activity’ carried on by somebody. Where scrap which was sold by an assessee was derived from dismantling of constructed residential buildings, factories and superstructures, it was held that tax was not collectible at source – Nathulal P. Lavti v. ITO[2011] 48 SOT 83 (URO) (Rajkot – Trib.).

In Nawanshahar Co-op. Sugar Mills Ltd. v. ITO (TDS) [2013]  (Asr. – Trib.) it was held that molasses produced during course of manufacturing of sugar is by-product and does not fall within meaning of scrap as defined in Explanation (b) to section 206C.

It was also held that bagasse is commonly used as a fuel usually in sugar mills themselves and, thus, it could not be considered as ‘scrap’ for purpose of section 206C.

Waste

In CIT v. Adisankara Spinning Mills (P.) Ltd. [2014] (Mad.) it held that where cotton waste disposed of by the assessee was reused by purchaser as raw material for manufacture of lower count of cotton yarn, such cotton waste could not come within meaning of ‘scrap’ as defined in Explanation (b) to section 206C.

1.3 Who is a seller under Section 206C

Under Explanation (c) to section 206C, the seller must be one of the following entities :

♦             The Central Government

♦             A State Government

♦             Any local authority

♦             Any statutory corporation or authority

♦             Any company

♦             Any firm

♦             Any co-operative society

♦             Individual/HUF (see para 1.3-1 below)

(See also paras 1.6 and 1.7)

Para 1.3-1

• From 1-6-2003, any individual or HUF who satisfies any of the following conditions is also liable to Collect tax at source:

(i) If his/its total sales, turnover or gross receipts from business exceed or exceeds specified monetary limits during the financial year immediately preceding the financial year in which income is credited or paid. The specified monetary limits are as follows

ii) If his/its gross receipts from profession exceeds specified monetary limits during the financial year immediately prece-ding the financial year in which income is credited or paid. The specified monetary limits are as follows:

Illustration

Since the figures for the ‘preceding financial year’ are the determinative factor, an individual or HUF shall be liable to Collect tax at source during the financial year 2016-17, only if such individual or HUF has carried on some business or profession during the financial year 2015-16 and the sales/turnover/gross receipts for that year exceed Rs. 1 core (in case an Individual or HUF was carring on Business) or Rs. 25 lakhs (in case an Individual or HUF was carring on Profession).

Case Law:-

Where liquor licence had been granted to an individual but business was being carried on by a firm of which he himself was a partner, firm would nevertheless be regarded a ‘seller’ within meaning of section 206C—Bhagwan Singh v. Union of India [1994]  (Patna.).

1.4 Who is a buyer under Section 206C

Explanation (aa)(i) to section 206C provides that ‘buyer’ means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified (see para 1.2 above for details of goods) or the right to receive any such goods but does not include,—

(i)           a public sector company, the Central Government, a State Government, and an embassy, a High Commission, legation, commission, consulate and the trade representation, of a foreign State; or

(ii)          a club; or

(ii)          a buyer in the retail sale of such goods purchased by him for personal consumption.

(See also paras 1.6 and 1.7)

Note 1 : club

The word ‘club’ has not been defined for this purpose, nor is it defined in the Act.he dictionary meanings of the word, which are relevant in the present context, are ‘group who meet for social purposes or sports, etc., and organisation offering benefit to subscribers’. Among the specified goods, a ‘club’ will be interested in purchasing only alcoholic liquor for human consumption, and hence it can be safely said that a ‘club’ in the present context has reference to social clubs, recreation clubs, sports clubs, and the like.

Note 2 😛ersonal consumption

‘A buyer in the retail sale of such goods purchased by him for personal consumption‘ will alone be excluded from being treated as a ‘buyer’. The provisions have not provided for any mechanism by which the seller will be able to satisfy himself that the requirement of personal consumption is fulfilled, so that he need not collect tax. A declaration from the purchaser may be taken for this purpose.

Note 3 : Liquor Licence

The sale of liquor is generally controlled by issue of licences by Government, and the question has repeatedly cropped up as to whether, in respect of the licence fee paid by the sellers, they could be treated as ‘buyer’ so as to collect tax on the licence fees. The matter is now set at rest by the judgment of the Supreme Court in Union of India v. Om Prakash S.S. & Company [2001] 248 ITR 105  holding that liquor licensees are covered under section 206C only at the stage of their placing orders with manufacturer or supplier of liquor, and not at the stage of obtaining licence. The Supreme Court observed :

“Section 206C refers to a case where by reason of the payment to the seller the producer gets specified goods mentioned in the Table to the said section or gets a right to collect or receive those goods by virtue of that payment. When the Government issues a licence, it only enables the licensee to carry on trade or business in that item. The payment made by the licensee by way of licence fee does not ipso facto entitle the licensee to lift the goods. For obtaining the goods mentioned in the Table, the licensee has to place an order on the manufacturer or the supplier of the said goods and it is at that point of time that section 206C would get attracted. To licences issued by the Government permitting the licensee to carry on liquor trade the provisions of section 206C are not attracted as the licensee does not fall within the concept of ‘buyer’ referred to in that section; ‘buyer’ has to be a buyer of goods and not merely a person who acquires a licence to carry on the business.”

In Sankatha Shukla v. UOI [2013]  (All.) it was held that where a distillery had sold country liquor to various retail vendors at price fixed by Excise Commissioner and while raising invoices it had collected from retail vendors tax purporting to be under section 206C, in view of Explanation (a)(iii) of section 206C retail vendors could not be termed as ‘buyer’ and hence distillery was restrained from collecting tax under section 206C from retail vendors.

Note 4 : Where the buyer is a member of a Scheduled Tribe residing in specified areas/States

If the buyer is a member of a Scheduled Tribe, and he is residing in any of the areas/States mentioned in section 10(26) of the Act, any income accruing or arising to him from any source in those areas/States is exempt from tax under the aforesaid provision. Therefore, if any payment is to be made to such a buyer which falls for collection of tax at source under section 206C, no tax is required to be collected at source. This will be so even if payment is to be made at a place outside those specified areas/States. What is important is that the source of income must be within the specified areas/States. For example, if a member of a Scheduled Tribe takes up a forest lease, and the forest area in question is situated within any of the specified areas/States, no tax will be required to be collected at source on payments made to him, irrespective of the place at which the payment is made – Sing Killing v. ITO [2002] 255 ITR 444

1.5 Certain lessors/licensors are also covered

 With effect from 1-10-2004, section 206C(1C) provides that every person, who grants a lease or a licence or enters into a contract or otherwise transfers any right or interest either in whole or in part in

(i) any parking lot, or

(ii) toll plaza, or

(iii) mining and quarrying (hereafter referred to as lessor/licensor),

to another person, other than a public sector company (hereafter referred to as lessee/licensee), for the use of such parking lot or toll plaza or mine or quarry for the purpose of business, shall collect tax at source at the prescribed rates.

With effect from 1-6-2007, ‘mining and quarrying’ shall not include mining and quarrying of mineral oil. For this purpose, ‘mineral oil’ includes petroleum and natural gas.

Akola Municipal Corporation v. ITO [2009] 120 ITD 7/123 TTJ 71 (Nag. – Trib.)  Octroi collection is not in the nature of contract or licence or lease or ‘toll plaza’. Hence, no tax is required to be collected under section 206C(1C), in respect of octroi collected by the agent appointed by assessee-municipal corporation.

1.6 Cash sale of jewellery/any other goods or services

Sale of bullion/jewellery/any other goods or services will be subject to TCS provisions, if the following conditions are satisfied —

♦             Sale consideration of

-bullion *  exceeds Rs. 2,00,000 or

-sale consideration of jewellery exceeds Rs. 5,00,000 or

-(w.e.f. 1-6-2016) sale consideration of any other goods/provision service exceeds Rs. 2,00,000.

♦             Out of sale consideration any amount is received in cash.

*Words “(excluding any coin/article weighing 10 grams or less)” omitted by the Finance Act, 2013, with effect from 1-6-2013.

If the above conditions are satisfied, the seller will collect tax at the rate of 1 per cent of sale consideration. Tax will be collected at the time of receipt of any amount in cash. This rule will be applicable irrespective of the fact whether the buyer is a manufacturer, trader or the purchase is for personal use.

With effect from 1-6-2016 above TCS provisions will not be applicable in following two cases :

♦  No tax shall be collected at source on any amount on which tax has been deducted by the payer under Chapter XVII-B.

♦  Above provisions will not apply in relation to sale of any goods (other than bullion or jewellery) or services to such classes of buyers who fulfils such conditions, as may be prescribed.

Question 1: Whether tax collection at source under section 206C(1D) at the rate of 1% will apply in cases where the sale consideration received is partly in cash and partly in cheque and the cash receipt is less than two lakhs rupees. -[ CIRCULAR NO.23/2016 -Refer Para 1.22-1]

Answer : No. Tax collection at source will not be levied if the cash receipt does not exceed two lakhs rupees even if the sale consideration exceeds two lakhs rupees.

Illustration: Goods worth Rs. 5 lakhs is sold for which the consideration amounting to Rs. 4 lakhs has been received in cheque and Rs. l lakh has been received in cash. As the cash receipt does not exceed Rs. 2 lakhs, no tax is required to be collected at source as per section 206C(1D).

Question 2: Whether tax collection at source under section 206C(1D) will apply only to cash component or in respect of whole of sales consideration.-[ CIRCULAR NO.23/2016 -Refer Para 1.22-1]

Answer: Under section 206C(1D), the tax is required to be collected at source on cash component of the sales consideration and not on the whole of sales consideration.

Illustration: Goods worth Rs. 5 lakhs is sold for which the consideration amounting to Rs. 2 lakhs has been received in cheque and Rs. 3 lakhs has been received in cash. Tax is required to be collected under section 206C(1D) only on cash receipt of Rs. 3 lakhs and not on the whole of sales consideration of Rs. 5 lakhs.

Question 3: Whether TCS at the rate of 1% is applicable in the case of sale to Government Departments, Embassies, Consulates and United Nation Institutions for sale of motor vehicle or any other goods or provision of services? -[CIRCULAR NO.22/2016 DATED 8-6-2016 Refer Para 1.22-3]

Answer: Government, institutions notified under United Nations (Privileges and Immunities) Act, 1947. and Embassies, Consulates. High Commission. Legation, Commission and trade representation of a foreign State and shall not be liable to levy of TCS at the rate of 1% under sub-section (1D) and (1F) of section 206C of the Act.

Question 7: As per section 206C (1D), tax is to be collected at source at the rate of 1% if sale consideration received in cash exceeds 2 lakh rupees whereas as per section 206C (1F) tax is to be collected at source at the rate of 1% of the sale consideration of a motor vehicle exceeding 10 lakh rupees . Whether TCS will be made under both sub-sections (1D) and (1F) of the section 206C @ 2%, where part of the payment for purchase of motor vehicle exceeds 2 lakh rupees in cash?[CIRCULAR NO.22/2016 DATED 8-6-2016 Refer Para 1.22-3]

Answer: Sub-section (1F) of the section 206C of the Act provides for TCS at the rate of 1% on sale of motor vehicle of value exceeding 10 lakh rupees. This is irrespective of the mode of payment. Thus if the value of motor vehicle is 20 lakh rupees, out of which 5 lakh rupees has been paid in cash and balance amount by way of cheque, the tax shall be collected at source at the rate of 1% on total sale consideration of 20 lakh rupees only under sub-section (1F) of section 206C of the Act. However, if a vehicle is sold for 8 lakh rupees and the consideration is paid in cash, tax shall be collected at source at the rate of 1% on 8 lakh rupees as per sub-section (1D) of section 206C of the Act.

1.7 TCS on Sale of Motor vehicle

With effect from 1-4-2016 every person being a seller, who receives any amount as consideration for sale of a motor vehicle of the value exceeding ten lakh rupees, shall, at the time of receipt of such amount, collect from the buyer, a sum equal to one per cent of the sale consideration as income-tax.

Mode of payment, whether in cash or in cheque, is irrelevant.

Question 1: Whether tax collection at source (‘TCS’) at the rate of 1% is on sale of Motor Vehicle at retail level or also on sale of motor vehicles by manufacturers to dealers/distributors.[CIRCULAR NO.22/2016 DATED 8-6-2016 Refer Para 1.22-3]

Answer: To bring high value transactions within the tax net, section 206C of the Act has been amended to provide that the seller shall collect the tax at the rate of one per cent from the purchaser on sale of motor vehicle of the value exceeding ten lakh rupees. This is brought to cover all transactions of retail sales and accordingly it will not apply on sale of motor vehicles by manufacturers to dealers/distributors.

Question 2: Whether TCS at the rate of 1% is on sale of Motor Vehicle is applicable only to Luxury Cars?[CIRCULAR NO.22/2016 DATED 8-6-2016 Refer Para 1.22-3]

Answer: No. As per sub-section (1F) of section 206C of the Act the seller shall collect the tax at the rate of one per cent from the purchaser on sale of any motor vehicle of the value exceeding ten lakh rupees.

Question 3: Whether TCS at the rate of 1% is applicable in the case of sale to Government Departments, Embassies, Consulates and United Nation Institutions for sale of motor vehicle or any other goods or provision of services?[CIRCULAR NO.22/2016 DATED 8-6-2016 Refer Para 1.22-3]

Answer: Government, institutions notified under United Nations (Privileges and Immunities) Act, 1947. and Embassies, Consulates. High Commission. Legation, Commission and trade representation of a foreign State and shall not be liable to levy of TCS at the rate of 1% under sub-section (1D) and (1F) of section 206C of the Act.

Question 4: Whether TCS is applicable on each sale of motor vehicle or on aggregate value of sale during the year?[CIRCULAR NO.22/2016 DATED 8-6-2016 Refer Para 1.22-3]

Answer: Tax is to be collected at source at the rate of 1% on sale consideration of a motor vehicle exceeding ten lakh rupees. It is applicable to each sale and not to aggregate value of sale made during the year. This can be explained by way of an illustration:

Illustration: Motor vehicle worth 20 lakh is sold and for which payments are made in instalments, one at the time of booking and the other at the time of delivery . At the time of booking 5 lakh rupees are paid and 15 lakh rupees are paid at the time of delivery. Tax at the rate of 1% on 5 lakh rupees at the time of booking and at the rate of 1% on remaining 15 lakh rupees at the time of delivery shall be collected at source.

Similar will be the position with regard to collection of tax at source under sub-section (1D) of section 206C.

Question 5: whether TCS at the rate of 1% on sale of motor vehicle is applicable in case of an individual? [CIRCULAR NO.22/2016 DATED 8-6-2016 Refer Para 1.22-3]

Answer: The definition of “Seller” as given in clause (c) of the Explanation below sub-section (11) of section 206C shall be applicable in the case of sale of motor vehicles also Accordingly, an individual who is liable to audit as per the provisions of section 44AB of the Act during the financial year immediately preceding the financial year in which the motor vehicle is sold shall be liable for collection of tax at source on sale of motor vehicle by him.

Question 6: How would the provisions of TCS on sale of motor vehicle be applicable in a case where part of the payment is made in cash and part is made by cheque? [CIRCULAR NO.22/2016 DATED 8-6-2016 Refer Para 1.22-3]

Answer: The provisions of TCS on sale of motor vehicle exceeding ten lakh rupees is not dependent on mode of payment. Any sale of Motor Vehicle exceeding ten lakh would attract TCS at the rate of 1%.

Question 7: As per section 206C (1D), tax is to be collected at source at the rate of 1% if sale consideration received in cash exceeds 2 lakh rupees whereas as per section 206C (1F) tax is to be collected at source at the rate of 1% of the sale consideration of a motor vehicle exceeding 10 lakh rupees . Whether TCS will be made under both sub-sections (1D) and (1F) of the section 206C @ 2%, where part of the payment for purchase of motor vehicle exceeds 2 lakh rupees in cash?[CIRCULAR NO.22/2016 DATED 8-6-2016 Refer Para 1.22-3]

Answer: Sub-section (1F) of the section 206C of the Act provides for TCS at the rate of 1% on sale of motor vehicle of value exceeding 10 lakh rupees. This is irrespective of the mode of payment. Thus if the value of motor vehicle is 20 lakh rupees, out of which 5 lakh rupees has been paid in cash and balance amount by way of cheque, the tax shall be collected at source at the rate of 1% on total sale consideration of 20 lakh rupees only under sub-section (1F) of section 206C of the Act. However, if a vehicle is sold for 8 lakh rupees and the consideration is paid in cash, tax shall be collected at source at the rate of 1% on 8 lakh rupees as per sub-section (1D) of section 206C of the Act.

1.8 General exemption

The CBDT have granted exemption from tax deduction/collection at source on the receipts of corporations which are established by a Central, State or Provincial Act for the welfare and economic upliftment of ex-servicemen and whose income qualifies for exemption from income-tax under section 10(26BBB) of the Act, for a period of three years from 1-8-2008. The CBDT have also clarified that this exemption shall not absolve such organisations from their statutory obligations of deducting tax at source on all contractual payments made by them to other parties including sub-contractors, etc. – Circular No. 7/2008, dated 1-8-2008

1.9 When tax has to be collected at source

In case of f trading in alcoholic liquor, forest produce, scrap,parking lot or toll plaza or mine or quarry :-

Tax has to be collected by the seller, or lessor, or licensor, Earliest of followings

•   at the time of debiting of the amount payable by the buyer/lessee/licensee to the account of the buyer/lessee/licensee, or
• at the time of receipt of such amount from the buyer/lessee/licensee in cash or by issue of cheque/draft, or by any other mode,

In case of sale of jewelleryor any other goods (other than bullion or jewellery) or providing any service  or in Case of Sale of Motor  Vehicle

In  seller should, at the time of receipt of the consideration in cash on or after 1-7-2012, collect tax equal to 1% of such consideration from the buyer, if the consideration exceeds the prescribed limit.

1.10 Rate of TCS under Section 206C

TCS is to be collected at the following percentages, on the amount paid by the buyer/lessee/licensee as the case may be :

The Patna High Court in Ramjee Prasad Sahu v. Union of India 1993 Tax LR 593, Bharat Prasad Choudhary v. Union of India [1998] 229 ITR 363 and the Punjab and Haryana High Court inFairdeal Trading Co. v. Union of India [1993]  have held that tax can be collected under section 206C only in respect of the cost price paid by vendors of country liquor to the wholesalers and not in respect of the excise duty to the Government.

1.11 Tax collection at lower rate [Section 206C(9), (10), (11)]

Where the Assessing Officer is satisfied that the total income of the buyer or the lessee or the licensee justifies the collection of the tax at any lower rate than the rate specified, the Assessing Officer shall, on an application made by the buyer/lessee/licensee in Form No. 13 in this behalf, give to him a certificate for collection of tax at such lower rate. Where such certificate is given, the person responsible for collecting the tax shall, until such certificate is cancelled by the Assessing Officer, collect the tax at the rates specified in such certificate. The certificate shall be valid for the assessment year specified in that certificate, unless it is cancelled by the Assessing Officer at any time before the expiry of the specified period. An application for a fresh certificate may be made, if required, after the expiry of the period of validity of the earlier certificate. The certificate shall be valid only for the person named therein.

The certificate for no collection of tax shall be issued direct to the person responsible for collecting the tax under advice to the person who made an application for issue of such certificate.

The certificate for collection of tax at lower rate shall be issued to the person who made an application for issue of such certificate, authorizing him to receive income or sum after collection of tax at lower rate.

CPC(TDS) has provided the facility of validating the 197 certificate to the deductors on www.tdscpc.gov.in (TRACES). This enables a deductor to first validate the 197 certificates given to him by their deductees and then furnish the same in the TDS/TCS statement. If the 197 certificate is not valid as per TRACES validation, the deductor should always insist upon an ITD system generated certificate having a unique 10 digit alpha numeric number. This would minimize the generation of default of “Short Deduction due to 197 certificate”. Refer Para 1.22-5 Advisory for Deductors

1.12 No TCS on Goods utilised for manufacturing /processing /power generation 

No tax will be collected at source from a buyer who purchases goods specified in Section 206C(1) for the purposes of manufacturing, processing or producing any article or thing, or for purposes of generation of power, and not for trading if the buyer gives a declaration in duplicate in Form No. 27C to the seller that the goods to be purchased are to be utilised in the carrying on of any of the activities referred to above.

Goods specified in section 206C(1) are as follows :

♦             Alcoholic liquor for human consumption (including Indian made foreign liquor)

♦             Tendu leaves

♦             Timber obtained under a forest lease

♦             Timber obtained by any mode other than under a forest lease

♦             Any other forest produce not being timber or tendu leaves

♦             Scrap

♦             Minerals, being coal or lignite or iron ore

The person responsible for collecting tax under this section (i.e the seller)  shall deliver to the Chief Commissioner or Commissioner one copy of the declaration referred to above on or before the seventh day of the month next following the month in which the declaration is furnished to him.For example, the seller should deliver the declarations received in the month of February 2016 to the Commissioner/Chief Commissioner on or before 7-3-2016.

Penalty for failure to file declaration

 Any failure on the part of the seller to deliver the declaration, whether totally or within time, to the Commissioner/Chief Commissioner will attract levy of penalty at Rs. 100 per day for every day during which the failure continues, and the competent authority to levy penalty is the Joint Director or the Joint Commissioner [section 272A(2)(j)]. Under section 272A(4), no order levying penalty shall be passed unless the defaulting seller is given an opportunity of hearing in the matter. Under section 273B, no penalty shall be imposable if the defaulting seller proves that there was reasonable cause for the failure.

Prior to 8-9-2003, buyers of specified goods solely for the purpose manufacturing, processing or producing articles or things and not for trading purposes would have to obtain a certificate in Form No. 27C from the Assessing Officer for non-collection of tax at source. However, with effect from 8-9-2003, the newly inserted section 206C(1A) and 206C(1B) provide that, in such cases, the buyer, who is resident in India, can file a declaration with the seller at the time of purchase instead of approaching the Assessing Officer.

In Karnataka Forest Development Corpn. Ltd. v. ITO [2015] 70 SOT 167 (Bang. – Trib.) The assessee had filed declaration from buyer, as mandated in section 206C(1A) only when show cause notices were issued by the AO, pointing out failure to collect tax at source. Assessing Officer opined that when it effected sale of wood pulp, assessee was obliged to collect tax at source under section 206C. It was held that section 206C(1) does not mandate that declaration from buyers in Form 27C has to be obtained at very same moment when sale is effected.  The Tribunal held that since as per section 206C(1B), obligation of assessee to file declaration arises only when declaration is furnished to him by buyer and not on month or date when sale is effected by assessee,

Illustration 

In CIT v. Adisankara Spinning Mills (P.) Ltd. [2014] (Mad.) it held that where cotton waste disposed of by the assessee was reused by purchaser as raw material for manufacture of lower count of cotton yarn, such cotton waste could not come within meaning of ‘scrap’ as defined in Explanation (b) to section 206C.

1.13 Tax Deduction and Collection Account Number (TDCAN)

with effect from 1-10-2004

 Every person collecting tax in accordance with the provisions of Chapter XVII who has not been allotted a tax deduction account number or tax collection account number shall apply for Tax Deduction and Collection Account Number (TDCAN) in Form No. 49B according to the following time-limits :

Penalty for failure to obtain TCAN or TDCAN under section 272BB or 272BBB

Where a person who is responsible to collect at source had failed to comply with the requirement of obtaining TCAN or TDCAN within time prescribed, or after allotment fails to quote such number in prescribed documents, he or it shall be liable for penalty of Rs. 10,000. No order imposing penalty shall be passed unless the person on whom penalty is proposed to be imposed is given an opportunity of being heard in the matter. No penalty shall be imposable on the person if he proves that there was reasonable cause for the failure.

Penalty for quoting false TCAN or TDCAN

Under sub-section (1A) of section 272BB, inserted with effect from 1-6-2006, if a person who is required to quote his TCAN or TDCAN, as the case may be, in the challans or certificates or statements or other notified documents, quotes a number which is false, and which he either knows or believes to be false or does not believe to be true, the Assessing Officer may direct such person to pay, by way of penalty, a sum of Rs. 10,000. Under section 273B, penalty shall not be imposed if the person proves that there was reasonable cause for the default. Again no order imposing a penalty shall be passed unless the person on whom penalty is imposed is given a reasonable opportunity of being heard in the matter. Persons collecting tax should ensure that the number quoted on the aforesaid documents is not incorrect or is not false, in view of the fact that, on each occasion on which the default occurs, penalty of Rs. 10,000 is likely to be attracted.

1.14 Deposit of TCS

TCS  by office of Government

 In the case of an office of the Government, tax shall be paid to the credit of the Central Government :-

(a)          on the same day where the tax is paid without production of an income-tax challan; and

(b)          on or before seven days from the end of the month in which the collection is made, where tax is paid accompanied by an income-tax challan.

Read  Mode of payment in case of TCS made by an office of Government without production of challan

Penalty

If the person collecting tax fails to deliver within time the statement prescribed under proviso to section 206C(3)  he shall pay, by way of penalty, a sum of one hundred rupees for every day during which the failure continues. The amount of penalty for failures in relation to returns 206C and statement prescribed under proviso to section 206C(3) and section 206C(3A) shall not exceed the amount of tax collectible.

Penalty can be ordered only after giving an opportunity of hearing to the person. Penalty is not imposable in cases where the person proves that there was reasonable cause for the failure.

TCS  by any person other than office of Government

In case of collectors other than an office of the Government, tax collected shall be paid to the credit of the Central Government within one week from the last day of the month in which the collection is made.

How to deposit TCS 

Where tax has been deposited accompanied by an income-tax challan, the amount of tax so deducted or collected shall be deposited to the credit of the Central Government by remitting it within the time specified into any branch of the Reserve Bank of India or of the State Bank of India or of any authorised bank;

However in case of (a) a company; and (b) a person (other than a company) to whom the provisions of section 44AB are applicable, the amount deducted shall be electronically remitted into the Reserve Bank of India or the State Bank of India or any authorised bank accompanied by an electronic income-tax challan.

Click :For online deposit of TCS  in Challan No ITNS 281

The amount shall be construed as electronically remitted to the Reserve Bank of India or to the State Bank of India or to any authorised bank, if the amount is remitted by way of—

(a)          internet banking facility of the Reserve Bank of India or of the State Bank of India or of any authorised bank; or

(b)          debit card.

Following points should also be kept in view :

♦   Date of encashment of cheque will be the date of payment of tax—Circular No. 141, dated 23-7-1974.

♦    While payment by a local cheque or draft can be made at any of the branches of banks authorised for the purpose, the assessees are advised that if they have an account in any branch of an authorised bank they should tender cheques at the said branch of the authorised bank—Circular No. 306, dated 19-6-1981.

♦   The payment of  TCS  should be made at the place of the income-tax office where the person responsible for collection and payment of tax is required to file the periodical statements of  TCS  as prescribed under the Income-tax Rules.-Circular No. 306, dated 19-6-1981

Which challan to be used

The TCS is required to be deposited in Challan Form No. ITNS 281.

Click :For online deposit of TCS  in Challan No ITNS 281

Use of computerised challan forms :-Taking into account the cumbersome and time-consuming process involved in filling up hundreds of challans for crediting tax deducted at source by the persons responsible for deducting tax at source on various payments, the Board has permitted all the persons to use computerised challan forms provided such forms are the exact replica of the one in use at present, having same format, colour and may be similar in size—Circular No. 796, dated 10-10-2000.

1.15 Furnishing of statements of TCS by Seller  to Income Tax department

In respect of tax collected at source, every person collecting tax at source (‘the tax collector’) is required to prepare and transmit quarterly statements in Form No. 27EQ.

Due date for sending the statement

The statement should be sent on or before the dates mentioned below :

Manner of furnishing statements

Following points may be noted :

(i)           The statement may be furnished in any of the following manners, namely:—

(a)          furnishing the statement in paper form;

(b)          furnishing the statement electronically under digital signature in accordance with the procedures, formats and standards specified by the Director General of Income-tax (Systems);

(c)          furnishing the statement electronically along with the verification of the statement in Form 27A or verified through an electronic process in accordance with the procedures, formats and standards specified by the Director General of Income-tax (Systems).

(ii)          Where,—

(a)          the Collector is an office of the Government; or

(b)          the Collector is the principal officer of a company; or

(c)          the Collector is a person who is required to get his accounts audited under section 44AB in the immediately preceding financial year; or

(d)          the number of deductee’s records in a statement for any quarter of the financial year are twenty or more,

               the deductor shall furnish the statement in the manner specified in (i)(b) or (i)(c) above.

(iii)         Where Collector is a person other than the person referred to in (ii), the statement may, at his option, be delivered or cause to be delivered in the manner specified in (i)(b) or (i)(c) above.

1.16 Issue of certificate/statement to buyer/licensee/lessee

The certificate of collection of tax at source under section 206C to be furnished by the collector shall be in Form No. 27D. after downloading from the traces website https://www.tdscpc.gov.in/.

Penalty for not issuing TCS Certificate

If the person collecting tax fails to furnish a certificate  he shall pay, by way of penalty, a sum of one hundred rupees for every day during which the failure continues. The amount of penalty for failures in relation to returns 206C and statement prescribed under proviso to section 206C(3) and section 206C(3A) shall not exceed the amount of tax collectible.

Penalty can be ordered only after giving an opportunity of hearing to the person. Penalty is not imposable in cases where the person proves that there was reasonable cause for the failure.

1.17 Time within which certificate shall be issued

The certificate shall be furnished quarterly within the time limit specified below :

Duplicate certificate

The collector may issue a duplicate certificate in Form No. 27D if the collectee has lost the original certificate so issued and makes a request for issuance of a duplicate certificate and such duplicate certificate is certified as duplicate by the collector.

Penalty for non-issue of certificate

If a collector fails to issue certificate in Form No. 27D, he shall be liable to pay, by way of penalty, a sum of Rs. 100 for every day during which the failure continues, subject to a maximum of the amount of tax collectible at source for which certificate is required to be issued. No order imposing penalty shall be passed by any income-tax authority unless the person on whom the penalty is proposed to be imposed is given an opportunity of being heard in the matter by such authority. However, no penalty shall be imposed if the collector proves reasonable cause for the failure.

1.18  Annual statements to buyer/licensee/lessee by department

With effect from 1-4-2008, the Director General of Income-tax (Systems) or any person authorised by him (i.e., NSDL) shall deliver to every buyer/licensee/lessee from whom the amount has been collected, a statement in Form No. 26AS by the 31st July every year, following the financial year during which the amount has been collected.

 buyer/lessee/licensee can see the TCS details in form 26AS by logging into www.incometaxindiaefiling.gov.in

1.19 Credit for tax collected at source

In respect of tax collected at source during the financial year, the buyer/lessee/licensee will receive the certificate of tax collected at source in Form No. 27D from the tax collector. The buyer/lessee/licensee on the strength of such certificate can claim credit for the tax collected at source. Buyer/lessee/licensee can see the TCS details in form 26AS by logging into www.incometaxindiaefiling.gov.in

Where tax has been collected at source and paid to Government account, credit for such tax shall be given for the assessment year for which the income is assessable to tax.

Where tax has been collected at source and paid to Government account and the lease or license is relatable to more than one year, credit for tax collected at source shall be allowed across those years to which the lease or license relates in the same proportion.

certificate of tax collected at source need not be attached with the return of income.

1.20 Consequence of failure to collect tax

Section 206C(6) provides that if a person responsible for collecting tax at source fails to collect tax, he shall be liable to pay tax to credit of the Central Government, notwithstanding such failure.

When is person responsible deemed as assessee in default

Sub-section (6A) of section 206C deems any person responsible for collecting tax at source as an assessee in default, if such person does not collect the whole or any part of the tax or fails to pay such tax to the government account after having collected the tax. Section 206C(6A) further provides that no penalty shall be charged under section 221 from such person unless the Assessing Officer is satisfied that the person has without good and sufficient reasons fails to collect or pay the tax.

When is person responsible not deemed as assessee in default

With effect from 1-7-2012, proviso to sub-section (6A) of section 206C provides that any person (other than a person covered under para 1.6, viz., the seller of jewellery or any other goods  or providing any service) responsible for collecting tax under section 206C, who fails to collect the whole or any part of the tax on the amount received from a buyer or licensee or lessee or on the amount debited to the account of the buyer or licensee or lessee shall not be deemed to be an assessee in default in respect of such tax, if such buyer or licensee or lessee—

and such person responsible for collecting tax furnishes a certificate from a Chartered Accountant in such form as may be prescribed.

Rule 37J provides that the certificate from an accountant under the first proviso to sub-section (6A) of section 206C shall be furnished in Form No. 27BA to the Director General of Income-tax (Systems) or the person authorised in accordance with the prescribed procedures, formats and standards.

In Bharti Auto Products v. CIT [2013] 145 ITD 1 (Rajkot – Trib.)(SB) first proviso to sub-section (6A) of section 206C inserted with effect from 1-7-2012, would apply retrospectively.

Interest liability

Section 206C(7) provides that if the person responsible for collection of tax does not collect the tax or after collecting the tax fails to pay, he shall be liable to pay simple interest at the rate of one per cent per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid. The person responsible for collection of tax and liable to pay interest shall pay the said interest before furnishing the quarterly statement for each quarter.

With effect from 1-7-2012, a proviso inserted under sub-section (7) grants partial relief in the quantum of interest payable to persons who are not deemed as assessee in default if they furnish the certificate from the Chartered Accountant in Form No. 27BA . Such persons are liable to pay interest at one per cent per month or a part thereof only from the date on which tax is collectible to the date on which the buyer or licensee or lessee has furnished his return of income.

In Executive Engineer, PWD v. Recovery Officer [2012] (MP) it was held that in view of section 206C(7) interest is required to be paid on tax which is not collected by assessee and not on tax liability of deductee-contractors.

Charge on assets

 Sub-section (8) of section 206C provides that where the tax has not been paid as aforesaid, after it is collected, the amount of the tax together with the amount of simple interest thereon shall be a charge upon all the assets of the person responsible for collection of tax at source.

Penalty for failure to collect tax at source

 Section 271CA provides for imposition of penalty on any person who fails to collect tax at source in contravention of the provisions of Chapter XVII-BB. Such penalty shall be a sum equal to the amount of tax which he failed to collect at source. No penalty shall be imposable on the person if he proves that there was reasonable cause for the failure. Penalty shall be imposed by Joint Commissioner.

Prosecution provisions

Section 276BB provides for prosecution of a person who fails to pay the tax collected at source for a period which shall not be less than 3 months but which may extend upto 7 years and with fine.

1.21 Payment of advance tax in case of receipt of income without TCS

Section 209(1), as amended with effect from 1-4-2012, provides that where a person has received any income without deduction or collection of tax, he shall be liable to pay advance tax in respect of such income.