Evolution and history of TCS

Revised update on provisions relating to Tax Collection at Source u/s 206C of Income Tax Act, 1961 with special reference to amendments made by the Finance Act, 2012 and the Finance Act, 2016 Evolution and history of TCS 1. Before we dwell upon the contemporary TCS, it is imperative to look into the evolution and history of TCS. It will help to understand and appreciate the spirit of the legislative intent in amending the provisions relating to TCS vide the Finance Act, 2016. Chapter XVII-BB was inserted in the Income Tax Act, 1961 {hereinafter referred to the Act} by the Finance Act, 1988 w.e.f. 1.6.1988. Originally only Section 206C {Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap etc.} was incorporated and introduced in the aforesaid Chapter by the Finance Act, 1988 w.e.f. 1.6.1988, which has been amended from time to time in accordance with the policies of the Government. Presently section 206C runs from section (1) to Section (11), which provides a complete code in relation to collection of tax at source. Thereafter section 206CA and 206CB were inserted. Section 206CA {Tax-collection account number} was inserted by the Finance Act, 2002 w.e.f 1.6.2002, requiring every person collecting tax in accordance with the provisions of section 206C to apply for allotment of tax collection account number. o However, vide proviso to sub-section (2) the provisions of section 206CA were made non-applicable w.e.f. 1.10.2004 by the Finance (No.2) Act, 2004. o Simultaneously, Section 203A of the Act was amended by substitution vide the Finance (No. 2) Act, 2004 w.e.f. 1.10.2004, and under sub-section (1) thereof, mechanism of common tax-deduction and collection-account number was provided. Section 206CB {Processing of statement of tax collected at source} was inserted by the Finance Act, 2015 w.e.f. 1.6.2015 providing the mechanism of processing of statement of TCS. Cont..2

: 2 : 2. CBDT Circular No. 525 dated 24.11.1988 on insertion of section 206C In the budget speech on the union Budget and Finance Bill of 1988, the then Minister of Finance Sh. N. D. Tiwari, vide para 101 of his speech, had quoted as follows: as an anti-evasion measure, I propose to provide for assessment of income of persons engaged in certain trades like liquor and forest contracts, at a reasonably fixed percentage of the amount payable by them while purchasing the goods. The tax shall be collected at source. Keeping in view the memorandum explaining the aforesaid proposals, CBDT had issued Circular No. 525 dated 24.11.1988 explaining the legislative intent and objective in introducing the concept and provision of tax collection at source (TCS), the relevant part of which as follows; Instructions regarding deduction of tax at source on profits and gains from the business of trading in alcoholic liquor, forest produce, etc. i. Considerable difficulty has been felt in the past in assessing income of persons who take contracts for sale of liquor, forest produce, etc. It has been the Department s experience that for taking such contracts, firms or associations of persons are specifically constituted and very often no trace is left of them or their members after the contract has been executed. ii. Persons have also been found to have taken contracts in benami names by floating undertakings or associations for short periods. Since tax is payable in the assessment years on the incomes of the previous years, the time by which the incomes from such sources become assessable, such persons become untraceable. iii. Moreover, at the time of assessment years in these cases, either the accounts are not available or they are mostly incorrect or incomplete. iv. Thus, even if assessments could be made on ex parte basis, it becomes almost impossible to collect the tax found due, either because it becomes difficult to establish the identity of the persons and trace them or because of the fact the persons in whose names contracts were taken are men of no means. v. With a view to combating large scale tax evasion by persons deriving incomes from such business, the Finance Act, 1988 has inserted a new section 44AC {since omitted by the Finance Act, 1992 w.e.f. 1.4.1993} to provide for determination of income in such cases. vi. Further, with a view to facilitating collection of taxes from such assessees, the Finance Act, 1988 has inserted a new section 206C to provide for collection of such tax at source. Cont..3

: 3 : 3. Insertion of sub-section (1C) by the Finance (No. 2) Act 2004 w.e.f. 1.10.2004 Finance (No. 2) Act, 2004 had inserted sub-section (1C) w.e.f. 1.10.2004 to extend the provisions of collection of tax at source in respect of parking and toll auctions and mining or quarrying leases with an objective to widen the tax base. Therefore, it was provided that every person who grants a lease or a licence or enters into a contract or otherwise transfers any right or interest in any parking lot or toll plaza or a mine or a quarry to another person, other than a public sector company, for the use of such parking lot or toll plaza or mine or quarry for the purposes of business shall collect tax from the licensee or lessee of any such licence, contract or lease of the specified nature at the rate of two per cent, at the time of debiting of the amount payable by the licencee or lessee to his account or at the time of receipt of such amount from him in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier. 4. Legislative intent and thrust of the Government From the above it is evident that the legislative intent and the trust of the Government at that point of time was - o to combat large scale tax evasion in the trade of aforesaid goods by way of tenders and contracts. o to charge tax in respect of income of such business on presumption and special case at fixed percentage on the value of purchases. o to collect the tax from the buyer at the time of purchase itself. o to widen the tax base. 5. Business vs. Profession The marginal head of section 206C is Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap etc. The title of the aforesaid circular also comprise word business. It is so because this section was introduced with the intention to compute income from the business of aforesaid commodities/goods and to collect tax at source in relation to the amounts received from the buyer of such commodities/goods. Now, vide sub-section (1D) any amount received in cash for as consideration for sale of service exceeding Rs. 2 lakh has also been roped in the ambit of the provisions of TCS. It means that w.e.f. 1.6.2016 the provisions of section 206C, 206CA and 206CB shall apply to TCS on such services. Cont..4

: 4 : Word Service is neither defined in section 206C nor under the Act. service includes - o services rendered as business o services rendered as profession In sub-section (1D), services in the nature of profession have not been excluded. On the contrary, the definition of seller provided in clause (c) of the Explanation to section 206C clarifies, wherein for the purposes of sub-section (1D) individual and HUF who are liable for audit under clause (b) of section 44AB have been included in the definition of seller. Clause (b) of section 44AB applies to profession, with threshold of Rs. 25 lakh up to AY 2016-17 and Rs. 50 lakh from AY 2017-18. In the definition of seller profession has not been excluded for other entities viz. company, firm or co-operative societies Only because the marginal head of section 206C does not include the word profession, it does not mean that the amended sub-section (1D) is not applicable to profession or the professional services. In this regards it may be pertinent to mention that it is the settled law that - o Headings, o `Marginal Notes and o `Marginal Headings can be referred to while interpreting the particular provision of the act. However, Headings etc. do not decide the construction of the section, but Headings etc. are indicative of the meaning and purpose of the section In the aforesaid Heading word business is used in relation to profits and gains from trading of alcoholic liquor, forest produce, scrap, etc., which was introduced w.e.f. 1.6.1988, when it was intended to be used strictly for the business of aforesaid commodities. Now, in 2016, sub-section (1D) has been made applicable to services also, which shall include services in the nature of business as well as services in the nature of profession, the Heading has not been amended. Nevertheless, sub-section (1D) shall also apply to the services in the nature of profession. Relevance of Finance Minister s Speech in interpreting tax laws 6. Normally the speeches made in the Parliament by the Finance Minister are not admissible for the purposes of interpretation of a provision on statute. 7. However as held by courts, such speech can be relied upon to understand the purpose of the provision sought to be amended or brought on statute and in that background to interpret that particular provision. Cont..5

: 5 : 8. In this regards in the case of K.P. Varghese vs. ITO (1981) 131 ITR 597, 609 (SC), the Apex Court held that - The Finance Minster s speech can be relied upon to throw light on the object and purpose of the particular provisions introduced by the Finance Bill. Now, it is true that the speeches made by the members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining- the mischief sought to be remedied by the legislation and the object and the purpose for which the legislation was enacted. This is in accord with the recent trend in juristic though not only in Western countries but also in India that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible. In fact there are at least three decisions of this court, - the one in Loka Shikshana Trust vs. CIT (1975) 101 ITR 234 (SC) the other in Indian Chamber of Commerce vs. CIT (1975) 101 ITR 796 (SC) the third in Addl. CIT vs. Surat Art Silk Cloth Manufactures Association (1980) 121 ITR 1 (SC) where the speech made by the Finance Minister while introducing the exclusionary clause in section 2, clause (15), of the Act was relied upon by the court for the purpose of ascertaining what was the reason for introducing that clause. Relevance of the Statement of Objects and Reasons 9. Courts have held that if the language of the statute is unambiguous, it is not required to consider the history of Parliament in making or amending a particular statutory provision. 10. However, the Statement of Objects and Reasons has been referred to by the Courts where the words used in statute do not have clarity. 11. In this regard the case of S.C. Prashar v. Vasantsen Dwarkadas 49 ITR 1 (SC) is relevant - Cont..6

: 6 : Per Hidayatullah and Raghubar Dayal, JJ. : Where the language of an enactment is clear there is hardly any need to go to the marginal note or the history of the law before the amendment. Per Das, J. : It is indeed true that the Statement of Objects and Reasons for introducing a particular piece of legislation cannot be used for interpreting the legislation if the words used therein are clear enough. But the Statement of Objects and Reasons can be referred to for the purpose of ascertaining the circumstances which led to the legislation in order to find out what was the mischief which the legislation aimed at. Per Kapur, J. : In construing an enactment and determining its true scope it is permissible to have regard to all such factors as can legitimately be taken into account to ascertain the intention of the Legislature such as - i. the history of the Act, ii. the reason which led to its being passed, iii. the mischief which had to be cured iv. as well as the other provisions of the statute. 12. Article 141 of the Constitution of India provides that the law declared by the Supreme Court shall be binding on all courts within the territory of India. From the speech of Hon ble Minister of Finance Sh. Pranab Mukharjee (as he was then) on Union Budget, 2012 13. Section 206C was inserted in the statute book under Chapter XVII-BB by the Finance Act, 1988 w.e.f. 1.6.1988, however, in the Union Budget of 2012 the then Minister of Finance Sh. Pranab Mukarjee proposed amendment in section 206C to achieve different and specific objectives, which are spelled in his budget speech, as follows. 155. I propose a series of measures to deter generation and use of unaccounted money. To this end, I propose (i).. (ii).. (iii) Tax collection at source on purchase in cash of bullion or jewellery in excess of Rs. 2 lakh. Memorandum explaining the proposed amendment vide Finance Act, 2012 {Tax Collection at Source (TCS) on cash sale of bullion and jewellery} This amendment will take effect from 1st July, 2012. Cont..7

: 7 : 14. The memorandum explaining the amendment is as follows: Under the existing provisions of the Income-tax Act, tax is required to be collected at source by the seller at the specified rate on certain goods like alcoholic liquor, tendu leaves, scrap etc. at the time of sale. In order to - reduce the quantum of cash transaction in bullion and jewellery sector and for curbing the flow of unaccounted money in the trading system of bullion and jewellery, it is proposed to provide that the seller of bullion and jewellery shall collect tax at the rate of 1% of sale consideration from every buyer of bullion and jewellery if sale consideration exceeds two lakh rupees and the sale is in cash. This would be irrespective of the fact whether buyer is a manufacturer, trader or purchase is for personal use. CBDT Circular No. 3/2012, dated 12.6.2012 {Tax Collection at Source (TCS) on cash sale of bullion and jewellery} This amendment will take effect from 1st July, 2012. 15. CBDT clarified the said amendment in circular No. 3/2012 dated 12.6.2012: The Finance Bill, 2012, proposed to provide that the seller of bullion or jewellery shall collect tax at source (TCS) at the rate of 1 % of sale consideration from every buyer of bullion and jewellery in cash if the sale consideration exceeds Rs. 2 lakh. In order to reduce the compliance burden, the threshold limit for TCS on cash purchase of jewellery has been increased to Rs. 5 lakh from the proposed Rs. 2 lakh. The threshold limit for TCS on cash purchase of bullion is retained at Rs. 2 lakh. Further, it has also been provided that bullion shall not include any coin or any other article weighing 10 grams or less. Section 206C(1D) as amended by Finance Act, 2012 {w.e.f 1.7.2012} 16. Finally, the aforesaid law was brought on the statute book as follows: (1D) Every person, being a seller, who receives any amount in cash as consideration for sale of bullion (excluding any coin or any article weighing ten grams of less) or jewellery, shall at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax, if such consideration, (i) for bullion, exceeds two hundred thousand rupees; or (ii) for jewellery, exceeds two hundred thousand rupees. Cont..8

: 8 : Section 206C(1D) as amended by Finance Act, 2013 {w.e.f 1.6.2013} 17. However, w.e.f. 1.6.2013, the Finance Act, 2013 amended the sub-section (1D) of section 206C as follows: (1D) Every person, being a seller, who receives any amount in cash as consideration for sale of bullion {*omission} or jewellery, shall at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax, if such consideration, (i) for bullion, exceeds two hundred thousand rupees; or (ii) for jewellery, exceeds five hundred thousand rupees. {* omitted - excluding any coin or any article weighing ten grams of less} From the speech of Hon ble Minister of Finance Sh. Arun Jaitly on Union Budget, 2016 18. Now, w.e.f. 1.6.2016, the Finance Act, 2016 has again amended to enlarge the scope of TCS, the objectives of which are spelled out as follows: 149. I also propose to collect tax at source at the rate of 1% on purchase of luxury cars exceeding value of Rs. ten lakh and purchase of goods and services in cash exceeding Rs. two lakh. For compliant tax payers with resources, - this levy not only advances collection of tax when the expenditure is incurred, but it provides data to the tax authorities to identify the persons who incur such expenditure, but may be missing from the tax base. Farmers and notified class of persons will have an option of giving a form by which TCS will not be charged. Comments Through these measures the Government intends to advance the collection and also to keep trail of non files involved in high value the transactions. Memorandum explaining the proposed amendment vide Finance Bill, 2016 C. Widening of Tax Base and Anti Abuse Measures {Tax Collection at Source (TCS) on sale of vehicles; goods or services} Cont..9

: 9 : 19. The memorandum explaining the amendment is as follows: The existing provision of section 206C of the Act, inter alia, provides that the seller shall collect tax at source at specified rate from the buyer at the time of sale of specified items such as alcoholic liquor for human consumption, tendu leaves, scrap, mineral being coal or lignite or iron ore, bullion etc. in cash exceeding two lakh rupees. In order to reduce the quantum of cash transaction in sale of any goods and services and for curbing the flow of unaccounted money in the trading system and to bring high value transactions within the tax net, it is proposed to amend the aforesaid section 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 and sale in cash of any goods (other than bullion and jewellery), or providing of any services (other than payments on which tax is deducted at source under Chapter XVII-B) exceeding two lakh rupees. It is also proposed to provide that the sub-section (1D) relating to TCS in relation to sale of any goods (other than bullion and jewellery) or services shall not apply to certain class of buyers who fulfill such conditions as may be prescribed. This amendment will take effect from 1st June, 2016. Section 206C(1D) as amended by Finance Act, 2016 Section 206C(1E) and (IF) inserted by the Finance Act, 2016 {w.e.f 1.6.2016} 20. Thus, w.e.f. 1.6.2016, the Finance Act, 2016 has amended the sub-section (1D) of section 206C as follows and has inserted two new sub-section (1E) and (1F) as follows, besides other amendments in section 206C: (1D) Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery or any other goods (other than bullion or jewellery) or providing any service, shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax, if such consideration, Cont..10

(i) (ii) (iii) : 10 : for bullion, exceeds two hundred thousand rupees; or for jewellery, exceeds five hundred thousand rupees; or for any goods, other than those referred to in clause (i) and (ii), or any service, exceeds two hundred thousand rupees. Provided that no tax shall be collected at source under this sub-section on any amount on which tax has been deducted by the payer under Chapter XVII-B. (1E) Nothing contained in sub-section (1D) in relation to sale of any goods (other than bullion or jewellery) or providing any service shall apply to such class of buyers who fulfill such conditions, as may be prescribed. ; (1F) 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. Comments 21. From the above it is clear that the consistent thrust of the Government has been - a. to deter generation and use of unaccounted money; b. to curb the flow of unaccounted money in the trading system of - i. bullion and ii. jewellery; c. to curb the flow of unaccounted money in the trading system; d. to reduce the quantum of cash transaction in i. bullion and ii. jewellery sector; e. to reduce the quantum of cash transaction in sale of any - i. goods and ii. services; f. to bring high value transactions within the tax net, 22. The Government believes that unaccounted money is generated and used in the shape of cash and it is difficult to establish trail of the same. 23. Therefore, to discourage use of cash in transactions of a. purchase of bullion for consideration exceeding Rs. 2 lakh; b. purchase of jewellery for consideration exceeding Rs. 5 lakh; c. purchase of any goods for consideration exceeding Rs. 2 lakh; and d. purchase of any services for consideration exceeding Rs. 2 Lakh; and Cont..11

: 11 : e. to mobalize additional resources from effluent class of the society, e.g. TCS on purchase and sale of vehicle of value exceeding Rs. 10 Lakh; and f. to gather information regarding high value purchases of certain goods and services, including luxury motor vehicle so that the same is matched with their sources of income section 206C has been amended in the aforesaid manner. 24. It means that the Government wants to have details of aforesaid high value transactions and the transactions in which cash is involved. Through this measure the Government shall not only mop up additional revenue by TCS but shall also be able to gather information and details of the buyers who are involved in such transactions, to verify whether they are using accounted money or unaccounted money for such transactions. 25. Section 206C under Chapter XVII-BB of the Income Tax Act, 1961 provides such mechanism. 26. Section 206C which was introduced by the Finance Act, 1988 w.e.f 1.6.1988 has been amended from time to time in accordance with the policies of the Government. It runs from section (1) to Section (11), which provides a complete code. 27. Text of section 206C {as amended by the Finance Act, 2016 w.e.f 1.6.2016} is as follows: Chapter XVII-BB - Collection at source Section : 206C Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc. 206C. {As amended by the Finance Act, 2016 w.e.f 1.6.2016} TCS in relation to goods specified in the Table in sub-section (1) {the entries are seven in No(s) and goods are nine in No(s)} (1) Every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax: Cont..12

.Sl. No. : 12 : Table Nature of goods Percentage (i) Alcoholic Liquor for human consumption One per cent (ii) Tendu leaves Five per cent (iii) Timber obtained under a forest lease Two and one-half per cent (iv) Timber obtained by any mode other than under a forest lease Two and one-half per cent (v) Any other forest produce not being timber or tendu leaves Two and one-half per cent (vi) Scrap One per cent (vii) Minerals, being coal or lignite or iron ore One per cent Provided that every person, being a seller shall at the time, during the period beginning on the 1st day of June, 2003 and ending on the day immediately preceding the date on which the Taxation Laws (Amendment) Act, 2003 comes into force {8.9.2003}, of debiting of the amount payable by the buyer to the account of the buyer or of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table as it stood immediately before the 1st day of June, 2003, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax in accordance with the provisions of this section as they stood immediately before the 1st day of June, 2003. Declaration for nil TCS {Rule 37C, Form No. 27C} (1A) Notwithstanding anything contained in sub-section (1), no collection of tax shall be made in the case of a buyer, who is resident in India, if such buyer furnishes to the person responsible for collecting tax, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the goods referred to in column (2) of the aforesaid Table are to be utilised for the purposes of manufacturing, processing or producing articles or things or for the purposes of generation of power and not for trading purposes. (1B) The person responsible for collecting tax under this section shall deliver or cause to be delivered to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner one copy of the declaration referred to in sub-section (1A) on or before the seventh day of the month next following the month in which the declaration is furnished to him. Cont..13

Comment : 13 : A declaration may be filed by a buyer, who is resident in India. Such declaration is to be filed in under rule 37C in Form No. 27C. Such declaration is to be filed for claiming nil TCS under sub-section (1). Such declaration can be filed only in respect of goods mentioned in the table provided in sub-section (1), which are seven in serial No(s) and nine in No(s). Such declaration cannot be filed if the buyer obtains such goods for trading purposes. Such declaration can be filed if the buyer obtains such goods either of the following purposes: o manufacturing of articles of things, or o processing of articles or things, or o producing articles of things, or o generation of power. It means that such declaration cannot be filed for the purposes of o sub-section (1C) o sub-section (1D) o sub-section (1F) TCS in relation to parking lot, toll plaza, mine and quarry {the entries are three in No(s) and facilities are four in No(s)} (1C) 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 any parking lot or toll plaza or mine or quarry, to another person, other than a public sector company (hereafter in this section referred to as "licensee or lessee") for the use of such parking lot or toll plaza or mine or quarry for the purpose of business shall, at the time of debiting of the amount payable by the licensee or lessee to the account of the licensee or lessee or at the time of receipt of such amount from the licensee or lessee in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the licensee or lessee of any such licence, contract or lease of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax: Table Sl. No. Nature of goods Percentage (i) Parking lot Two per cent (ii) Toll Plaza Two per cent (iii) Mining and quarrying Two per cent Cont..14

: 14 : Explanation 1. For the purposes of this sub-section, "mining and quarrying" shall not include mining and quarrying of mineral oil. Explanation 2. For the purposes of Explanation 1, "mineral oil" includes petroleum and natural gas. TCS on purchase & sale of specified goods or services of consideration exceeding Rs. 2,00,000/- if any part of such consideration is paid in cash {A move to discourage use of cash to deter generation and use of unaccounted money} (1D) Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery or any other goods (other than bullion or jewellery) or providing any service, shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax, if such consideration, (i) for bullion, exceeds two hundred thousand rupees; or (ii) for jewellery, exceeds five hundred thousand rupees; or (iii) for any goods, other than those referred to in clause (i) and (ii), or any service, exceeds two hundred thousand rupees. Provided that no tax shall be collected at source under this sub-section on any amount on which tax has been deducted by the payer under Chapter XVIIB. Enabling CBDT to make rules for granting exemption for sub-section (1D) {A move to provide relief from TCS to specified class of buyers} (1E) Nothing contained in sub-section (1D) in relation to sale of any goods (other than bullion or jewellery) or providing any service shall apply to such class of buyers who fulfill such conditions, as may be prescribed.; TCS on Motor Vehicles of value exceeding Rs. 10,00,000/- {A move to mobilize the resources and advancing the tax collection and collecting data} (1F) 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. Cont..15

Mode of recovery : 15 : (2) The power to recover tax by collection under sub-section (1) or sub-section (1C) or sub-section (1D) shall be without prejudice to any other mode of recovery. 28. It may be noted that sub-section (1F) is missing in the aforesaid sub-section (2), which relates to powers to recover TCS without prejudice to any other mode of recovery. This omission seems to be unintentional, because TCS under sub-section (1F) also can be collected without prejudice to any other mode of recovery. 29. This omission needs to be addressed to competent authorities for necessary correction. Payment of TCS and furnishing of quarterly statement of TCS {Rule 37CA(1) & (2) - Payment} {Rule 31AA(1), Form No. 27EQ - Statement} {Rule 31AA(3)(i)(c), Form No. 27A - Statement} (3) Any person collecting any amount under sub-section (1) or sub-section (1C) or sub-section (1D) shall pay within the prescribed time the amount so collected to the credit of the Central Government or as the Board directs: Provided that the person collecting tax on or after the 1st day of April, 2005 in accordance with the foregoing provisions of this section shall, after paying the tax collected to the credit of the Central Government within the prescribed time, prepare such statements for such period as may be prescribed and deliver or cause to be delivered to the prescribed income-tax authority, or the person authorised by such authority, such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed. Comment 30. It may be noted that sub-section (1F) is missing in the main provision of aforesaid sub-section (3), which relates to time of payment of TCS collected. This omission seems to be unintentional, because TCS once collected has to be paid. 31. This omission needs to be addressed to competent authorities for necessary correction. TCS quarterly statement where the collector is an office of the Government (3A) In case of an office of the Government, where the amount collected under sub-section (1) or sub-section (1C) or sub-section (1D) has been paid to the credit of the Central Government without the production of a challan, the Pay and Accounts Officer or the Treasury Officer or the Cheque Drawing and Disbursing Officer or any other person, by whatever name called, who is Cont..16

: 16 : responsible for crediting such tax to the credit of the Central Government, shall deliver or cause to be delivered to the prescribed income-tax authority, or to the person authorised by such authority, a statement in such form, verified in such manner, setting forth such particulars and within such time as may be prescribed. TCS correction statement (3B) The person referred to in the proviso to sub-section (3) may also deliver to the prescribed authority under the said proviso, a correction statement for rectification of any mistake or to add, delete or update the information furnished in the statement delivered under the said proviso in such form and verified in such manner, as may be specified by the authority. Credit of TCS {Rule 37-I} (4) Any amount collected in accordance with the provisions of this section and paid to the credit of the Central Government shall be deemed to be a payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to such person for the amount so collected in a particular assessment year in accordance with the rules as may be prescribed by the Board from time to time. Issue of TCS certificate and statement in Form No. 26AS {Rule 37D, Form No. 27D - Certificate} {Rule 31AB, Form No. 26AS Statement of Tax to be maintained by AO} (5) Every person collecting tax in accordance with the provisions of this section shall within such period as may be prescribed from the time of debit or receipt of the amount furnish to the buyer or licensee or lessee to whose account such amount is debited or from whom such payment is received, a certificate to the effect that tax has been collected, and specifying the sum so collected, the rate at which the tax has been collected and such other particulars as may be prescribed. Provided that the prescribed income-tax authority or the person authorised by such authority referred to in sub-section (3) shall, within the prescribed time after the end of each financial year beginning on or after the 1st day of April, 2008, prepare and deliver to the buyer referred to in sub-section (1) or, as the case may be, to the licensee or lessee referred to in sub-section (1C), a statement in the prescribed form specifying the amount of tax collected and such other particulars as may be prescribed. Cont..17

Comment : 17 : 32. It may be noted that sub-section (1D) and (1F) are missing in the proviso to aforesaid sub-section (5). These omissions seems to be unintentional, because like other amounts of TCS collected and paid. TCS collected under sub-sections (1D) and (1F) needs to be reported in Form No. 26AS. 33. This omission needs to be addressed to competent authorities for necessary correction. TCS return where tax collected before 1.4.2005 (5A) Every person collecting tax before the 1st day of April, 2005 in accordance with the provisions of this section shall prepare within the prescribed time after the end of each financial year, and deliver or cause to be delivered to the prescribed income-tax authority or such other authority or agency as may be prescribed such returns in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed : Provided that the Board may, if it considers necessary or expedient so to do, frame a scheme for the purposes of filing such returns with such other authority or agency referred to in this subsection. (5B) Without prejudice to the provisions of sub-section (5A), any person collecting tax, other than in a case where the seller is a company, the Central Government or a State Government, may at his option, deliver or cause to be delivered such return to the prescribed income-tax authority in accordance with such scheme as may be specified by the Board in this behalf, by notification in the Official Gazette, and subject to such conditions as may be specified therein, on or before the prescribed time after the end of each financial year, on a floppy, diskette, magnetic cartridge tape, CD-ROM or any other computer readable media (hereinafter referred to as the computer media) and in the manner as may be specified in that scheme: Provided that where the person collecting tax is a company or the Central Government or a State Government, such person shall, in accordance with the provisions of this section, deliver or cause to be delivered, within the prescribed time after the end of each financial year, such returns on computer media under the said scheme. (5C) Notwithstanding anything contained in any other law for the time being in force, a return filed on computer media shall be deemed to be a return for the purposes of sub-section (5A) and the rules made there under and shall be admissible in any proceedings made there-under, without further proof of production of the original, as evidence of any contents of the original or of any facts stated therein. (5D) Where the Assessing Officer considers that the return delivered or caused to be delivered under sub-section (5B) is defective, he may intimate the defect to the person collecting tax and Cont..18

: 18 : give him an opportunity of rectifying the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the Assessing Officer may, in his discretion, allow; and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, such return shall be treated as an invalid return and the provisions of this Act shall apply as if such person had failed to deliver the return. Person responsible shall remain liable towards the Central Government (6) Any person responsible for collecting the tax who fails to collect the tax in accordance with the provisions of this section, shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government in accordance with the provisions of sub-section (3). Defaulting Collector shall be deemed to be in default {Rule 37, Form 27BA Certificate by CA} (6A) If any person responsible for collecting tax in accordance with the provisions of this section does not collect the whole or any part of the tax or after collecting, fails to pay the tax as required by or under this Act, he shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the tax: Provided that any person, other than a person referred to in sub-section (1D), responsible for collecting tax in accordance with the provisions of this section, 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 (i) has furnished his return of income under section 139; (ii) has taken into account such amount for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed: Provided further 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 failed to collect and pay the tax. Comment 34. The provisions of the first proviso to sub-section (6A) are similar to the provisions of the proviso to section 201(1) {as inserted by the Finance Act, 212 w.e.f 1.7.2012}. Cont..19

: 19 : 35. However, the provisions of the first proviso to sub-section (6A) are not applicable to any person who is a collector (person responsible to collect tax) for the purposes of sub-section (1D). Simple interest on TCS (7) Without prejudice to the provisions of sub-section (6), if the person responsible for collecting tax does not collect the tax or after collecting the tax fails to pay it as required under this section, 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 and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3): Provided that in case any person, other than a person referred to in sub-section (1D), responsible for collecting tax in accordance with the provisions of this section, 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 but is not deemed to be an assessee in default under the first proviso of sub-section (6A), the interest shall be payable from the date on which such tax was collectible to the date of furnishing of return of income by such buyer or licensee or lessee. TCS collected but not paid has charge on all assets of the Collector (8) 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 referred to in sub-section (7) shall be a charge upon all the assets of the person responsible for collecting tax. Certificate by AO for TCS at lower rate {Rule 37G, Form No. 13 - Application} {Rule 37H- Certificate} (9) Where the Assessing Officer is satisfied that the total income of the buyer or licensee or lessee justifies the collection of the tax at any lower rate than the relevant rate specified in sub-section (1) or sub-section (1C) or sub-section (1D), the Assessing Officer shall, on an application made by the buyer or licensee or lessee in this behalf, give to him a certificate for collection of tax at such lower rate than the relevant rate specified in sub-section (1) or sub-section (1C) or sub-section (1D). (10) Where a certificate under sub-section (9) 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. Cont..20

: 20 : (11) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under subsection (9) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith. Comment 36. An application for obtaining a certificate u/s 206C(9)/(10)/(11) can be filed and such certificate can be obtained by a buyer covered undera. sub-section (1) b. sub-section (1C) c. sub-section (1D) 37. Such application cannot be filed by a buyer covered under sub-section (1F) and no such certificate be issued by AO for the buyer covered under sub-section (1F). Explanation. For the purposes of this section, (a) "accountant" shall have the meaning assigned to it in the Explanation to sub-section (2) of section 288; (aa) "buyer" with respect to (i) sub-section (1) means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the Table in subsection (1) or the right to receive any such goods but does not include, (A) 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 and a club; or (B) a buyer in the retail sale of such goods purchased by him for personal consumption; (ii) sub-section (1D) or sub-section (1F) means a person who obtains in any sale, goods of the nature specified in the said sub-section; (ab) "jewellery" shall have the meaning assigned to it in the Explanation to sub-clause (ii) of clause (14) of section 2; Cont..21

: 21 : (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; (c) "seller" means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society and also includes an individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) or sub-section (1D) are sold or services referred to in sub-section (ID) are provided. Seller Comments with regards to Section 206C(1D) & (1F) {Applicable w.e.f 1.6.2016} 38. As per sub-section (1D) and (1F) tax is to be collected by the seller. It means that the seller is the person who is responsible for collecting tax at source. 39. As per clause (c) of the Explanation "seller" means - a. the Central Government, b. a State Government or c. any local authority or d. any corporation or e. any authority established by or under a Central, State or Provincial Act, or f. any company or g. any firm or h. any co-operative society and also includes i. an individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) or sub-section (1D) are sold or services referred to in sub-section (ID) are provided. 40. For the purpose of section 206C, in clause (c) of the Explanation, seller is defined to comprise in its domain the aforesaid specific entities. If any entity is not mentioned therein, it is outside the definition of seller, therefore, outside the scope of section 206C. Cont..22

: 22 : 41. It means that for the purposes of section 206C(1) and 206C(1D) a. a company; b. a firm; c. a co-operative society are obliged to collect tax even if they are not liable for audit u/s 44AB(a) or 44AB(b). 42. However, in the case of a. Individual or b. HUF they shall be obliged to collect tax if they are liable for audit u/s 44AB(a) or 44AB(b) during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) or sub-section (1D) are sold or services referred to in sub-section (ID) are provided. 43. It means that for collecting tax at source u/s 206C(1) and 206C(1D) after 1.6.2016 and for financial year 2016-17 the status of the Individual and HUF seller qua liability for audit u/s 44AB(a) and 44AB(b) is to be tested for financial year 2015-16, i.e. a. in the case of purchase and sale of goods (business) section 44AB(a) shall apply and it is to be seen whether total sales, gross receipts or turnover in such business exceeds Rs. One crore. b. in the case of provision of service in the nature of business e.g. business of commissions agency, business of repairs and maintenance or any other activity of providing services which are not in the nature of profession, section 44AB(a) shall apply and it is to be seen whether total sales, gross receipts or turnover from in business exceeds Rs. One crore. c. in the case of provision of service in the nature of profession, section 44AB(b) shall apply and it is to be seen whether gross receipts in such profession exceeds Rs. Twenty five lakh {Rs. Fifty Lakh for FY 2016-17 relevant for AY 2017-18} 44. It may be pertinent to note that for the purpose of TCS u/s 206C(1F) on sale of motor vehicle w.e.f. 1.6.2016 seller does not include Individual and HUF, since as per clause (c) of Explanation to section 206C Individual and HUF are included in the definition of seller only for the purpose of TCS u/s 206C(1) and 206C(1D), and not for the purposes of section 206C(1F), wherein TCS on sale of motor vehicle is to be made. Cont..23

: 23 : 45. In the above definition of seller besides company and firm co-operative societies have also been included, which is defined u/s 2(19) of the Act to mean a co-operative society registered under the Co-operative Societies Act, 1912 or any other law for the time being in force in any State for the registration of co-operative societies. The aforesaid definition of seller does not include Trust Societies registered under Societies Registration Act, 1860. Association of Persons (AOP) Body of Individuals (BOI) Therefore, it appears that aforesaid entities are not required to collect tax u/s 206C. Buyer 46. Explanation to section 206C provides that - For the purposes of this section - (aa) "buyer" with respect to (i) sub-section (1) means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the Table in sub-section (1) or the right to receive any such goods but does not include,- (A) (B) 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 and a club; or a buyer in the retail sale of such goods purchased by him for personal consumption; (ii) sub-section (1D) or sub-section (1F) means a person who obtains in any sale, goods of the nature specified in the said sub-section; 47. As per sub-section (1D) and (1F) tax is to be collected from the buyer. 48. As per clause (aa) of the Explanation, for the purpose of sub-section (1D) and sub-section (1F) buyer means a person who obtains in any sale, goods of the nature specified in the said sub-section; 49. It may be noted that in aforesaid sub-clause (ii) expression goods of the nature specified in the said sub-section is used. Cont..24