There is no legislative mandate to collect tax at source under section 206C (1C) from the person involved in illegal mining or illegal transportation of minerals.
In a recent judgment, Chhattisgarh High Court has held that there is no legislative mandate to collect tax at source under section 206C (1C) from the person involved in illegal mining or illegal transportation of minerals.
ABCAUS Case Law Citation:
4637 (2025) (07) abcaus.in HC
In the instant case, the assessee had challenged the legality, validity and correctness of judgment & order passed by the Income Tax Appellate Tribunal (ITAT) affirming the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) that assessee was liable to collect tax at source (TCS) as per the provisions contained in Section 206C(1C) of the Income Tax Act, 1961 (the Act).
A TDS Survey under Section 133A(2A) of the Act was conducted in the office of the Mining Officer. During the course of aforesaid proceeding, the Income Tax Officers came across that the appellant assessee had not been collecting Tax at Source (TCS) on the amount of compounding fees/fine that was recovered from illegal miners and transporters of minerals and thereby violated the provisions contained in Section 206C(1C) of the Act.
Thereafter, order under Sections 206C(1C), 206C(6) & 206C(7) of the Act was passed after treating the assessee as ‘assessee-in-default’ and saddled it with an obligation to make good the said non-collection of tax at source.
The assessee preferred an appeal before the CIT (Appeals) on the issue of saddling it with the liability for failure to collect tax at source on the amount of compounding fees received from illegal miners/ transporters of minerals on the ground that the same was not contemplated under Section 206C(1C) of the Act, therefore, the appellant was not liable to collect tax as per Section 206C(1C) as it was not covered by the said provision.
However, the appeal was dismissed by the CIT(A). ITAT also dismissed the appeal of the assessee.
Before the Hon’ble High Court, the assessee submitted that that tax at source (TCS) has to be collected by the appellant/assessee under Section 206C(1C) of the Act from lease holder or license holder and person must be either lease holder or license holder by which the assessee has entered into a contract or otherwise transfers any right or interest in whole or in part in any parking lot or toll plaza or mine or quarry, to another person, and in this case, the assessee must be liable to collect royalty. He would further submit that in case of illegal mining, the offender was neither a lease holder nor a license holder and the assessee had not entered into contract or not having any personal right or interest.
It was also submitted that the amount to be paid was not in the form of royalty but a fine to drop the prosecution against the offender and as such compounding fees has been charged by virtue of the provision contained in Section 23A of the Mines and Minerals (Development and Regulation) Act, 1957 (the MMDR Act) read with Rule 71(5) of the State Minor Mineral Rules, 2015, therefore, the mandate of tax collection at source as contained in Section 206C(1C) of the Act would not be applicable in the case of illegal mining lease and as such, the appellant/assessee cannot be branded as ‘assessee in default’ and raising demand with interest is completely illegal, arbitrary and beyond the scope of Section 206C(1C) of the Act.
On the contrary the Revenue contended that the obligation cast upon an assessee to collect tax at source (TCS) under Section 206C(1C) of the Act does not presupposes the existence of a lease or license or a contract, but would also be applicable to a case where a person had transferred any right or interest, either in whole or in part, inter alia, in a mine to another person.
Thus, the question of law before the Hon’ble High Court was as to whether provisions of Section 206C(1C) of the Act were applicable for collecting TCS from offenders who do illegal mining or transportation/storage from whom Compounding Fine is collected?
The Hon’ble High Court observed that as per provisions contained in section 206C(1C), TCS has to be collected by the assessee from the lease holder or license holder or with whom the assessee has entered into contract or otherwise transferred any right or interest either in whole or in part in any parking lot or toll plaza or mine or quarry, on the amount of payment made by them to the appellant herein. The person must be lease holder or license holder or with whom the assessee has entered into contract or otherwise transferred any right or interest in the mines or fields, meaning thereby the person from whom the TCS is collectable must be the person to whom the lease or license or otherwise any express contract, right or interest has been transferred by the assessee to any mine or quarry and royalty is payable by them to the State Government through the District Mining Officer. In the instant case, mining lease must be granted in terms of Section 9 of the MMDR Act.
The Hon’ble High Court further noted that the by virtue of Section 23A of the MMDR Act read with Rule 71(5) of the Rules of 2015, offence related to illegal mining is compounded and effect of compounding is also contained in Section 23A(2) of the MMDR Act.
The Hon’ble High Court also observed that the Hon’ble Supreme Court has held that in interpreting a taxing statute, equitable consideration are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statutes so as to supply any assumed deficiency.
In another judgment, the Hon’ble Supreme Court held that while interpreting fiscal statutes, the court must not add or substitute the word in the provision.
The Hon’ble High Court observed that fact remains that Section 206C(1C) of the Act only obliges the assessee to collect tax at source from the person to whom such right has been conferred and by whom royalty is payable to the State Government through the District Mining Officer and obligation to collect tax under Section 206C(1C) cannot be extended to the person involved in illegal mining or transporting illegal minerals. Section 206C(1C) of the Act specifically obliges to collect tax by the assessee from the lease holder or license holder or with whom the assessee has entered into contract or otherwise transferred any right or interest either in whole or in part in any parking lot or toll plaza or mine or quarry.
The Hon’ble High Court further observed that there is no legislative mandate to collect tax at source from the person who is involved in illegal mining or illegal transportation of minerals and similarly, compounding fee/ fine cannot be subjected to proceeding under Section 206C(1C) of the IT Act, as there is no legislative mandate to collect tax at source (TCS) on compounding fee/fine collected under Section 23A of the MMDR Act as the royalty does not include the compounding fee/fine and the terms “royalty” and “compounding fee”, both, are mutually exclusive.
The Hon’ble High Court held that ITAT was completely unjustified in holding that compounding fee/fine (TCS) would be chargeable under Section 206C(1C) by relying upon the definition contained in Section 2(47) of the Act.
Accordingly, the Hon’ble High Court answered the substantial question of law in favour of the assessee and against the Revenue and the appeal was allowed.
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