No TCS on services despite value exceeding Rs. 2 Lakh
The Hon’ble Finance Minister Shri Arun Jaitley has brought amendment in Section 206C of the Income Tax Act, 1961 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. The Finance Act, 2016 has amended Section 206C(1D) to provide that the seller shall collect the income-tax at the rate of 1% from the buyer on sale in cash of any goods or for providing of any services exceeding Rs. 2,00,000/-. The amended provision has come into effect from 01-06-2016. The relevant provision of Tax Collected as Source (TCS) under Section 206C(1D) as amended by Clause 88 of Finance Act, 2016 (which is underlined to highlight the same), is reproduced below:
“(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 clauses (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.”
In simple words, it appears that the provision of TCS @ 1% which was earlier applicable on sale of bullion & jewellery has been extended to sale of all goods and provision of any services, subject to threshold limit of Rs. 2 Lacs, if the sale consideration is received in cash.
Consequently, amendments have been made in the definition of ‘buyer’ and ‘seller’ by way of Explanation after Section 206C. The amendments made by Finance Act, 2016 is underlined to highlight the same, and extracted below:
“(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) 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”;
“(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 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 (1D) are provided”.
With due respect to the lawmaker, the author is of the view that there is blunder in drafting the above amendment which has serious repercussion. It is beyond doubt that TCS is required to be collected by the seller from the buyer for sale of goods. Unfortunately, with respect to provision of service, though the parliament has been careful in amending the definition of ‘seller’ to include provision of service, but inadvertently forgot to make necessary amendment in the definition of ‘buyer’. Upon plain reading, it is clear that the definition of ‘buyer’ is exhaustive (and not inclusive) and with respect to sub-section 1D, it means a person who obtains any goods pursuant to any contract of sale. To put it in different perspective, buyer do not include service recipient because provision of service is quite distinct from a transaction of sale. The person from whom tax is to be collected is uncertain and undefined.
The main provision for collection of TCS on provision of service provides that the same should be collected from buyer but fails to include service recipient in the definition of buyer, so it can be inferred that a service provider need not collect any TCS from service recipients. It is settled law that in taxing statutes, no words can be added or deleted and strict literal interpretation should be applied.
Words must say what they mean, nothing should be presumed or implied, they must say so. The true test must always be the language used. [Goodyear India Ltd. v. State of Haryana – (1990) 2 SCC 71]
Secondly, the provision requires collection of tax @1% of the ‘sale consideration’. However, in case of provision of service, there is no sale involved, making it uncertain, on what amount TCS of 1% should be collected by the service provider.
Therefore, the author is of the considered view that unless necessary amendments are made to rectify the defects in Section 206C of the Income Tax Act, 1961, the legal liability to collect TCS @1% cast upon service provider in respect of receipt of cash consideration exceeding Rs. 2,00,000/- against provision of service from service recipient fails. The anomaly is incapable of correction by way of executive action like issue of any circular or notification and must be duly amended by the parliament, sooner the better.
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