Is last Para of Income Tax Circular No. 13 of 2021 dated 30th June, 2021 consistent with legal provisions?
Second Proviso to Section 206C(1H) reads as ‘the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.’
Whereas Section 194Q(5) reads as “The provisions of this section shall not apply to a transaction on which—
(a) tax is deductible under any of the provisions of this Act; and
(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.]
Simultaneous harmonious reading of both the above sections would say fetch the following answers against the situations mentioned hereunder.
Situation – 1: Transaction is subject to both the TDS under section 194Q and TCS under section 206C(1H) and the buyer has deducted tax at source under section 194Q.
Answer – 1: Now the seller is not required to collect tax at source on this transaction.
Situation – 2: Transaction is subject to both the TDS under section 194Q and TCS under section 206C(1H) and the buyer has not deducted tax at source under section 194Q.
Answer – 2: Now the seller is required to collect tax at source on this transaction.
Situation – 3: Transaction is subject to both the TDS under section 194Q and TCS under section 206C(1H) and the Seller has collected tax at source under section 206C(1H).
Answer – 3: Irrespective of what the seller does, transaction is definitely subject to the TDS by the buyer under section 194Q, which can easily be understood from simultaneous harmonious reading of both the above sections.
Now as regarding the situation – 3 as discussed above, Circular no. 13 of 2021 dated 30.06.2021 issued by CBDT says in its last para as “However, if, for any reason, tax has been collected by the seller under sub-section (I H) of section 206C of the Act, before the buyer could deduct tax under section 194-Q of the Act on the same transaction, such transaction would not be subjected to tax deduction again by the buyer. This concession is provided to remove difficulty, since tax rate of deduction and collection are same in section 194Q and subsection (IH) of section 206C of the Act.”
Now the questions arises as to
(1) Can the power of remove difficulty encompasses in itself the power of changing legal provisions?
(2) Doesn’t it appear that instead of much legal clarity given in act itself that once the transaction is subject to section 194Q, then operation of section 206C(1H) will be ruled out, ambiguity and chaos is increased by the above referred circular by making it contingent upon action of seller?
(3) The above referred circular says “This concession is provided to remove difficulty, since tax rate of deduction and collection are same in section 194Q and subsection (IH) of section 206C of the Act.” Here it is to be noted that it will be tax neutral for the Government and not for the seller and buyer whose fund gets blocked. So, how the CBDT can block the fund of buyer by making such clarification? Because, in situation 3, fund of seller should be blocked as per legal provisions, but clarification in above referred circular tries to make way for the seller to unblock its own fund and blocking the fund of buyer instead.
Therefore, CBDT should again think on this matter and make proper changes in clarificatory circular or proper changes should be made in legal provisions so that to make such clarification logical as per those legal provisions also.
Disclaimer: The above referred views are the personal views of author. One can refer to the legal provisions himself / herself, before making any conclusion whatsoever.
CA. Tejas K. Andharia | B. COM, F.C.A., D.I.S.A.(ICAI), D.I.R.M.(ICAI) | Bhavnagar, Gujarat