TCS on Receipt of Sale Consideration In Cash- Controversy Ends?

INTRODUCTION: It has remained a matter of great debate that whether as per the provisions of section 206C(1D), the TCS in respect of bullion, jewellery, any other goods and provision of service is leviable :

View – 1:

(a) (i) when the total sale consideration exceeds Rs. 2 lakhs and any amount out of total sale consideration is received in cash and (ii) also the TCS is leviable on entire sale consideration irrespective of amount received in cash (e.g., Total sale consideration Rs. 5 Lakhs, Sale consideration received in cash Rs. 3 Lakh, TCS liability on Rs. 5 Lakh); or

View – 2:

(b) (i) only when the sale consideration received in cash exceeds Rs. 2 Lakhs (ii) and TCS is leviable only on amount received in cash (e.g., Total sale consideration Rs. 5 Lakhs, Sale consideration received in cash Rs. 3 Lakhs, TCS liability only on Rs. 3 Lacs).

ANALYSIS:-

Origination of View – 1: The first view is originated from language of section 206C (1D). The relevant part thereof is:-

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;

In this sub section the words used are “a sum equal to one per cent of sale consideration as income-tax”. This word sale consideration has been understood in the sense of “total sale consideration” and not as reference to “only sale consideration part received in cash”. The word “such consideration” used later has also been construed in the same sense. Therefore, the first view has generated.

Origination of View – 2 : The second view has originated from the various sources i.e., Hon’ble the Finance Minister’s Budget speech, notes on clauses, memorandum explaining clauses of Finance Bill in respect of Union Budget 2012 and 2016 and also from the language used in various CBDT circulars etc. , wherein it has been mentioned everywhere that TCS is only in respect of cash sales. The relevant part of some of them are as under:-

Budget 2016 Speech (Point No. 149)(relevant part):

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 (emphasis supplied)

Budget 2012 Speech (Point no. 155 ) :

I propose Tax collection at source on purchase in cash of bullion or jewellery in excess of Rs. 2 Lakh. (emphasis supplied)

Clause 86 – Notes on clauses (Budget 2016) (relevant part):

It is proposed to amend the aforesaid section to provide that the seller shall collect the tax at the rate of one per cent. on the sale of motor vehicle of the value exceeding ten lakhs rupees in cash or by the issue of a cheque or draft or by any other mode or for sale of any other goods (other than bullion and jewellery) or providing any service in cash exceeding two hundred thousand rupees.(emphasis supplied).

Clause 86 – Memorandum Explaining Clauses (Budget 2016) (relevant part):

The existing provisions 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. (emphasis supplied)

In order to reduce the quantum of cash transaction …………………………………………………………..and sale in cash of any goods (other than bullion and jewellery), or providing any services (other than payments on which tax is deducted at source under Chaper XVII-B) exceeding two lakh rupees. (emphasis supplied)

Clause 79 – Memorandum Explaining clauses (Budget 2012) (relevant part) :

In order to reduce the quantum of cash transaction in bullion and jewellery sector and 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. (emphasis supplied).

CBDT circular no. 3 (dated 12 June, 2012) (relevant part) :

The Finance Bill 2012, …………………………………………………..…….. In order to reduce 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 (emphasis supplied).

CBDT circular no. 3 (dated 24 Jan, 2014) (relevant part) :

Finance Act 2012 amended the provisions of section 206C…………………………………………………….. shall collect tax at the rate of 1 per cent of sale consideration from every buyer of bullion or jewellery if sale consideration exceeds two lakh rupees or five lakh rupees respectively and the sale is in cash. (emphasis supplied).

COMMENT : – The matter has remained in debate since year 2012 when first time the provisions for TCS in respect of bullion and jewellery were brought on the statute. Since then clarification on the above issue was being needed. But there were no words from the side of the CBDT on this issue. Therefore, despite matter in FM’s budget speech, notes on clauses etc. the first view remained in existence. The first view was surviving only as a matter of precaution. Now there is a development on this matter.

LATEST DEVELOPMENT :- The CBDT has issued latest circular no. 22/2016 F. No 370142/17/2016-TPL (8 June, 16). In this circular this matter has not been directly addressed. But from the language of question no. 7 it can be inferred that the TCS liability as per sub section (1D) will be there only if sale consideration received in cash exceeds Rs. 2 Lakhs. The relevant part is as under :

Question No. 7:- As per section 206C(1 D) , tax is to be collected at source at the rate of 1% if sale consideration received in cash exceeds 2 lakh rupees (emphasis supplied) 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-section (ID) and (IF) of the section 206C @ 2% where part of the payment for purchase of motor vehicle exceeds 2 lakh rupees in cash?

COMMENT: Now, after considering lot of material, one view may also be there that the word “sale consideration” referred in section 206C (1D) in “a sum equal to one per cent of sale consideration” may not be “total sale consideration’ but may be a mere reference for the words previously used in the section as “any amount in cash as consideration for sale”.

CONCLUSION: Thus, though there is no direct clarification from the side of CBDT on the issue but now there is sufficient material on the basis of which one can make his mind that the TCS liability is only in respect of cash sales over Rs. 2 Lakhs. After the latest CBDT circular it appears that the controversy might has come to an end though not directly but indirectly. But if CBDT speaks on the issue in clear words then it will be a great step towards rationalization, simplification and transparency.

DISCLAIMER:- The above views are personal views of the author. Every effort has been made to make the views correct and logical. However, the author shall not be responsible for any loss or damage caused due to any act done on the basis of the above views.