No TCS on Compounding Fee Collected for Illegal Mining | HC

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  • Last Updated on 9 July, 2025

TCS on compounding fee

Case Details: District Mining Officer v. Deputy Commissioner of Income-tax (TDS) - [2025] 175 taxmann.com 1008 (Chhattisgarh)

Judiciary and Counsel Details

  • Sanjay K. Agrawal & Deepak Kumar Tiwari, JJ.
  • Rahul Tamaskar, Government Adv for the Appellant.
  • Amit ChaudhariAjay Kumrani, Advs. for the Respondent.

Facts of the Case

The assessee was a District Mining Officer. During the TDS survey, it was noticed that the assessee had not collected tax at source (TCS) on the amount of compounding fees recovered from illegal miners and transporters of minerals. The Assessing Officer (AO) treated the assessee as ‘assessee-in-default’ and imposed an obligation to make good the said non-collection of tax at source.

Aggrieved by the order, the assessee filed an appeal to the CIT(A), wherein the order of the AO was upheld. On further appeal, the Tribunal upheld the order of CIT(A). The matter then reached the Chhattisgarh High Court.

High Court Held

The Chhattisgarh High Court held that the provisions of Section 206C(1C) are only applicable to collect TCS 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. The obligation to collect tax under Section 206C(1C) cannot be extended to the person involved in illegal mining or transporting illegal minerals.

The section obliges explicitly the assessee to collect tax from the leaseholder, license holder, or with whom the assessee has entered into a contract or otherwise transferred any right or interest in a mine or quarry. There is no legislative mandate to collect tax at source from individuals involved in illegal mining or the transportation of minerals.

Similarly, compounding fees/fines are collectable in terms of Section 23A of the MMDR Act, read with Rule 71(5) of the Rules of 2015. The effect of compounding is that, upon being compounded under Section 23A(1), no proceeding or further proceeding shall be taken. The offender, if in custody, shall be released forthwith.

Similar provisions have been laid down in Section 320 of the Code of Criminal Procedure, 1973, which deals with the compounding of offences. As such, compounding fee/fine cannot be subjected to proceedings 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 read with Rule 71(5) of the Rules of 2015.

List of Cases Reviewed

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Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied