Statutory contribution to a marketing board held outside TDS under contract and professional services provisions

A statutory contribution to a parent marketing board for agricultural market development did not create a contractor-contractee relationship and was not consideration for professional or technical services; accordingly, no tax was deductible at source under sections 194C or 194J. The related demand under sections 201(1) and 201(1A) was therefore not sustainable, and the relief granted by the first appellate authority was upheld.

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Issues: Whether tax was deductible at source under sections 194C and 194J of the Income-tax Act, 1961 on payments made to the Rajasthan State Agriculture Marketing Board, and whether demand under sections 201(1) and 201(1A) could be sustained.

Analysis: The payment for construction-related work was held not to arise from a contractor-contractee relationship, as the Board functioned as the parental body of the market committee and the amounts were meant for development and improvement of agricultural markets. The contribution to the Board was statutorily required under section 18A of the Rajasthan Agricultural Marketing Act, 1961 and was only a percentage contribution out of income, not consideration for professional or technical services. The Board's receipts and the applicable CBDT circulars were treated as supporting the view that no tax was deductible where the recipient was not chargeable in the relevant manner and the statutory contribution did not fall within section 194J.

Conclusion: No liability to deduct tax at source arose under sections 194C and 194J, and the demand raised under sections 201(1) and 201(1A) was not sustainable.

Final Conclusion: The Revenue failed to establish TDS liability on the impugned payments and contributions, and the relief granted by the first appellate authority was sustained.

Ratio Decidendi: A statutory contribution made to a parent marketing board for market development, without a contractor-contractee relationship or payment for professional or technical services, does not attract deduction of tax at source under sections 194C or 194J of the Income-tax Act, 1961.

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