TDS on statutory market payments and section 201 default turns on whether the deductee had any tax liability.

Payments of market fee, licence fee and related statutory contributions were treated as obligations under section 18A of the Rajasthan Agricultural Produce Markets Act, 1961, not as contractual, professional or technical payments, so no TDS liability arose under sections 194C or 194J. The road and building expenditure was regarded as contractual in nature and therefore within section 194C, but the deductor could not be treated as an assessee in default under section 201 because the deductee had filed a return showing a loss and had no tax payable on the returned income. The demand under sections 201(1) and 201(1A) was therefore not sustainable.

---

---

Issues: Whether the payments made to the market board and related contributions were liable to tax deduction at source under sections 194C and 194J of the Income-tax Act, 1961, and whether the deductor could be treated as an assessee in default under section 201 where the deductee had no tax liability.

Analysis: The payments towards market fee, licence fee and similar statutory contributions were found to be discharged under the statutory obligation created by section 18A of the Rajasthan Agricultural Produce Markets Act, 1961, and were not contractual, professional or technical payments. On the separate question of the road and building expenditure, the arrangement was treated as contractual in nature and therefore within section 194C; however, the finding on default turned on the proviso embodied in the Explanation to section 191. Since the deductee had filed its return showing a loss and had no tax payable on the returned income, invocation of section 201 was held to be unwarranted because no loss to the revenue was established.

Conclusion: The demand raised under sections 201(1) and 201(1A) was not sustainable and the Revenue's appeals failed.

---