2018 (11) TMI 47 - AT - Income Tax

Tribunal rules assessee not liable for TDS on by-products retained by millers

The Tribunal dismissed all appeals of the Revenue, upholding that the assessee was not obligated to deduct TDS on the value of by-products retained by the ... TDS u/s 194C on by products - consideration in kind - milled / shelled paddy as retained by the millers and the same has a marketable value which, in fact, constitute as a part of the consideration paid by the assessee to the millers, whereon the assessee failed to deduct any TDS.Held that:- In the case in hand, the neither the Procurement agency becomes the owner of the by product nor there is any ascertainable value of the by-product. Even, the Procurement Agencies have neither any inclination to know the price of the by-product nor they have right to claim any amount out of the value of the by-product on the ground that its sale value has exceeded the milling charges. In this case the assessee's were not the owners of the by-products. Another factor for consideration is that the property passed ‘in kind’ should have some ascertainable and determinable value, which can be taken as part of the consideration paid for the work done. Further, it is the nature of the contract, term of the agreement, the intention of the parties and overall facts and circumstances of the case which are required to be analyzed and considered for determining whether the provisions of section 194C of the Act or other similar provisions of the Chapter would be attracted or not in a particular case. As discussed above in detail, since we have held that the property in the by-product was not passed on by the assessee / Procurement Agencies as milling charges, hence, it is held that TDS provisions of section 194C are not attracted in this case. - Decided in favour of assessee. Issues Involved:1. Applicability of Section 194C on work carried out by millers.2. Demand created due to non/short deduction of tax under Section 201(1)/201(1A).3. Relevance of the judgment in the case of M/s Ahaar Consumer Products Pvt. Ltd.4. Consideration of by-products as part of payment for milling services.5. Whether TDS provisions apply to payments made in kind.Detailed Analysis:1. Applicability of Section 194C on work carried out by millers:The Department argued that the provisions of Section 194C are applicable to the work carried out by millers. The assessee, a Procurement Agency of Punjab Government, procures paddy, gets it milled, and supplies rice to the Food Corporation of India (FCI). The millers are paid Rs. 15 per quintal as milling charges. The Assessing Officer contended that the by-products retained by the millers should also be considered part of the consideration, thus requiring TDS deduction under Section 194C.2. Demand created due to non/short deduction of tax under Section 201(1)/201(1A):The Assessing Officer held that the assessee should be treated as an assessee in default under Sections 201(1) and 201(1A) for not deducting TDS on the value of the by-products retained by the millers. However, the CIT(A) quashed this demand, stating that the assessee was only required to deduct TDS on the Rs. 15 per quintal paid as milling charges, as per the agreement and government policy.3. Relevance of the judgment in the case of M/s Ahaar Consumer Products Pvt. Ltd.:The CIT(A) relied on the decision of the Delhi Bench of the Tribunal in the case of M/s Ahaar Consumer Products Pvt. Ltd., where it was held that the assessee was not required to deduct TDS on the by-products retained by the millers. The Tribunal in the present case agreed with this precedent, noting that the facts were similar and that the by-products did not constitute part of the consideration for milling services.4. Consideration of by-products as part of payment for milling services:The Department argued that the by-products retained by the millers had considerable market value and should be included in the consideration for milling services. They relied on various reports and government documents to support this claim. However, the Tribunal held that the by-products did not constitute payment for the milling services, as the procurement agencies never owned the by-products and had no right or responsibility over them.5. Whether TDS provisions apply to payments made in kind:The Tribunal discussed whether TDS provisions under Section 194C apply to payments made in kind. It concluded that the provisions of Section 194C are applicable only to monetary payments and not to payments made in kind, especially when the value of the by-products is indeterminable and not quantified in the books of the assessee. The Tribunal also noted that the milling charges were fixed by the government and did not include the value of the by-products.Conclusion:The Tribunal dismissed all the appeals of the Revenue, upholding the CIT(A)'s decision that the assessee was not required to deduct TDS on the value of by-products retained by the millers. The Tribunal also allowed the appeals filed by the assessees, concluding that the by-products did not constitute payment for the milling services and that the TDS provisions under Section 194C were not applicable in this case. The order was pronounced in the Open Court on 30.10.2018.