Tribunal rules by-products not subject to TDS under Section 194C

The Tribunal dismissed the Department's appeals and allowed the assessees' appeals, ruling that the by-products retained by the millers were not part of the consideration for milling services and thus not subject to TDS under Section 194C. It was held that Section 194C applied solely to monetary payments, not payments in kind. The Tribunal referenced a prior case to support its decision and rejected the Department's reliance on a different case. Additionally, government policies and reports were deemed inadmissible in evidence, with statutory law prevailing.

---

---

Issues Involved:

1. Applicability of Section 194C on payments made to millers.
2. Consideration of by-products as part of the payment for the purpose of TDS.
3. Relevance of the case of M/s Ahaar Consumer Products Pvt. Ltd.
4. Interpretation of Section 194C regarding payments in kind.
5. Reliance on government policies and reports.

Issue-wise Detailed Analysis:

1. Applicability of Section 194C on Payments Made to Millers:

The primary issue was whether the provisions of Section 194C of the Income-tax Act, 1961, were applicable to the payments made by the assessee to the millers for milling paddy. The Department contended that the assessee failed to deduct TDS on the entire consideration, which included not only the cash payment of Rs. 15 per quintal but also the marketable value of the by-products retained by the millers. The assessee argued that TDS was deducted on the milling charges as per the agreement and government policy, and the by-products were not part of the consideration paid for milling.

2. Consideration of By-products as Part of the Payment for the Purpose of TDS:

The Department argued that the by-products retained by the millers had considerable market value and should be considered part of the payment for the milling services. They relied on various government reports and policies, which indicated that the milling charges were fixed taking into account the value of the by-products. The assessee countered that the by-products were the property of the millers as per the agreement and not part of the consideration for the milling services. The CIT(A) and the Tribunal agreed with the assessee, holding that the by-products were not part of the consideration for the milling services and, therefore, not subject to TDS under Section 194C.

3. Relevance of 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 by-products were not part of the consideration for the milling services and, therefore, not subject to TDS. The Department argued that the facts of the present case were different from those in the Ahaar Consumer Products case. However, the Tribunal found that the facts were similar and that the decision in the Ahaar Consumer Products case was applicable to the present case.

4. Interpretation of Section 194C Regarding Payments in Kind:

The Department relied on the case of Kanchanganga Sea Foods Ltd. v. CIT, where it was held that payments in kind were also subject to TDS under Section 195. The assessee argued that the facts of the Kanchanganga case were different and that the provisions of Section 194C applied only to monetary payments. The Tribunal agreed with the assessee, holding that the provisions of Section 194C applied only to monetary payments and not to payments in kind.

5. Reliance on Government Policies and Reports:

The Department relied on various government policies and reports, including the CAG report and the Tariff Commission report, to argue that the milling charges were fixed taking into account the value of the by-products. The assessee argued that these reports were not admissible in evidence and could not bypass the statutory provisions of law. The Tribunal agreed with the assessee, holding that the reports were not admissible in evidence and that the statutory provisions of law prevailed.

Conclusion:

The Tribunal dismissed the appeals of the Department and allowed the appeals of the assessees. It held that the by-products retained by the millers were not part of the consideration for the milling services and, therefore, not subject to TDS under Section 194C. The Tribunal also held that the provisions of Section 194C applied only to monetary payments and not to payments in kind. The Tribunal relied on the decision of the Delhi Bench of the Tribunal in the case of M/s Ahaar Consumer Products Pvt. Ltd. and rejected the Department's reliance on the case of Kanchanganga Sea Foods Ltd. v. CIT. The Tribunal also held that the government policies and reports relied on by the Department were not admissible in evidence and could not bypass the statutory provisions of law.

---