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

The Tribunal dismissed the revenue's appeal, affirming that the by-products retained by millers were not considered part of the consideration for the milling contract under Section 194C. The Tribunal emphasized that the by-products were retained as per government policy and were not owned by the procurement agencies, thus not subject to TDS. The decision was based on the specific terms of the milling agreements and consistent judicial precedents.

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Issues Involved:
1. Applicability of Section 194C on payments made in kind.
2. Reliance on the decision of Hon'ble ITAT, New Delhi in the case of M/s. Ahaar Consumer Products Pvt. Ltd.
3. Interpretation of "payment of any sum" under Section 194C.
4. Reliance on the decision of Hon'ble ITAT, Division Bench 'A', Chandigarh.
5. Consideration of by-products as part of the milling charges.
6. Cancellation of the order u/s. 201(1)/201(1A) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Applicability of Section 194C on payments made in kind:
The primary issue was whether the provisions of Section 194C of the Income Tax Act, 1961, apply to payments made in kind, specifically the by-products retained by millers. The Assessing Officer (A.O.) contended that milling costs should include the value of by-products retained by millers, thus requiring TDS deduction on the total consideration, including the by-products. However, the Tribunal found that the by-products did not constitute payment of consideration for the work contract of milling paddy. The Tribunal noted that the by-products were never owned by the procurement agencies and were retained by the millers as per government policy. Therefore, the by-products could not be considered as consideration in kind for the milling contract.

2. Reliance on the decision of Hon'ble ITAT, New Delhi in the case of M/s. Ahaar Consumer Products Pvt. Ltd.:
The revenue argued that the Ld. CIT(A) erred in relying on the decision in M/s. Ahaar Consumer Products Pvt. Ltd., which did not involve payments for services rendered. The Tribunal clarified that the Ahaar case was relevant because it addressed the applicability of Section 194C on non-monetary payments. The Tribunal upheld the Ld. CIT(A)'s reliance on this precedent, stating that the by-products retained by millers did not constitute consideration for the milling services.

3. Interpretation of "payment of any sum" under Section 194C:
The revenue contended that Section 194C applies to "payment of any sum," which should include both cash and cash equivalent. The Tribunal examined the language of Section 194C and concluded that it primarily pertains to monetary payments. The Tribunal emphasized that the procurement agencies did not debit the value of the by-products as expenditure in their books, nor did they claim any deduction for it. Thus, the by-products retained by millers were not considered a sum paid for the purposes of Section 194C.

4. Reliance on the decision of Hon'ble ITAT, Division Bench 'A', Chandigarh:
The Tribunal addressed the revenue's argument that the Ld. CIT(A) wrongly relied on the decision of the Chandigarh Bench in ITA Nos. 1309, 1310/CHD, and others. The Tribunal found no error in the Ld. CIT(A)'s reliance on these decisions, as they were directly relevant and had not been overturned by a higher judicial authority. The Tribunal noted that the issue was consistently decided in favor of the assessee in similar cases, and the department had not successfully challenged these decisions in higher courts.

5. Consideration of by-products as part of the milling charges:
The Tribunal analyzed whether the by-products retained by millers should be considered part of the milling charges. It concluded that the by-products, which were the property of the millers from the moment of their creation, were not part of the consideration for the milling contract. The Tribunal emphasized that the government and procurement agencies had no right or responsibility over the by-products, and their value was not ascertainable for TDS purposes.

6. Cancellation of the order u/s. 201(1)/201(1A) of the Income Tax Act, 1961:
The revenue argued that the Ld. CIT(A) erred in canceling the order u/s. 201(1)/201(1A), ignoring the substantial monetary value of the by-products. The Tribunal upheld the Ld. CIT(A)'s decision, stating that the by-products were not part of the consideration for the milling services and, therefore, no TDS was required on their value. The Tribunal dismissed the revenue's appeal, affirming that the procurement agencies were not in default for not deducting TDS on the by-products.

Conclusion:
The Tribunal dismissed the revenue's appeal, affirming the Ld. CIT(A)'s decision that the by-products retained by millers were not part of the consideration for the milling contract and, therefore, not subject to TDS under Section 194C. The Tribunal relied on consistent judicial precedents and the specific terms of the milling agreements to reach this conclusion.

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