TaxTMI 
TaxTMI 
2008 (5) TMI 355
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....pplicants liable to deduct the tax at source from the payments made to Mukadams and Transporters who are member farmers of the Zone Samiti and who have no contact with the applicant?" 2. These appeals, as is apparent from the questions referred, are against the orders of the CIT(A) upholding the liability of the two assessees to deduct tax at source under section 194C and interest under section 201 of the Act. Since they all contain almost similar and identical facts they are being disposed of by this common order for the sake of convenience. We are, discussing the facts as they appear in the case of first assessee in the appeal for assessment year 2003-04 they are stated to be almost identical in all cases, except the amounts and certain names etc. 3. There was a survey action in this case. The Assessing Officer during the course of survey recorded statements of various persons under section 131 of the Act and came to the conclusion that the payments were made by Samiti which were formed to escape the liability of deducting the tax. He, accordingly, held the assessee responsible for making the payments and passed order dated 8-4-2004 under section 201 of the Act for the assessme....
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....ti is retained money (amount) of sugar mill amount of Rs. 195 per M.T. out of first instalment of purchase price of sugarcane to be paid to members. 32. In short even after careful consideration of letter of Authorized Representative of sugar mill received in the office on 24-3-2004 along with annexure, the direct link of sugar mill is established and the contents of submission extracted here above are not contrary to whatever discussed above. 33. From above elaboration all the reasons as listed in the initial part of this order for not deducting tax on payments made to the transporters and mukadam are as below:- (1) As provided in the bye-laws of sugar factory especially Nos. 2(A) and 6(2) prime liability to cut and transport the sugarcane from field to factory gate is of farmer/member but in fact no individual member is performing this task as established here above. (2) As prime liability to cut and transport the sugarcane is of member/individual. Farmer making arrangement to cut and transport the sugarcane is not correct but sugar factory under the facade in the name of Khedut Zone Samiti makes arrangement to cut and transport the sugarcane. (3) The individual farmer/membe....
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....me though there is huge excess of income over its expenditure in the books of account. 34. After careful examination of letters, show cause notice evidences gathered it is noticed that the payments made to mukadams and transporters are liable for TDS under section 194C of the Income-tax Act. The reasons stated by the deductor for non-deduction do not satisfactorily explain and are not accepted. In financial year the total amount of Rs. 9,19,02,670 (as per Annexure) was spent for the payment of transportation and cutting charges to the transporters and mukadams in financial year 2002-03 on which the TDS at the rate of 2 per cent was not deducted as required under the Income-tax Act for this short deduction the order under section 201 of the Income-tax Act is passed thereby you are required to pay Tax Rs. 18,38,053 + S.C. Rs. 91,903 aggregating to Rs. 19,29,956." 5. For the assessment year 2004-05 also similar orders were passed in both the cases. The details of demand raised in the case of both the appellants for the assessment years 2003-04 and 2004-05 are as under:- ------------------------------------------------------- Particulars KAMREJ VIBHAG &....
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....ade by the farmers' Samiti in respect of various expenses including labour charges, transport charges, insurance charges, etc., on behalf of farmers?" 9. The matter again came up before the Tribunal in the case of Shree Mahuva Pradesh Sahakari Khand Udyog Mandli Ltd. and this time vide paragraph 6 of the order dated 13-4-2007, the matter was set aside and the whole issue restored back to the file of the Assessing Officer for fresh consideration in accordance with law and after giving opportunity to the assessee to distinguish the facts. It was, but with a caution that if the facts of this case were found to be same and similar as were in the case of 'Chelthan' the Assessing Officer will take appropriate step for initiating prosecution proceedings against the assessee for making false claim before the Tribunal. 10. In view of the above two orders passed by the Tribunal in similar matters, the present assessee in these appeals once again tried to distinguish before the Tribunal its case from that of 'Chelthan' and the President, Income-tax Appellate Tribunal, on 26-3-2007 constituted this Special Bench to decide the controversy arising in the matter, looking to the gravity of the s....
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....from such activity and, therefore, the Zone Samiti is not liable to pay any tax, because it is not carrying on any business activity with a view to earn any income; that the said assistance as expected was in mutual interest; that in Kamrej Vibhag 25 Cane Quality Boys and 20 Supervisors, who are employees of the Mill are rendering services to the task of supervising plantation of sugarcane. Services of one or two clerks and a peon are further offered by the Mill to the Samiti for miscellaneous work; that similarly, for Sayan Vibhag, services of 173 cane quality boys and 22 supervisors with two clerks and one peon are also supplied to the Samiti by the Mill for doing the aforesaid work; that the Assessing Officer recorded statements of respective office bearers of both the Mills that the said Committee/Samiti is performing the work of cutting and transportation since more than 10 to 15 years respectively; that in case of Kamrej the area covered under the Mill is divided into 5 Talukas and 14 Zones within the range of 5 Km. to 30 Km. comprised of 317 villages. Similarly, in the case of Sayan the area covered under the Mill is divided into 5 Talukas comprised of 207 villages. The tran....
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....the notice of the Tribunal and he submitted that this time the Tribunal set aside the matter and restored back the matter to the file of Assessing Officer for fresh consideration in accordance with the law after giving opportunity to the assessee to enable the assessee distinguish the facts. 17. It is explained that - (1) The assessee pays cost of sugarcane to farmer members at Ex-factory gate price as decided by the sugarcane minimum price by the Government of India, Ministry of Consumer Affairs, Food and Public Distribution Department; (2) In the beginning of the season of cutting, harvesting and transporting of sugarcane the assessee society passes a Resolution in the meeting of Board of Directors for payment of advance for harvesting and transporting and to decide the first instalment followed by subsequent Resolution for payment of second instalment of the price of sugarcane and lastly to decide the sugarcane price to be paid to the farmer members; (3) when it is resolved to pay advance of Rs. 195 per M.T. of sugarcane to farmer members towards cutting, harvesting and transporting advance the same is debited in Sabasad Sherdi Advance No. II account and the amount was credited....
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....hd.) of 2006, dated 8-9-2006]. 18. It is further submitted that payment for harvesting and transportation were expenses of agriculture nature and, therefore, no tax was deductible at source. The assessee is neither a payee nor the payer and, therefore, provisions of section 194C do not apply. Further that these payments were less than Rs. 20,000, if considered transaction-wise, though it would be more than Rs. 20,000, if they taken together and consequently not hit by the provisions of section 194C even otherwise. 19. The learned CIT-DR Shri N.S. Dayam, relied on the finding of the Tribunal order aforesaid to support the order of the Assessing Officer, and brought to our notice certain more facts in the case of the assessee, namely; (i) the so called Zone Samiti is nothing but, the outfit/branch of the assessee-society. It may have been created for making cash payments mainly exceeding Rs. 20,000 just to escape from the provisions of section 40A(3) of the Act and also for the cash payments without deducting tax at source; (ii) the so called Zone Samiti is funded by the assessee-society. The amount of Rs. 195 is retained by the assessee-society from the first instalment of the s....
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....vi Pardi; Zone Samiti; Kamrej Sugar Factory Khedut Sabhasad Zone Samiti; Kamrej Vibhag Sahakari Khand Udyog Mandli Ltd. (Zone Samiti) or Zone Samiti; Khedut Zone Samiti; (v) the English version of statements of certain persons related to the assessee were referred to as of : (i) Shri Gopalbhai C. Patel, Member, Farmer Zone Samiti, Statement dated 25-2-2004; (ii) Navinbhai N. Patel, President of assessee-society, Statement dated 10-3-2004; (iii) Kantibhai V. Patel, Managing Director of assessee-society, Statement dated 10-3-2004; (iv) P.N. Dobaria, Chief Accountant of assessee-society, Statement dated 10-3-2004; (v) Dharamsibhai P. Savalia, Member Farmer of assessee-society, Self statement dated 12-3-2003; (vi) Kiranbhai S. Patel, Accounts Clerk of assessee-society, Statement dated 12-3-2003; and (vi) the absence of any provision for constituting such society in the bye-laws of the assessee-society to deduct Rs. 195 or Rs. 190 from the amount payable to the member farmers. The members are bound by the bye-laws of the society and being comparatively illiterate/semi-literate, they cannot dare to constitute a Zone Samiti on their own against the bye-laws of the society. 20. He submi....
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....ing, cutting and transporting the sugarcane (Rs. 195/190). This was with twin objects - (1) to fix the cane growers to supply the cane to the assessee and (2) to ensure the regular supply by helping and financing them to harvest, cut and transport the sugarcane to assessee's factory gate. 24. The payments for the cost of purchases were made in instalments looking to the needs of the cane growers who are its members. By another resolution dated 8-10-2002 the first payment was made to the cane growers to enable them to meet the expenditure of own harvesting, cutting and transporting (Rs. 195/190 per MT) to enable them to bring the sugarcane to the factory gate as envisaged in the rules and the price fixation. By the same resolution an instalment of Rs. 300 per MT to the cane growers at that time itself but not contemplated to have any relation to any expenditure to be incurred by the cane growers. By yet another resolution dated 29-3-2003 the third payment of Rs. 325/200 again was made to the cane growers sometime after 15-5-2003. All these payments were before the Government notified the cane price. The final payment of Rs. 868 per MT for the supply between October 2002 to January ....
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.... responsible for paying any such sum. Here, the responsibility of paying the sum for harvesting, cutting and transporting is of the cane growers. The payments are, no doubt, made to the labour hired for this purpose but these payments were made by the Samiti or by the assessee as alleged by the revenue, not on its own account; they were for and on behalf of the cane growers. This is clearly established by the fact that- (1) The assessee was required to pay the fixed price and make the payment to the cane growers for the cost of the cane. (2) The payments, though in instalments, were debited to the cane growers advance account and adjusted ultimately to as cost of the cane; (3) The assessee had given and Samitees have taken the amount from the assessee for and on behalf of the cane growers and on their behalf; (4) Samitees have also paid that amount to the labourers on account of cane growers; (5) Surplus and deficit is ultimately adjusted in the cane growers' account through the Samitees who have paid and received that amount from the assessee-company. 29. These facts, in our opinion, are clearly a pointer of the fact that it was their responsibility as per the Government Ord....
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....ssessee. This supply of printed labels cannot be compared and equated with the supply of printed question papers to universities and educational institutions. M/s. Mudranika would not print such labels with the specifications of the assessee beyond the quantity specified in the purchase order and, therefore, it was wrong on the part of the Tribunal to hold that, the labels printed by M/s. Mudranika to supply to the assessee could not be sold to any other establishments in the market. This finding regarding no marketability is based on a fallacious premise that, M/s. Mudranika was printing an unlimited number of labels. When the printing work was being carried in the premises of M/s. Mudranika, though as per the specifications of the assessee, the supply was limited to the quantity specified in the purchase order and it would not do such printing beyond the numbers specified in the same. There is nothing on record to show that, all other ancillary costs like the labels, ink, papers, screen-printing, screens, etc., were being supplied by the assessee to M/s. Mudranika. In the facts of this case, the supply of printed labels by M/s. Mudranika to the assessee was a "contract of sale" a....
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....ucational institution is a delicate and confidential type of work and the price paid for supplying such printed question papers or printed matter entails primarily the confidence and secondly the skill and to a very small extent the material. Hence, such work undertaken by the concerned agency could not be categorised as entailing sale of goods. It was instead a contract for works done. There is no similarity between the facts with which the Supreme Court was dealing in Viswanathan's case [1989] 73 STC 1 (SC) and those in the present case. It is nobody's case before us that the printing of the labels on the corrugated boxes required any special skill or involve any confidence or secrecy. In the circumstances, the Tribunal was justified in holding that the predominant object underlying the contract was one for sale of goods which took the contract out of the purview of section 194C of the Act. Finding no substantial question of law arises for consideration the appeal was dismissed." 32. Recently Punjab & Haryana High court in C.T. v. Dy. Chief Accounts Officer Markfed 5 DTR 326 following these two decisions also took the same view and held in paragraphs 5 and 6 of its order as unde....
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....k Producers Union Ltd. As the assessee's contract was to purchase sugarcane which is the raw material for produce of sugar and it was the responsibility of the cane growers as per the Government Order and the Board's resolution of the Society and also the agreements with the assessee and the society's rules and that it was the cane grower on whose behalf and who actually made the payment for harvesting, cutting and transporting the cane to the gate of the assessee's factory, though through the medium of the assessee and the Samiti, the provisions of section 194C would not be applicable to require the assessee to deduct tax. 34. It may be stated that a survey action was taken by the Income-tax Department at the assessee-factory premises on 25-2-2004 wherein an alleged breach of not deducting the tax at source from the payments made to Mukadams and transporters bringing the sugarcane to the factory gate on behalf of farmers, was suspected. The Assessing Officer during the course of survey recorded statements of various persons under section 131 of the Act of various persons including the depositions of respective office bearers of both the Mills stating all these facts including the....
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....ointment as a member has been made in the meeting of the farmer members; that he was member for last one year; that they got sugarcane of the farmers, which was cut from their farms and filled up in vehicles and sent to the door of the factory; that the meeting of the farmer members is generally kept in the month of June-July and he was selected as a member in such meeting, on a proposal as a member by a farmer member, supported by another farmer member but no written evidence was kept in this regard; that there was no constitution pertaining to the method as to how a member of the farmer zone committee should be appointed and Zone Committee was also not having any such constitution; that no resolution book or minute book was written or maintained for the decisions taken by the zone committee; that meetings were held from time to time for making proceedings and for taking decisions accordingly; that they have not obtained any recognition of any nature whatsoever from any institution or Government; that he did not have information as to when the Farmer Zone Committee came into existence, that daily Cash Book, Ledger, income vouchers, expenditure vouchers were maintained not on finan....
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....nsportation of sugarcane; that arrangements for cutting of the sugarcane and its transportation arrangements was made by the Zone Committee; that monies are being paid to the society members on the quantum of sugarcane received from them, in the current year, 1st instalment of Rs. 195 per ton was paid towards cutting and transportation advance, Rs. 300 per ton being the 1st instalment as the financial conditions of the farmers was very weak and, therefore, if the payment was not made in this manner, then the question of obtaining sugarcane by the society would have become difficult; that the amount of Rs. 195 per ton was given to the concerned Administrative Clerk under the instruction of the President of the Zone Committee; that signature of the farmer member is obtained on the cutting/transportation advance voucher; that funds so received were given to the member of the Zone Committee under the instructions of the President of the Zone Committee; that Zone Committee is not registered anywhere and this is one kind of committee formed by the members themselves, as Honorary Members, and the period is limited for 1 year and, therefore, the question of getting it registered did not ar....
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....; that as the responsibility of cutting and transportation of sugarcane is of the member as per by-laws of the society, it was with a view that supply would be received for continuous 24 hours and administration is made in a proper manner; that the Zone Committee has been formed out of the crowd of the labourers, one efficient person is retained by the society and with whose help payment was made to the labourers by the Zone Committee; that the sugar factory is paying about Rs. 6 to 7 crores by way of tax to the Government, they would not even think about stealing such small amount of tax; that in last he stated that effort had been made by Institution with the view that the farmers should get best compensation for the crops grown by them, the Institution is being administered in a frugal manner in the interest of its members, total effort have been made by the Institution to see that, maximum rate is obtained by the members for the sugarcane supplied by them; that, it was consisting of boundary farmer of the financially weaker section of tribal caste. (v) Shri Kantibhai Virendrabhai Patel, Managing Director of Society in his statement recorded on 10-3-2004 stated that the farmer ....
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....unt is called advance amount; that the amount of Rs. 195 per ton is given to the Zone Committee, after receiving of the sugarcane in the factory, as and when needed by the Zone Committee, whereas the member is paid Rs. 300 per ton, within 5 to 30 days; that the voucher for Rs. 195 per ton is prepared separately because it was paid in accordance with the necessity of the Zone Committee, whereas the amount of Rs. 300 per ton is paid to the member towards the cost sugarcane supplied by him, therefore two vouchers are prepared; that since the payment of Rs. 195 was a part of the amount payable for the sugarcane supplied by the member, therefore, his consent in form of his signature was obtained and payment made to the Zone Committee; that Zone Committee is not part of the sugar factory; that his institution was paying taxes to the Government in crores of rupees, therefore they do not have any intention to evade this small amount of tax; that in accordance with their information, the payment which is Rs. 20,000 or more was made by cheque/draft only and not in cash. The cash payment of the sugarcane [agricultural produce] can be made in more amount as per legal provisions. (vi) Shri Pop....
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....Committee, help is extended by the employees of the Sugar factory with a feeling of co-operation; that when the payment of 1st instalment is made to a farmer member in cash, at that time denomination is indicated on the voucher, whereas in case of cutting and transportation voucher denomination is not being written, because, the farmer managing committee withdrawing this amount as and when needed by it; that at the time of advance payment of 1st instalment, advance voucher for cutting and transportation is prepared and kept aside with the signature of the farmer member obtained thereon and, therefore, denomination of cash is not written on the cutting and transportation voucher; that an amount of Rs. 9,19,02,670 was paid during the financial year of 2002-03 towards cutting and transportation expenses. 36. Statements relating to Sayan Factory recorded under section 131 of the Income-tax Act during the course of survey proceedings carried under section 133A of the Income-tax Act, 1961 on 27-4-2004, these are: (i) Shri Mansinh Lakhabhai Rathod, Managing Director of Sayan Factory stated that sugarcane cutting and bringing the same to the factory gate is by a committee formed by the f....
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....ere is no relation between Zone Samiti and the assessee-factory; that when society is paying first instalment of sugarcane to the farmers, Rs. 190 per MT is deducted and the remaining amount of, Rs. 300 paid to farmers, that the amount of Rs. 190 recovered on account of transportation and sugarcane cutting from the farmers is credited in the books of account of Sayan Sugar Factory and paid by preparing voucher to the Zone Samiti as per requirement and on demand; that the formation of Zone Samiti is not with the approval by Central or State Government or any institutions and the same is not registered Society; that he did not know since when this Zone Samiti has been formed, nor whether earlier it was formed or not; that he did not know as to who is the person responsible for sugarcane cutting and transportation work in the Zone Samiti because Chairman of the Zone Samiti is managing this work; that the voucher for transportation and cutting of sugarcane is prepared at the rate of Rs. 190 per MT, the signature of the farmer is obtained on such vouchers, and its payment is made to the Zone Samiti and not to the farmers; that no employees are appointed in the farmer's Zone Samiti, and ....
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....appointed in Khedut Zone Samiti, and the employees of factory were providing honorary service; that the honorary service of five clerks and one peon was taken for Khedut Zone Samiti and their salary is given by the factory which is debited to the books of Zone Samiti; that in cutting and transportation, the factory is helping by providing about 170 cane control boys and 25 supervisors and their salary and allowances are paid by the factory; that the voucher slip No. 3549 is of a farmer member Shri Chhaganbhai Karshanbhai Patel, village Mindhi in which the farmer member has given advance payment of Rs. 300 per MT as first instalment on 26-2-2004 and the another voucher is of the same farmer member on account of sugarcane cutting and transportation at the rate of Rs. 190 per MT on which no date is mentioned and the signature of farmer member was taken, and the amount was paid whenever the Zone Samiti require money by affixing on that particular date's stamp; that in the voucher of first instalment advance payment Rs. 300 per MT details of notes (denomination) are shown, because case payment has been made to farmer member but in the other voucher of Rs. 190 per MT was for the sugarcan....
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....income-tax; that no employees are appointed in the farmer's Zone Samiti, but they are taking honorary services of five clerks and one peon, and their salary is paid by the factory; that he was not aware about how much salary is paid and that the salary amount is not debited in the books of Khedut Zone Samiti; that in cutting and transportation work they are taking the help of 173 Slip Boys and 22 Zone Supervisors of the factory whose salaries have been paid by the factory; that the financial sources of income to Zone Samiti is the first instalment of Rs. 190 received on account of sugarcane cutting and transportation for which a separate voucher is made and on this voucher farmer member's signature are taken. Like this it is credited in the books of the factory and as per the requirement of Zone Samiti money is taken; that the said Rs. 190 per MT basis voucher is signed and the amount credited in the books of Zone Samiti. 37. On a perusal of these statements we find that, except one farmer and an accounts clerk of Kamrej Factory who were not in knowledge of full facts, every officer of the two factories and the two Samitis almost unanimously have averred that Samiti were working i....
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.... It, instead of considering the impact of the relevant material itself, left the matter to be considered by the Assessing Officer. In the present case the revenue authorities have considered the material in deciding the issue and, therefore, we have considered that material in the present appeals and reached a conclusion that position in these cases is different. The statements which are subject-matter of consideration in these cases were recorded by the Assessing Officer himself by summoning the parties as witnesses, as against the suo motu filing of the affidavits which were found be of no evidentiary value by the Division Bench in Shree Chalthan Vibhag Khand Sahakari Mandli Ltd.'s case. 39. Be that as it may, we may state that the fact, whether the Samitis were valid or not or whether they were not legally formed or registered with any State or Central Government authority or that they were being looked after for everything by the assessee, would also not make much of difference, so long as they are making the payments for and on behalf of the cane growers and at their directions and ultimately adjusting the liability of the cane growers. It were they who were responsible for m....
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....igh Court should be adjudicated upon by us has no force. Again the High Court has not rejected other questions but a consolidated question is formulated covering all aspects raised in those questions. 43. As stated above in the beginning of the season of cutting, harvesting and transporting of sugarcane the assessee-society passed a Resolution in the meeting of Board of Directors for payment of advance for harvesting and transporting and to decide the first instalment followed by subsequent Resolution for payment of second instalment of the price of sugarcane and lastly to decide the sugarcane price to be paid to the farmer members. When it was resolved to pay advance of Rs. 190/195 per M.T. of sugarcane to farmer members towards cutting, harvesting and transporting advance the same is debited in Sabasad Sherdi Advance No. II account and the amount was credited in Sugarcane Management Account. Simultaneously, the first instalment is also paid which is debited in Sabasad Sherdi Advance No. I account and the amount is paid to farmers in cash by crediting the cash account. Similarly, the second instalment of Rs. 325 is debited in Sabasad Sherdi Advance No. II and credited in cash acc....