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2014 (6) TMI 986
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....h contractors was above the prescribed limit for compulsory deduction of TDS. He, therefore, asked the, assessee to explain the nature of such payments made to the harvesting and transport contractors. 2.1 The assessee submitted that the purchase of sugarcane from the farmers is on ex-gate basis, which is to be delivered by them at the gate of the factory. It was submitted that the farmers are paid a consolidated price for their sugarcane which is to be delivered by them at the gate of their factory and the said price includes amounts paid for harvesting and transport of sugarcane. It was submitted that the harvesting and transport expenditure is incurred by the farmers and not by the assessee sugar factory and therefore the assessee is not liable for deduction of TDS on such contractual payments. It was submitted that payments to harvesting and transport contractors including commission were made to facilitate the farmers and such payments of harvesting and transport charges and harvesting and transport commissions were deducted from the sugarcane purchase payments made to the farmers. It was claimed that the assessee is not responsible for deducting the tax at source as per th....
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.... the same from the farmer. When the liability of expenditure is decided and determined in the year of payment, it cannot be said the prior period item. Hence, the liability is not prior period, and the company is eligible to take in the year under review as expenditure". 3.2 From the above the AO observed that on the one hand the assessee was claiming that the payments to harvesting and transport contractors are not its liability and on the other hand, the assessee was claiming that it is liable to bear the additional payments to be made to the harvesting and transport contractors pertaining to prior period. Besides, the assessee has also made payments to the harvesting contractors amounting to Rs. 20.27 lakhs. Since no tax was deducted from such payments, the AO issued a detailed show-cause notice as per pp. 4 to 9 of the assessment order asking the assessee to explain as to why the provisions of s. 40(a)(ia) of the Act should not be invoked. 3.3 In response to the various points raised by the AO, the assessee made detailed submissions which have been reproduced by the AO at para 5 of the order and which reads as under : "5. In response to the above show-cause lette....
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....e do not desire to dwell on the decision; because there is a Special Bench Tribunal judgement on the issue at hand in Shri Kamrej Vibhag Sahakari Khand Udyog Mandli Ltd. vs. ITO (2008) 116 TTJ (Ahd)(SB) 425 : (2008) 8 DTR (Ahd)(SB)(Trib) 416 : (2008) 113 ITD 539(Ahd)(SB). Copy of the same is enclosed. 4. The facts in that case were, the sugar factory paid advances to cane growers which were ultimately adjusted to the cost of sugarcane. In order to ensure proper supply of cane, zone-wise Samiti was formed by cane growers. The Samiti paid to cane growers, labourers, transporters, etc. The sugar factory paid the Samiti the cost of sugarcane. At the end of the season, surplus/deficit was adjusted in cane growers account. It was held by the Special Bench that sugar factory was not liable to make TDS under s. 194C from payments made to Mukadams and transporters by the Samiti as it was for the cane grower to bring the sugarcane to assessee's factory. 5. In our case, we pay advances to cane growers to enable them to tie up their harvesting and transport contractors. To facilitate accounting these are grouped under 8 sections ('Vibhag'). On receipt of sugarcane....
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.... transport contractor. The word 'commission' is a misnomer. A group of 10 labourers may from a gang which works under a harvesting contractor who is one amongst them. Whatever payment is received for a fortnight, the same is equally shared between them. At the end of the season, the contractor is entitled to receive 16 per cent as commission which he does not share with the labourers. This so-called commission was already deducted from cane bills of the farmers, but is retained and paid after end of the season. Sec. 194H defines commission to include "any payment received or receivable, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities'. As already explained, payment is made by the farmers to the contractors for harvesting and transport of their sugarcane. Firstly, if at all any commission (which we do not agree) is paid, it is paid by the farmers and not by us. Secondly, the said payment to harvesting and transport contractors is nothing but additiona....
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....pervised by the sugar factory. We beg to restate the facts for what they are. Every sugar factory in India which purchases sugarcane on ex-gate basis (and there are about 300 of them) are required to develop systems to supervise the cane harvesting and cane transport for their smooth and efficient functioning. We are one of them. Just because we do this activity does not imply that we engage the harvesting and cane transport contractors. We have already explained that 'commission' is a misnomer which has regrettably crept in the industry lingo. We have database of the cane crushed of every farmer, his harvesting contractor and his transport contractor. For cane purchase payable to farmers this information is available and the commission is nothing but additional payment for harvesting or transport and is included in the price of sugarcane and is accounted as such. The facts at para 6(iv) need rectification. The organization of sugar factories which had a meeting with the Government was that of SSKs and no private sector sugar factories were involved. The harvesting contractors of SSKs were paid in season 2008-09. Hence, similar payment was demanded from our farmers....
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....used in the performance of the contract not sufficient; to constitute a sale, there must be an agreement, express or implied, relating to the sale of goods and completion of the agreement by passing of title in the very goods contracted to be sold.' 13. The Bombay High Court in BDA vs. ITO (2006) 201 CTR (Bom) 413 : (2006) 281 ITR 99(Bom) had held that no TDS is deductible whore the matter in question is transfer to goods. Therefore, cost of harvesting and transport is borne by the farmers and needs to be considered as such. There is no TDS on purchase of goods as has been held by the Bombay High Court in the case of CIT vs. Glenmark Pharmaceuticals (2010) 231 CTR (Bom) 105 : (2010) 37 DTR (Bom) 265 : (2010) 191 Taxman 455(Bom). The Punjab & Haryana High Court in the case of CIT vs. Bhagwati Steels (2011) 241 CTR (P&H) 480 : (2010) 47 DTR (P&H) 75 : (2011) 198 Taxman 275(P&H) held that no TDS was deductible on expenses incurred by Tata Steel, on freight included in its invoices and shown separately. 14. Without prejudice to the above, each goods consignment note (in our case) each weigh slip is a separate contract and therefore no TDS is deductible for each ha....
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.... is on the cane growing farmers. This fact is also not in dispute. In other words, the cost of harvesting and transportation of sugarcane is required to be borne by the cane growers, be it in the form of harvesting/transport charges or by way of commission to Mukadams/transporters. The entries in the books of account of assessee also support this formal arrangement. This legal nature of arrangement is very important to determine the liability to TDS of assessee. The legal format of transaction cannot be overlooked or ignored, in absence of any adverse fact brought on record by the AO. I further find that, the assessee is instrumental in arranging for the services of harvesting and transport agencies, negotiating the charges payable to them and making actual payments to them. It is also true that, it is in the business interests of assessee to make available the pool of harvesting and transport agencies to cater the harvesting and transport needs of the cane growers, as it helps in co-ordinating the regulated supply of raw material for the manufacture of sugar. However, it is not compulsory on the part of cane growers to avail the services of the harvesting and transport agencies ma....
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....sent before me. Thus, the contract for harvesting and transportation is between these agencies on the one part and the individual/HUF growers, not liable to audit under s. 44AB, on the other part. Therefore, the question of applicability of the provisions of s. 194C as well as of s. 194H cannot arise, so long as the payments made by assessee to the harvesting and transport agencies are not on his own account but on behalf of cane grower individuals/HUFs, not liable to tax audit. 6.3 The issue involved in the case before Tribunal, Pune Bench, in the case of M.D., Vasant Dada Shetkari Sahakari Sakhar Karkhana Ltd., in ITA No. 65/Pn/1999 for asst. yr. 1993-94 decided on 17th Jan., 2005 relied on by the learned AO was different than the issue involved in the case before me. In that case, it was not the claim of sugar factories that, they paid harvesting and transport charges on behalf of cane growers. Further, the issue involved was only with reference to liability to make TDS and not with reference to the disallowance under s. 40(a)(ia). The facts in the case of appellant are more similar to the facts in the case of Ahmedabad Special Bench decision in the case of Shri Kamrej ....
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....ure per se, in the P&L a/c of the assessee or not. Even where capital expenses are incurred which are not allowable as deduction, the liability to TDS arises. However, no disallowance is invited under s. 40(a)(ia) with respect to such payments for capital expenditure made without TDS. Hence, unless the payment is claimed as expenditure per se or expenditure, as such (not indirectly), in computation of the income from profits and gains of business or profession, the question of any disallowance under s. 40(a)(ia) simply does not arise. The decision of Hon'ble Delhi High Court in the case of Modipon Ltd. vs. CIT 18 taxman.com 294 fortifies this views. 6.6 The payments made by assessee to the harvesting and transport agencies (including commission payments) are reimbursed from the sugarcane price payable to the sugarcane growers. Thus, after reimbursement of entire payments made on the items of harvesting and transport charges, there remained no expenditure that could be claimed by assessee and which can be disallowed under s. 40(a)(ia). Thus, from this angle as well, the disallowance of above stated four items of harvesting and transport charges and commission, under s. ....
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....-vis Bakshish payments, the threshold limits of Rs. 20,000, Rs. 50,000 are not exceeded in any of the cases. Thus, in absence of liability to TDS on Bakshish payments, the disallowance under s. 40(a)(ia) is not attracted. 6.9 In the assessment year under appeal, the assessee has also claimed deduction for difference of harvesting charges of Rs. 31,32,713, for 2004-05 season, agreed to be paid from assessee's own pockets. The AO has considered this sum of Rs. 31,32,713, as liable to TDS under s. 194C and in absence of it, has disallowed the same, on substantial basis, under s. 40(a)(ia). It is the case of the appellant that, the basic responsibility to pay for harvesting charges is that of cane grower. Therefore, according to the assessee, there exists no relationship of contractor and contractee between the assessee and harvesting contractor. Hence, it is contended by assessee that, no TDS liability under s.194C is attracted on the sums of arrear differential harvesting charges for the season 2004-05 and therefore the disallowance of the said sum is not attracted under s. 40(a)(ia). Earlier I have already held that, the harvesting labour performs the work for cane grow....
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.... contractors and commission to the Mukaddams and truck operators directly by the assessee sugar factory does not attract provision of TDS under ss. 194C and 194H as contained in Chapter XVII-B of the IT Act ? 2. Whether on the facts and in the circumstances of the case, the learned CIT(A)-1, Nashik, was justified in holding the payment made by the assessee in the form of advance to the harvesting and transport contractors as payment made on behalf of the cane growers ? 3. Whether on the facts and in the circumstances of the case, the learned CIT(A)-I, Nashik, was justified in holding that the Bakshishh of Rs. 20,28,757 paid to the harvesting and transport contractors directly by the assessee sugar factory is made on behalf of the sugarcane grower farmers ? 4. The appellant prays the order of the AO may be restored. 5. The appellant prays to adduce such further evidence to substantiate his case. 6. The appellant prays leave to add, alter, clarify, amend and/or withdraw any grounds of appeal as and when the occasion demands." 6. The learned Departmental Representative strongly opposed the order of the CIT(A). He submitted that the learn....
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....e actually paid to the contractors by the assessee only and the entire harvesting and transport operation is organised and co-ordinated by it at the behest of and for the purpose of the assessee. 6.3 So far as the decision of the Special Bench of the Tribunal in the case of Shri Kamej Vibhag Sahakari Khand Udyog Mandli Ltd. vs. ITO (2008) 116 TTJ (Ahd)(SB) 425 : (2008) 8 DTR (Ahd)(SB)(Trib) 416 : (2008) 113 ITD 539(Ahd)(SB) is concerned which has been relied on by the CIT(A) he submitted that the said decision is not squarely applicable to the case of the assessee. So far as the order of the CIT(A) that the Bakshishh payments made by the assessee directly to the harvesting and transport contractors are the customary practice of the sugar industry and it was not made against any work of the assessee, he submitted that the assessee has made Bakshishh payment directly to these harvesting and transport contractors in lieu of the work done by them. The Bakshish was for advancement of interest of the assessee. The cane growers are nowhere involved in the issue. The harvesting and transport contractors apart from the contractual commission have received the Bakshish for the work done f....
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.... "With, reference to the subject mentioned, the prime responsibility of harvesting and transport of sugarcane from farm to factory is of sugarcane grower. Accordingly, the responsibility of harvesting and transporting his sugarcane by employing required farm labour is of sugarcane grower. The reasonable harvesting and transport remunerations are being paid by the sugarcane growers. The charges of these farm labours are being increased time to time." 7.2 Referring to p. 133 of the paper book the learned counsel for the assessee drew the attention of the Bench to the MoU between the representatives of sugarcane growers and the farm labour sugarcane harvesting transport farm labours union representatives, he submitted that in order to bring uniformity in their charges the agreement has been made on the intervention of the Government of India. Referring to pp. 252 to 259 of the paper book the learned counsel for the assessee drew the attention of the Bench to the P&L a/c and the details of expenses and submitted that the expenses of harvesting and transportation are included in the cane purchase price account only/Referring to p. 149 of the paper book the learned counsel for the ass....
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....1 CTR (Bom) 105 : (2010) 37 DTR (Bom) 265 : (2010) 324 ITR 199 (Bom); (ii) CIT vs. Hardarshan Singh (2013) 89 DTR (Del) 389 : (2013) 263 CTR (Del) 466: 30 taxmann.com 254 (Del); (iii) CIT vs. Cargo Linkers (2008) 218 CTR (Del) 695 : (2008) 7 DTR (Del) 153. 7.4 He further submitted that the AO has disallowed this amount only in this year. No such disallowance was made in the earlier years. Referring to the decision of the Hon'ble Bombay High Court in the case of CIT vs. Kotak Securities Ltd. (2011) 245 CTR (Bom) 3 : (2011) 62 DTR (Bom) 339 : (2012) 340 ITR 333(Bom), he submitted that the Hon'ble High Court in the said decision has held that if the claim is accepted in the past years no disallowance under s. 40(a)(ia) be made in the later year. 7.5 As regards the payment of Bakshish of Rs. 20,28,757 paid to harvesting and transport contractors is concerned, he submitted that the harvesting labour demands Bakshish on completion of every harvesting season. To maintain good relations with them the assessee pays them the Bakshish. This payment is on the ground of business exigencies so that this labour, which comes from outside Nashik and mainly from the M....
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....f ss. 194C and 194H are applicable to the facts of the present case whereas it is the submission of the learned counsel for the assessee that the same are not applicable to the facts of the present case. 8.1 From the various details furnished by the assessee in the paper book as well as the findings given by the learned CIT(A) we find as per cl. (3) of the agreement between the farmers and the assessee company, (a copy of which is placed at paper book pp. 117 and 118 and English translation in p. 114), it is the responsibility of the farmer to harvest and transport the sugarcane crop to the factory. Clause (4) of the said agreement states that if harvesting and transporting charges and commission are paid by the factory then the farmer authorises the factory to deduct such harvesting and transporting charges including commission from the cane price payable to the farmers. Therefore, we find force in the argument of the learned counsel for the assessee that the above clauses clearly indicate that it is the responsibility of the farmer to reach the sugar crop to the factory and bear the harvesting and transportation charges. We further find from the details furnished by the assess....
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.... The assessee was never governed by bye-laws framed under Cooperative Societies Act, 1961. As per one of the clauses of said bye-laws a farmer was to enter into a contract with assessee society to cultivate, grow and bring sugarcane at place of assessee society. Therefore, cane growers became members of assessee society and entered into contract with it for supply of sugarcane at factory gate of assessee. Assessee made payments in advance to cane growers for supply of sugarcane. In order to ensure that sugarcane should reach assessee's factory gate in time, the farmers zone Samiti was formed by cane growers. Assessee used to give money to Samiti in advance who used to accept the same for and on behalf of cane growers. Samiti paid said amount to cane growers, labourers, transporters etc. The AO held that there was a direct role of assessee society in payments made by Samiti to cane growers and transporters and accordingly considered all payments made by Samiti to cane growers and transporters as being made by assessee. He, therefore, held that the assessee was responsible for deduction of tax under s. 194C from payment made to cane growers and transporters by Samiti. It was the ....
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....ment proceedings, it was found that except one farmer and an accounts clerk of the assessee who were not in knowledge of full facts, every officer of the assessee and the Samiti almost unanimously had averred that Samiti was working independently and it was the Samiti which was harvesting, cutting and transporting sugarcane to the gates of the assessee. The Samiti was taking money from the assessee as advance out of the cost agreed to be paid for the purchase of sugarcane by the assessee for and on behalf of the cane growers who were supplying the sugarcane to the assessee. The supply of sugarcane at gate of the assessee, as per agreement, rules and notifications of the Government, was the responsibility of the cane growers. Surplus or deficit was accounted for in the accounts of the cane suppliers and in all these matters, the assessee's staff including the accounts clerk and the chief accountants were helping the Samiti either free of cost or for cost recovered. The Samiti was maintaining separate records and they were audited. The assessee society also maintained the individual farmer's account by debiting and crediting individual farmer's account on the bas....
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....f the assessee, were rendering the services of supervising plantation of sugarcane. The cutting and transportation were being carried out through, the Samiti. Services of one or two clerks and a peon were further offered by the assessee to the Samiti for miscellaneous work. Verification of bills by the chief accountant of the assessee was also in that co-operative movement and to help the cane growers to ensure that no unnecessary payments were made by them (para 41). 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 to farmer members towards cutting, harvesting and transporting advance the same, is debited in the advance account and the amount was credited in the sugarcane management account. Simultaneously, the first instalment was also paid which was debited advance acco....
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....to be Rs. 2,01,81,428. The CIT(A) affirmed the order passed by the AO. On further appeal, the Tribunal referred to the provisions of s. 40(a)(ia) which disallowed the expenditure if such expenditure attracts deduction of tax at source. Such tax is either not deducted or if deducted it has not been remitted to the State Exchequer within the time allowed. The amount of Rs. 2,01,81,428 stood paid by the assessee/respondent to M/s Tata Steel a$ freight charges for carriage of its goods on which tax was not deducted in terms of s. 194C of the Act and therefore such amount is not deductible while computing the taxable income. When the matter was heard by the Tribunal a copy of the distribution agreement between the assessee and the M/s Tata Steel was placed on record. According to the agreement, the assessee-respondent had appointed distributor for marketing of products of M/s Tata Steel which envisages purchase of production by the assessee-respondent and sale thereof. The Tribunal has quoted cl. 2.14 of the agreement which shows that M/s Tata Steel was to raise invoice on the assessee's per the list price to be published by Tata Steel. The Tribunal after reading the agreem....
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....llowing the parity of reasoning laid down by the Hon'ble jurisdictional in the case of Food Corporation of India (supra), the amount raised by M/s Tata Steel in the invoices shown as freight did not create an obligation on the assessee to deduct tax on such amounts as per s. 194C of the Act. In our view, if 'the freight expenses incurred by M/s Tata Steel are added to the cost of goods in the invoice raised, it cannot be inferred that the assessee has paid any amount of freight separately because the same is part of the cost of product purchased. The assessee could not be said to be an assessee in default for non-deduction of tax at source in terms of s. 194C of the Act on the amount of freight billed separately by M/s Tata Steel. As a consequence, it follows that the provisions of s. 40(a)(ia) of the Act cannot be applied to disallow the amount of such freight amounting to Rs. 2,01,81,428. Following the aforesaid discussion, we set aside the order of the CIT(A) and direct the AO to delete the impugned addition. The assessee accordingly, succeeds on this ground. We asked learned counsel for the Revenue as to whether any appeal has been filed against the judgment rendered by....
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....sion of Rs. 2,100. This details show that a contract has been entered into between the two parties for a sum of Rs. 70,000 and advance payment of Rs. 50,000 has been made through the driver of the Delhi Assam Roadways. The assessee has not done the work of actual transportation of goods. He earned only the commission of Rs. 2,100. Thus, it becomes clear that the assessee acted as intermediary between the client and Delhi Assam Roadways Corporation Ltd. The company carried the goods and the advance received from the customer was handed over to the driver of the company. In the final bill, the advance and the commission of the assessee were deducted from the bill amount of Rs. 70,000 and the assessee had to receive commission of Rs. 2,100 from the company. According to us, it cannot be said that assessee really entered into the contract of transportation of goods. He merely acted as an intermediary. Thus, the facts seem to be similar to the facts in the case of Grewal Brothers (supra) although the provisions of Partnership Act make the position of law somewhat messy. In the case of Cargo Linkers, the assessee acted as an intermediary between the exports and the airlines. It received ....
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....upra), it was contended on behalf of the assessee that the assessee was not the 'person responsible' for making payment in terms of s. 194C of the said Act. In that case, the Tribunal had also noted and found as a matter of fact that the assessee was nothing but an intermediary between the exporters and the airlines as it booked cargo for and on behalf of the exporters and mainly facilitated the contract for carrying goods. The principal contract was between the exporter and the airline. This Court, in Cargo Linkers (supra), agreed with the view of the Tribunal which had mainly decided an issue of fact, namely, the nature of the contract between the parties concerned. The Court also observed that it had also been found as a matter of fact that the contract was actually between the exporter and the airline and the assessee was only an intermediary and, therefore, it was not the 'person responsible' for deduction of tax at source in terms of s. 194C of the said Act. 9. We feel that the decision in Cargo Linkers (supra) completely covers the case in favour of the assessee and against the respondent. The Tribunal has already found as a matter of fact that the c....