TaxTMI 
TaxTMI 
2016 (7) TMI 1483
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....t assessee is not required to deduct any sum under the provisions of Section 194C of the Income Tax Act on the indeterminate value of bye products retained free of cost by the rice millers in accordance with policy framework and guidelines of the Central Government agency. 4. That the appellant should not be deemed to be assessee in default under the provisions of Section 201(1) of the Income Tax Act. 5. That the appellant carves leave to add or amend any ground of appeal during the course of appellant proceedings." 3. The brief facts of the case are that the assessee is a procurement agency of the Punjab Government which procures paddy and supplies Rice to Food Corporation as per the amounts decided between the State Government and FCI. The paddy is given to the millers for milling. The Millers are provided with paddy and they after milling have to supply rice @67% of the paddy milled to the procurement agencies as per the specifications. As per the agreement between the millers and the procurement agencies, the millers get Rs. 15 per quintal as milling charges which is paid to them in cash. Further, as per the agreement between the procurement agencies and th....
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....ons/entries of by products are affected in the books of accounts in their office. 5. In the aforesaid explanation, the assessee has admitted that all the by products of paddy, which is the property of the agency, is left with the miller as per the policy of the Government. Obviously, such a policy has been framed in order to compensate the miller in kind as the milling charges of Rs. 15/- are too small for the operational cost of milling which includes transportation, stitching and a number of other expenses borne by the miller. Thus, the value of by products is part of the milling expenses paid in cash. However, tax is deducted at source only out of cash charges paid. 6. The explanation is not acceptable for the following reasons: 1. The milling chares paid in cash @ Rs. 15/- per quintal are the discounted cost of milling and this petty rate of milling (in cash) is being accepted by millers year after year as they are being compensated with by products whose value is many times of this cash milling. In actuality, the cost of the milling per quintal is much higher than Rs. 15/- and the same is supplemented by the cost of by products which get transferred ....
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....rice bran, khudi phak and husk. Enquiries were made from some rice shelters to arrive at the value per quintal of the these by products. The value of by products from one quintal of paddy, as per information give by different parties ranges between given by these parties is adopted for working out the short deduction. The average value comes to Rs. 82/- per quintal during financial year '2011-12 and Rs. 86/- during financial year 2012-13. The latter figure is also adopted in financial year 2013-14. The figures of paddy got milled during different years have been provided by the assesee. Col.I in the fed owing chart contains figures of total paddy got milled by the assesee in a j particular year and value of by products is worked out by applying the aforesaid figures in different years. The short deduction of tax is calculated c, col. 3 and demand under section 201(1)/201(1A) is created accordingly. 9. Although the by products get passed on to the miller when paddy is given to him for milling, hot this payment is deemed to have been made in March of the relevant financial year when the accounts are settled, thus, interest under section 201(IA) has been calculated from A....
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....ahal Rice 78651.43 82 6449417 28.09.12 128988 6 7739 5 Mahavir Rice 74716.78 82 6126776 29.09.12 122535 6 7352 6 R.S. Rice Mills 75510.75/- 82 6191882 30.09.12 123838 6 7430 7 Satkartar Rice 7232.40 82 593057 03.10.12 11861 7 830li 8 Shiva Agro 39883.55 82 3270451 30.09.12 65409 6 3934 9 Shree Ram Industry 9997.80 82 819820 20.09.12 16396 6 984 10 Soma Rice 27341.30 82 2241987 28.09.12 44840 6 2690 524688 43024416 860478 51340 24689.54 2434580 48692 x24 11686 Balance Demand Interest Total 201(1) 48692 201(1 A) 63026 111718 6. These documents were verified by the Inspector of the O/s Income Tax Office (TDS)-1, Jalandhar alongwith me and the findings are as under:- A.Y. 2012-13 Except for in respect of 3 rice shellers i.e. Phantom Rice Mills, Angad Agro Foods and Ranjan Rice Mills complete details are on records as filed.....
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....nation as to whether the assessee is required to make TDS u/s 194C at all; that if the issue is decided and it goes in favour of the assessee, for which, the assessee is sanguine, it shall put the controversy to rest and that no further addition on this score would be invited. 7. On the other hand, the ld. DR has contended that the grievance sought to be raised by the assessee is totally misconceived in as much as relief has already been granted to the assessee by the ld. CIT(A) in all the three years concerned, after passing an elaborate speaking order, which has not at all been disputed by the assessee. Therefore, the instant appeals have unnecessarily been filed. 8. We have heard the rival contentions and have gone through the material available on record. A perusal of the ld. CIT(A)'s order shows that in para-4 of his order, the ld. CIT(A) has ensconced on deciding the alternate argument, i.e., that the deductees having paid due tax on their income, in view of 'Hindustan Coca Cola Beverages (P) Ltd.', 293 ITR 226 (SC), the assessee cannot be treated as an assessee in default. 9. Now, obviously, this alternate issue is ordinally secondary to the main larger issue raised....
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....ch remained after shelling of paddy for rice. The so called bye products are wastages for the assessee, since the assessee, being a food grain procurement and storage company, procures and stores the food grains which are fit for human consumption. The bye products are not fit for human consumption. Further, these so called bye products are the losses on account of paddy, which are incidental to the activity of shelling process and in every manufacturing process, such wastage is inevitable. Therefore, no question of deduction of tax at source arises. The bye products are left with the millers, because the assessee does not want to be burdened with the liability of transporting such broken rice to its godown and taking up the responsibility either of disposing of it or of selling it. The TDS is to be deducted u/s 194C of the Act, when the amount is paid or credited either through cash or cheque or otherwise. The monetary/transaction value of the wastage was never calculated, credited or paid. The residual product of paddy after shelling remains with the miller, as per the policy of the GOI. As such, the assessee has no lien on such residual. Therefore, its monetary value is zero for....
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....s. Therefore, to suggest that the value of the bye products is compensation for milling charges, is highly exaggerated. Therefore, to conclude that the entire residual is for the purpose of milling is not fair and correct, and that the assessee being a State Govt. undertaking, the question of any evasion or adoption of any illegal means to provide undue benefit to any person does not arise. 12. It has also been contended that the ld. CIT(A), vide order dated 25.01.2016, in identical facts and circumstances, allowed the appeal of the assessee and held that the assessee is under no liability to deduct TDS in respect of bye products. 13. Reliance has been placed on the decision of the ITAT, Delhi Bench, in the case of 'ITO vs. Ahaar Consumer Products (P.) Ltd', inITA No.2310/Del/2010. 14. Having considered the rival contentions on the merits of the legal issue raised by the assessee, we find that the facts, as convassed, are not in dispute, the ld. In the case of Punjab State Grain Procurement Corporation Limited, vide order dated 25.01.2016, on exactly similar facts and circumstances, as deciding the legal issue raised herein, held TDS not liable to be deducted, in a similar....
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....urer purchases material on his own and manufactures a product as per the requirement of a specific customer, it was a case of sale and not a contract for carrying out any work. The fact that the goods manufactured were according to the requirement of the customer did not mean or imply that any work was carried out on behalf of that customer. In case of any issue where the contract is a contract of sale and not a contract for carrying out any work, the matter should be decided in the light of the principles laid down by the Hon'ble Supreme Court in State of Tamil Nadu v. Sh Thirumagal Mills Ltd. AIR 1972 SC 1148. The Bombay High Court has also analyzed the difference between the sale and works contract in the case of BDA Ltd. v. ITO (TDS) [2006] 281 ITR 99 1. The assessee in that case had a distillery at Aurangabad and purchased materials required for bottling and marketing foreign made Indian liquor, including the printing and packing material. 'M', another establishment supplied the printed labels to be wrapped on the bottles to the assessee. The ITO (TDS) did not accept the contentions of the assessee that the transaction with 'IVI' was a contract for sale and not a works contrac....
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....o obligation to deduct the tax at source in terms of a contract where it does not require any payment of any sum even if the sum here means that the payment could be of some kind but it is difficult to say that the assessee has made these payments to the extent of shortfall in getting the wheat supplied back and construe it as the payment to the other for processing the wheat into Atta or Daliya. The department must have appreciated the contract as a whole which does not involve any payment or getting the payment for services rendered. It Is a case of barter or exchange or one good against the other. It Is a type of sale contract In a very crude form but it is certainly not a works contract as understood by the courts in cases under the sales tax which was discussed by the Hon'ble Supreme Court in the case cited in Sir Thirumagal Mills Ltd. (supra) or in the case dealt with by the Bombay High Court in the case of BDA Ltd. (supra ). The assessee having regard to the contract which it has entered on 2-2-2005, in our opinion, does not give rise to any obligation for it to deduct tax at source as in our opinion it is not simply a works contract executed for consideration in the form of....
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....owance by invoking the provisions of section 40(a)(ia ) of the Act. "14. We must also view the whole transaction under the agreement from a different angle. The assessee gives the wheat and accepts Atta and Dalia in return by weight to weight basis and what he got in return are the value added products of lower quantity. The assessee by this method has prevented itself from factors like fall in the prices of either raw material or of the finished products. The market value of the wheat and the end products are totally different and fluctuate in different directions. All these fluctuations are warded off by the present agreement, which is just exchange of goods for goods and does not involve any cash outflow. Although services were taken, it is difficult to say that the residuals and the losses left by the assessee in favour of AIL are purely consideration for the job that is done The market fluctuations in the price structure of the raw material and the end product cannot be just ignored in the whole transaction nor the process loss. The process loss could be either more or less than the percentage agreed to between the parties. But still the parties settle the transaction....