TaxTMI 
TaxTMI 
2016 (7) TMI 1483
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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 the millers, the bye products, if any, arising from the process shall be retained ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 to the miller. In case, these are taken by the agency, it will be have to pay higher amount in cash as milling charges. II. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 April following the financial year to the date of order i.e. March, 2014. The short deduction of tax interest -thereon is calculated as under by applying the af....
X X X X Extracts X X X X
X X X X Extracts X X X X
....19820 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. A.Y. 2013 - 14 Except for in respect of M/s Angad Agro Foods complete details are on records, as filed. A.Y. 2014-15 Complete details are on records. 7. I find that the ratio of the decision of Honourable Supreme Court in case of M/s Hindustan Coca Cola Beverages(P) Ltd. 293 ITR 226, the deductor is not to be treated as assessee in default in respect of taxes paid though paid by the deductees, is squarely applicable to the facts of this case and respectfully following the same it is held as under: (i) A.Y. 2012-13 Except for the tax deductib....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 by the assessee, i.e., whether at the outset, the TDS was required to be made by the assessee under the provisions of section 194C of the Act. If this jurisdictional issue is decided, the addition made in pursuance of the alleged applicability of the provisions of section 194C of the Act will stand checked at the threshhold. Therefore, we deem it appropriate to consider and decide this issue. 10. In this regard, it is seen that the assessee filed an appeal before the ld. CIT(A) against the order of the AO on these accounts: i) Whether the assessee can be deemed to be assessee in default under the provisions o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dened 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 the assessee. So, the question of deduction of tax on the source doesn't arise. When the terms between the parties are under the agreement, the terms are sacrosanct between them and they can neither be varied nor altered nor explained otherwise by adducing oral evidence. There is nothing in the agreement to suggest that the milling charges are paid at the discounted rate and the bye products are left with the millers for any hidden consideration or against any cut/alleged discount in the milling charges. There is nothing in the agreement to show that the bye products are left with the millers as a consideration of the milling charges. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 situation. The relevant portion of the said order, reads as follows: "8. I have carefully gone through the order of my ld. Colleague (CIT(A), Patiala and also the order of the Hon'ble ITAT, Delhi, as referred above. The only difference between the contracts as discussed in the decision of the Hon'ble ITAT, Delhi and the assessee government agency and the rice millers is that apart from the bye products left with millers, the millers are paid Rs. 15/- per qtl. On which TDS is duly deducted and there is no dispute as to the facts. Rest of the facts are identical. The Hon'ble ITAT has discussed in great details every aspect of the transaction,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ference 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 contract. When the printing work was being carried out in the premises of 'M', though as per the specifications of the assessee, the supply was limited to the quantity specified in the purchase order. There was 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 'IVI'. In the facts of this case, the supply of printed labels by 'M' to the assessee was "contract of sale" and it could not be termed a "works contract". Hence the provisions of section 194C were held to be not applicable. 13. The High Court while deciding this case has reviewed a number of cases and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inly 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 some payment for which deduction has been claimed under the Act. The assessee has nowhere claimed the payment as deduction. Only purchase once of wheat is what it had paid on which no deduction of tax is required and that got lost in exchange for obtaining a finished product in the form of Atta or Dalia, not involving the medium of payment. It is a contract of business which does not involve any payment of consideration for the services rendered. We must examine the issue from another angle. Had the assessee owned the plant and got the Atta and Dalia manufactured from wheat, it could have claimed a process loss and that could have been impliedly a part of business ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 transactions at an agreed proportion. In other words, the residual that is left by the assessee, apart from covering the labour cost of processing, also includes the protection from market fluctuations as also protection from adverse process loss. To conclude, the entire residual is only for the purpose of job work is not fair and correct having regard to the totality of the transaction entered into by the parties. " The CIT(A) has given the favourable order relying upon the order of the Hon'ble Delhi ITAT in the above noted case. In light of the above, the provisions of Section 194C are not applicable to the case of the appellant and the appellant prays that the question of law ....