TaxTMI 
TaxTMI 
2016 (7) TMI 1482
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.... on account of non/short deduction of tax u/s 201(1)/201(1A) ignoring the fact that the assessee deductor applied provisions of section 194C on the cash part of the payments but not on the payments which were made in kind and thus not deducted TDS on whole payment." 2. The brief facts of the cases are that the PR, Distt. Manager, PUNGRAIN is a State Govt. Agency which procures food-grains (Wheat ant Paddy0 from the market in every crop season on the behalf of Food Corporation of India, Govt. of India. The milling of this paddy is being done by various millers with whom contracts are executed. The millers have to supply the 67/68 Kgs. Rice for every one quintal of paddy delivered to them by the PUNGRAIN and the residuals are left with the millers. The PUNGRAIN pays milling charges of Rs. 15/- per qtl. Of paddy supplied for milling. The agency deducts u/s 194C on the milling charges paid to the millers. However, the AO while passing orders u/s 201(1)/201(1A) of the Income Tax Act, 1961, treated the assessee as assessee in default. 3. The Assessing Officer treated the assessee in default for non- deduction of tax at source under section 194C of the Income Tax Act, 1961, observin....
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....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. In fact, this policy of millers retaining the by products and the agencies paying a fraction of milling charges in cash suits the agencies as it will be cumbersome if they take the by products back which are their property being a part of the paddy owned by them. So, in order to facilitate themselves, the Government has made a policy in regard to milling as dis....
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....ancial 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 aforesaid values of by products per quintal: F.Y.2011-12 F.Y.2012-13 F.Y.2013-14 1. Total paddy got milled from millers 818570qtl 715156qtl. 776772qtl. 2 Value of by products 6,71,22,740 6,15,03,416 6,68,02,392/- 3 TD....
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....e of 'M/s. The Punjab State Co-operative Supply and Marketing Federation Ltd., Nawanshahar vs. ITO, TDS-1, Jalandhar', in ITA Nos. 54 to 56(Asr)/2016, for the assessment years 2012-13 to 2014-15, in favour of the assessee and against the Revenue by holding as under: "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 dispu....
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....wn 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 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". H....
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....yment 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 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 assesse....
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....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 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....