TaxTMI 
TaxTMI 
2019 (7) TMI 1086
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....ny with registered office at Guntur engaged in the business of processing of Hybrid BT cotton seeds/chilli/vegetable seeds. The company sells parent seeds to the organizers, who in turn supply the foundation seeds to farmers for cultivating the Hybrid seeds. The organizers collect the Hybrid seeds and sell the same to the company which is traded in the market. The company deals in production and marketing of hybrid sowing seeds like cotton seed, chilli seed and vegetable seeds. The company made technical collaboration with M/s Mahyco Monsanto Bio- tech (India) Ltd., Mumbai for transfer of BT & BG II gene into Tulasi Cotton Hybrids in the year 2003. The company also made collaboration with M/s CIMMYT, Mexico for development of maize hybrids and with ICRISAT for development of Pearls Millets (Bajra) and Sorghum (Jowar). It has tied up with Monsanto for RRF technology. The said foundation seeds are supplied / sold to the organizers for a consideration. The organizers of specific area have to identify the growers and fields and also provide credit facilities to the growers. The organizer has to distribute parent seeds to the growers and also supervise the crop. The cotton crop will be ....
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....nts will be adjusted against the final payment to be made for the seeds produced and supplied by the organizer; (6) the organizer is duty bound to inform the company about the excess area planted by using the supplied foundation/parent seeds; (7) the organizer should collect the seeds which were left over with the seed growers after completion of sowing and must be returned to the company; (8) in case the organizer is unable to account for any foundation seed given to him, damages of Rs. 4,000/- per acre will be collected from him; (9) the organizer shall protect the parent lines as well as hybrid seed of the company from going into the hands of competitors as the seed is proprietary hybrid of the company; (10) the organizer agrees that multiplication of parent lines shall not be done by him or his growers; (11) the organizer should take steps for stopping any unauthorized multiplications by growers; (12) the organizer undertakes the entire seed produced will be supplied to the company and no grower shall be allowed to retain any quantity; (13) the organizer is duty bound to lodge a complaint with Police or any....
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.... at the units designated by the company and under the supervision of the company even though the organizer has its own facility for the same; (26) As per the agreement yield estimate has to be done by the organizer and also by the staff of the company at two times. If any significant deviation is found, a field visit will be conducted by the company jointly with the organizer; (27) the actual supply of the seed should tally with the yield estimates made by the company's staff, failing which penalty as per the directions of the company shall be levied on the organizer beside initiating any other legal action at the instance of the company; (28) the organizer will collect all raw materials from the seed growers at his own cost and bring the same to the designated ginning and delinting plant; (29) the organizer will get a commission only on fulfilling his responsibility properly as listed in the agreement, in case \ the organizer found lacking in performing his duties, the company at its discretion can reduce or totally deny the payment of any commission and the company's decision in this regard is final; (30) the organizer agrees a....
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.... COTTON SEED BUSINESS' at page 3 which is reproduced as under: "Hybrid Cotton Seed Business" shall mean the activities which may be carried out by sub-licensee, including without limitation, hybrid testing, breeding, product selection, production oversight, production including contract production through farmers, storing, delinting, conditioning, quality control, warehousing and marketing of Hybrid Cotton Planting Seed." The article 2 of the sub-license allows the assessee-company (sub-licensee) use of third party services and the relevant portion is reproduced hereunder: "USE OF THIRD PARTY SERVICES: The sub-license granted to sub-licensee shall include the right to utilize the services of third parties to act on behalf of sublicensee in conducting those activities associated With the Hybrid Cotton Planting Seed Business which are directed towards the production of Genetically Modified Hybrid Cotton Planting Seed for subsequent sale by Sublicensee to farmers in the territory. By way of example, sub-licensee may engage a third party to act on its behalf to multiply Genetically Modified Hybrid Cotton Planting Seed (for subsequent sale by sub-licensee ....
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....he sub-license agreement, the assessee was allowed to utilize the third party services for production of genetically modified hybrid cotton planting seed. The third party services include all activities reasonably necessary for production, ginning, delinting of genetically modified hybrid cotton. Therefore, the AO observed that the activity given by the assessee company to the organizers was in the nature of work contract / job which is covered u/s 194C of the Act, attracting disallowance u/s 40(a)(ia) of the Act. Therefore, the AO called for an explanation from the assessee as to why the above job work should not be treated as works contract and the disallowance should not be made u/s 40(a)(ia) of the Act for failure to deduct the tax at source. 2.5. In response to the notice issued by the AO, the assessee filed explanation stating that the assessee has not given any job work to the organizers and it was only the activity of purchase and sale transaction from the farmers and the organizers are only facilitators. The assessee contended that the assessee has supplied the seeds to the farmers through organizers who in turn have grown the seeds which were procured by the assessee c....
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.... cotton seed covered by cotton lint. These seeds will have the qualities of germination and we will have to make further process to sell them as our selling product in the market. Therefore this entire process is nothing but production / cultivation to get a new product but it is not all a modification or further process of our parent seed to be called job work/hire work. The parent seeds we give will have lot of technically advanced, scientific qualities and these seeds are extraordinary and to be taken abundant precaution. Since this parent seeds are ultimately distributed by the organizers to hundreds of farmers. It is not possible to control these hundreds of farmers against misuse of the valuable parent seeds. Therefore we have selected these organizers and these are none other than heads of a group of farmers. 1. This head of the group of the farmer (organizer) purchase foundation seed from our company. 2. Sells the product to growers from his group of farmers after the crop we purchase the yield seed from growers. Even though these purchases are recorded in the account of the organizer we indicate the name of the farmer from whom the seeds were purchased al....
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....o not give advance the farmers may come and say several reasons and may avoid giving the product to us. Therefore we give advances at different stages through organizers so that the commitments and bondage of the farmer and the organizer will become stronger and supply goods only to us. The agreement with the organizer is also to indicate the seriousness of our foundation seed, quality and its importance and our final business of selling lakhs of seed packets depends on getting the qualitative seeds being produced by this group of farmers. Therefore, sometimes we often liberal with these people in the business expediency. Even though it appears that the seed organizer is acting like our agent in supplying seeds to the farmers, in distributing of the amount to the farmers in collection of produce from the farmers etc., In the real sense this organizer is nothing but head of the group of the farmers. As explained to avoid dealing with hundreds of farmers which community is pampered one with lot of sensitive issues. Most of the farmers are very good people but they are under influence of local group heads and politicians. Even for the smallest mistakes group of farme....
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....nizer only after identification of the growers by the organizer that means it is a controlled sale. Point No.6 Clearly indicates that the company agrees to pay the procurement price/ purchase price per packet at Rs. 280/- The quantity is totally uncertain, contingent and dependent on several factors including climatic conditions to get the yield to the grower to supply the final product to our company. Point No.8 deals with the company is purchasing only cotton seed and lint used to be returned to the farmer. To separate the cotton seed from the kapas, ginning and delinting has to be made. we are asking the grower and the organizer to do it under our supervision to avoid the misuse. Since we are paying Rs. 280/- per 750 Grms of daunted seed the other expenditure of ginning and delinting has to be borne by them only. Point No.11 deals with several tests to be undertaken by company before purchase of the goods from the organizers and growers. Point No.15 clearly says the ultimate responsibility for the growers payment will be with the organizers only and shall be fully responsible for distribution of payment to the growers. The company shall not en....
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..... Narmada Cement Co. Ltd. reported in 81 TTJ 955 (2003), taken various examples and held that the assessee made the composite payments for the contractors identifying the farmers, the land and raising the cotton seeds inclusive of commission and accordingly held that the assessee company has entered into contract and held that even in composite payments TDS need to be deducted on the entire amount. The AO relied on the decision of Hon'ble Supreme Court in the case of GE (India) Technology Centre (P) Ltd. Vs. CIT & Anr reported in 193 Taxman 234. From the agreement, the AO found that the organizer acting on behalf of the assessee company for production of modified hybrid cotton seed. The procurement price as per the agreement is meant for the services rendered in organizing the farmers, fields, facilitating, ginning, delinting and growing of seeds and it is not an activity of purchase by the company and sale by the organizer. The AO further observed that it is the organizer who has to arrange for ginning, delinting and grading of seeds but not the farmer and from the agreement, there is no purchase and sale transaction and it is only supply. Therefore, the AO has given a finding tha....
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.... & Transports Vs. Addl.CIT[2012] 136 ITD 23/20 taxmann.com 244 (Vishakhapatnam) dated 09.04.2012 and the assessee filed cross appeal for the additions confirmed by the Ld.CIT(A). Hon'ble Supreme Court in the case of Palam Gas Services vide Civil Appeal no. 5512 of 2017 has reversed the decision of Merilyn Shipping & Transports (supra) and held that TDS required to be deducted on the amounts paid also. Therefore, during the appeal hearing, the Ld.DR argued that the decision of Special Bench in the case of Merilyn Shipping & Transports is no more valid in view of the Hon'ble Supreme Court judgement in the case of Palam Gas Services and argued that even if the entire amount is paid without deducting TDS and not remitted to Government account, the provision of section 40(a)(ia) attracts. Therefore, argued that the CIT(A) wrongly deleted the addition made by the AO on the payments already made which were not outstanding. The Ld.DR further submitted that since, the Ld.CIT(A) has held that nature of payment is contract payment he requested to confirm the entire addition. The Ld.DR relied on the orders of the AO as well as the Ld.CIT(A) and argued that the payment made by the assessee to t....
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....see procures hybrid seeds and the other activities are only incidental to main activity for purchase of hybrid seeds. The farmer produces cotton crop in the field by planting the female seed and by cultivating the land. The kapas part and damaged seed are left to the farmers and only the hybrid seed passing the quality test are supplied to the assessee through the organizers. Thus, it is not a contract production as the assessee is not interested in the entire business. It is only a contract for procurement of hybrid seed which is by itself the tradable commodity. The assessee maintains books of accounts of the organizers and its accounts are debited for the cost of female seeds supplied to the organizer and advances given to organizers against the supply of hybrid seeds. This account is credited for value of hybrid seeds procured from the organizers. There is no separate consideration whatsoever for the incidental activities monitored by the organizer. In the event of any failure of the cotton crop, the expenses incurred by the farmers have to be borne by them and the assessee is not obliged to compensate the loss either to the organizer or to the farmer. The Ld.AR argued that it ....
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.... the assessee separates the seeds into male and female seeds. The female seeds are given to seed organizers who in turn got them cultivated in the vast area of land in different areas. After yielding the cotton crop, the kapas is separated and the hybrid seeds are supplied to the assessee. After quality testing, these hybrid seeds are made into 750 grams per each packet and sold to farmers in the open market under the brand name. These hybrid seeds are useful for further multiplication and useful only for cotton production. The planting of female seeds, cultivation and production of cotton crop, separation of hybrid seed and kapas, all these activities have to be carried out in accordance with the statutory norms and regulations of the State Government and further utmost secrecy is to be maintained. Since, it is practically difficult for the assessee to deal with large number of farmers involved in the process, the assessee entered into an agreement with some persons who are called the organizers. The organizers in turn enter into agreement with the farmers for cultivation and production of hybrid seeds directly in accordance with the norms stipulated by the assessee company. The o....
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.... purchase price is inclusive of commission, no separate payment is paid to the organizer. The organizer is not making any regular supply of hybrid seeds to the assessee company to hold it is a supply contract. The organizer also is not undertaking any job contract and he is purchasing the seeds and selling the hybrid seed to the assessee company and. To encourage the production to prevent the farmers to go to the other suppliers of seed growers, the assessee company is advancing the amounts to farmers to make them loyal to the assessee company. Though the activities of the organizers appears like an agent, the AO has not given any finding for payment of any commission for the services. He is acting like an agent of the company or facilitator of the company, for identifying the farmer, distributing the parent seeds and growing the hybrid seeds and arranging the delinting of cotton kapas from the crop grown by the farmers and supplying the entire separated cotton seeds to the assessee company. The assessee company is ultimately making the payment only for the hybrid cotton seed, purchasing the same at Rs. 280/- per packet of 750 gms. No other payment is made to the organizers. Theref....
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....ispute between the assessee and the department is with regard to nature of transaction of the company whether it is contract or the purchase. If the nature of transaction is contract, as a natural corollary the department has to take action for non deduction of tax at source against the company. Therefore the bench has asked clarifications from the department with regard to action taken by the department for non deduction of tax at source against the assessee u/s 201/201(1A) of the Act. The department did not place any material to show that the action was initiated against the assessee for non deduction of tax at source as per the provisions of section 201/201(1A) of the Act. The Ld.AR informed the bench that the department has not taken any action u/s 201/201(1A) to treat the assessee as assessee in default. In case, the department feels that the transaction in question is contract and the assessee failed to deduct tax at source, the department also required to take action against the assessee for its failure to deduct tax at source u/s 194C and treat the assessee as assessee in default for non deduction of tax at source and raise the demand u/s 201/201(1A) of the Act. Having not ....
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....he entire payment made to the organizer / farmer. From the foregoing discussion, it is established that the department neither quantified the commission nor proved that the company has paid the commission. The department has neither taken any action u/s 201/201(1A) against the assessee nor for assessment of income in the hands of the organization. Therefore, we hold that there is no case for deduction of tax at source u/s 194C and the disallowance u/s 40(a)(ia) of the Act, accordingly, we set aside the orders of the lower authorities and delete the addition made by the AO. 7. The appeals of the revenue on this ground are dismissed and the appeal of the assessee is allowed. I.T.A. No.139/Viz/2015, A.Y.2011-12 8. Ground No.1 is related to the addition of Rs. 29,30,860/- relating to purchase of seeds from the growers made u/s 40(A)(3)of the Act. During the assessment proceedings, the AO found that the assessee has made the payments of Rs. 29,30,860/- to organizers exceeding Rs. 20,000/- on each occasion in cash as per the details given below : Sl.No. Name of the organizer Dt. of Payment Amt. (Rs.) 1. K.Penchalaiah, Gadwai 31.03.2011 12,317 19,000 ....
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.... transaction. Having held the it was purchase transaction there is no case for making payment separately for delinting, processing, platform, hand-grading and hamali, blower, ginning etc.. by the company. It was argued by the Ld.AR for non deduction of TDS that it was the obligation of the farmer/organizer to separate cotton and kappas and sell the hybrid seed to the company. Therefore there is no reason to make such payments by the assessee and the assessee did not make out a case that the payment is exempt from the provisions of section 40A(3) of the Act. Hence, we do not see any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. 11. Ground No.2 is related to the confirmation of additions of Rs. 4,11,04,993/- which is related to the amount payable as at the end of 31.03.2011. The Ld.CIT(A) allowed the deduction relying on Special Bench decision of Merylin Shipping & Transports, since we have deleted the entire addition, Ground No.2 becomes in fructuous and dismissed. 12. Ground No.3 is related to the addition of Rs. 51,40,800/- enhancement made by the Ld.CIT(A). During the appeal hearing, the Ld.AR submitted that the Ld.CIT(A) enhanced the addition ....
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....to the addition of Rs. 13,94,646/- relating to EPF contribution beyond due date as required under Provident Fund Act. The AO disallowed the sum u/s/36(va) of the Act. 17. On appeal, the Ld.CIT(A) confirmed the addition since the assessee failed to furnish the details and dismissed the appeal of the assessee. 18. Against the order of the Ld.CIT(A) the assessee filed appeal before this Tribunal. 19. We have heard both the parties and perused the material placed on record. The issue is related to the payment of PF belatedly. The assessee submitted that the payment was made before the due date for filing the return and the department did not controvert the submissions made by the assessee. The expenditure is allowable u/s 36(1)(va) of the Act r.w.s.43B of the Act. This Tribunal has taken the decision on identical facts in favour of the assessee in the case of M/s Eastern Power Distribution Company of AP Ltd. vide I.T.A. No.374/Viz/2017 dated 20.09.2017. Relevant part of the order cited is extracted as under : "4. We have heard the rival submissions and perused the material placed on record. The identical issue has come up before this Tribunal for adjudication for the ....