The Income Tax Officer (TDS), Jalandhar V. District Manager, Hoshiarpur

ITA 215/ASR/2016

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0579 (ITAT-AMRITSAR)
• Duration Of Justice: 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 30-06-2016
• Assessment Year: 2013-2014
• Appeal Filed On: 13-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAWAN BHALLA
• Assessee Lawyers: BHAWANI SHANKER
• Keywords: Question of law
• Section: 194C; 201(1); 32; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. (CAMP AT JALANDHAR) BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER ITA NOS.214 TO 216(ASR)/2016 ASSESSMENT YEARS:2012-13 TO 2014-15 PAN: JLDDO2337G INCOME TAX OFFICER (TDS) VS. DISTRICT MANAGER, JALANDHAR. PUNJAB STATE GRAIN PROCUREMENT CORPN. LTD. HOSHIARPUR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH.PAWAN BHALLA, ADV. RESPONDENT BY: SH. BHAWANI SHANKER, DR DATE OF HEARING: 23/06/2016 DATE OF PRONOUNCEMENT: 01/07/2016 ORDER PER A.D. JAIN, JM; THESE THREE APPEALS FILED BY THE REVENUE ARE DIREC TED AGAINST THE COMBINE ORDER OF LD. CIT(A)-1, JALANDHAR, DATED 25. 01.2016, FOR THE ASSESSMENT YEARS 2012-13, 2013-14 & 2014-15, RESPECTIVELY. 2. THE GROUNDS RAISED BY THE REVENUE ARE COMMON IN ALL THE APPEALS EXCEPT VARIATION IN AMOUNTS. HOWEVER, GROUND TAKEN IN ITA NO. 214(ASR)/2016 ARE REPRODUCED AS UNDER: 1. WHETHER, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), JALANDHAR IS RIGHT IN HOLDING THAT PROVISIONS OF SE CTION 194C ARE 2 ITA NOS.216 TO 216/ASR/2016 AYS: 2012- 13 TO 2014-15 NOT APPLICABLE ON THE COST OF BYE-PRODUCTS RETAINED BY THE MILLERS FREE OF COST. 2. WHETHER THE LD. CIT(A), JALANDHAR IS JUSTIFIED I N DELETING THE DEMAND OF RS.16,64,642/- CREATED ON ACCOUNT OF NON/ SHORT DEDUCTION OF TAX U/S 201(1)/201(1A) IGNORING THE FA CT THAT THE ASSESSEE DEDUCTOR APPLIED PROVISIONS OF SECTION 194 C 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, DI STT. 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 B Y 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, 19 61, TREATED THE ASSESSEE AS ASSESSEE IN DEFAULT. 3. THE ASSESSING OFFICER TREATED THE ASSESSEE IN DE FAULT FOR NON- DEDUCTION OF TAX AT SOURCE UNDER SECTION 194C OF THE INCOME TAX ACT, 1961, OBSERVING AS FOLLOWS: 3. IN VIEW OF THE AFORESAID FACTS THE ASSESSEE WAS REQ UIRED TO SHOW CAUSE VIDE THIS OFFICE LETTER DATED 03.02.2014 WHY IT SHOULD NOT BE TREATED AS AN ASSESSEE IN DEFAULT AS IT WAS DEDUCTING TAX AT SOURCE PARTIALLY AND THUS, NOT COMPLYING WITH THE P ROVISIONS OF 3 ITA NOS.216 TO 216/ASR/2016 AYS: 2012- 13 TO 2014-15 SECTION 194C OF INCOME TAX ACT. THE SHOW CAUSE NOTI CE IS EXTRACTED AS UNDER:- YOUR AGENCY AWARDS CONTRACTS FOR MILLING OF PADDY TO VARIOUS MILLERS EVERY YEAR. AS PER INFORMATION AVAILABLE, F OR EVERY QUINTAL OF PADDY SUPPLIED TO THE MILLER, THE AGENCIES PROCURE 67/68 KG RICE. MILLING CHARGES OF RS. 15/- PER QUINTAL ARE PAID IN CASH. SUCH MODEST AND UNAFFORDABLE RATE OF MILLING IS ACCEPTABLE TO T HE MILLERS AS THE AGENCIES, APART FROM THE AFORESAID MILLING CHARGES, ALSO PROVIDE IN THE CONTRACT THAT THE BY PRODUCTS OF PADDY I.E. RIC E BRAN, KHUDI PHAK AND HUSK ETC. SHALL BE THE PROPERTY OF THE MILLER A ND NOT THE AGENCY. THESE BY PRODUCTS ARE THUS, ACCOUNTED FOR AS THE ST OCK OF THE MILLERS. THE VALUE OF THE BYPRODUCTS IS DETERMINATE AS EACH OF THEM HAS ITS SPECIFIC USAGE IN DIFFERENT INDUSTRIES. FOR PRACTIC AL PURPOSES, THE MILLING CHARGES ARE PAID IN TWO PARTS VIZ. RS. 15/- PER QUINTAL IN CASH AND VALUE OF THE BY PRODUCTS. THUS, FOR ALL IN TENTS AND PURPOSES, DEDUCTION IS BEING MADE ON CASH PART OF T HE MILLING EXPENSE I.E. RS. 15/- PER QUINTAL AND NOT ON THE TO TAL AMOUNT (IN CASH AND KIND). THUS, PARTIAL DEDUCTION OF TAX AT S OURCE IS BEING MADE UNDER SECTION 194C OF THE INCOME TAX ACT, 1961 . 4. IN REPLY, IT IS STATED BY THE ASSESSEE THAT THE RICE MILLERS ARE PAID MILLING CHARGES FOR CUSTOM MILLING OF PADDY AS FIXED BY THE GOVT. AND THAT ALL THE BY PRODUCTS SHALL BE PROPERT Y OF THE RICE MILLER. IT IS FURTHER STATED THAT IT WILL NOT BE APPROPRIAT E ON THE PART OF THE ASSESSEE OF GOVT, SINCE THE SAME IS THE PROPERTY OF THE MILLERS AS PER POLICY. IT IS ALSO STATED THAT NO TRANSACTIONS/ENTR IES OF BY PRODUCTS ARE AFFECTED IN THE BOOKS OF ACCOUNTS IN T HEIR OFFICE. 5. IN THE AFORESAID EXPLANATION, THE ASSESSEE HAS A DMITTED 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 GOVER NMENT. OBVIOUSLY, SUCH A POLICY HAS BEEN FRAMED IN ORDER TO COMPENSAT E THE MILLER IN KIND AS THE MILLING CHARGES OF RS. 15/- ARE TOO SMA LL FOR THE OPERATIONAL COST OF MILLING WHICH INCLUDES TRANSPOR TATION, 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 FOLLOW ING REASONS: 1. THE MILLING CHARES PAID IN CASH @ RS. 15/- PER QUINTAL ARE THE DISCOUNTED COST OF MILLING AND THIS PETTY R ATE OF MILLING (IN CASH) IS BEING ACCEPTED BY MILLERS YEAR AFTER YEAR AS THEY ARE BEING COMPENSATED WITH BY PRODUCTS 4 ITA NOS.216 TO 216/ASR/2016 AYS: 2012- 13 TO 2014-15 WHOSE VALUE IS MANY TIMES OF THIS CASH MILLING. IN ACTUALITY, THE COST OF THE MILLING PER QUINTAL IS M UCH HIGHER THAN RS. 15/- AND THE SAME IS SUPPLEMENTED B Y THE COST OF BY PRODUCTS WHICH GET TRANSFERRED TO TH E MILLER. IN CASE, THESE ARE TAKEN BY THE AGENCY, IT WILL BE HAVE TO PAY HIGHER AMOUNT IN CASH AS MILLING CHARGE S. II. IN FACT, THIS POLICY OF MILLERS RETAINING THE B Y PRODUCTS AND THE AGENCIES PAYING A FRACTION OF MILLING CHARG ES 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 THE MSELVES, THE GOVERNMENT HAS MADE A POLICY IN REGARD TO MILLI NG AS DISCUSSED ABOVE. ON THE OTHER HAND, THIS SYSTEM SUI TS THE MILLER AS WELL AS THE BY PRODUCTS ARE SOLD BY THEM AS THEIR STOCK. III. IT DOES NOT MATTER IF THE MILLING CHARGES BEIN G PAID IN CASH ARE ONLY RS.15/- WHEN THE MILLERS ARE COMPENSA TED BY TRANSFERRING THE BY - PRODUCTS I.E. PAYING IN KIND. THUS, THE MILLING CHARGES BEING PAID IN CASH ARE DISCOUNTED C OST OF MILLING AND NEED TO BE INCREASED BY THE COST OF BY PRODUCTS FOR THE PURPOSE OF TDS. THE AGENCIES THUS, DO NOT MEREL Y PAY THE CASH CHARGES TO THE MILLER BUT A PAN OF THEIR PROPE RTY IN THE SHAPE OF BY PRODUCTS WHICH IS NOTHING BUT PAYMENT O F MILLING CHARGES IN KIND. IV THE RELEVANT TDS PROVISIONS AS REPRODUCE ABOVE, ARE VERY CLEAR ON THE ISSUE AS THEY PROVIDE FOR TDS ON NOT ONLY THE CREDIT OF A CONTRACTORS ACCOUNT WITH SOME AMOUNT O R IN RESPECT OF PAYMENT BY WAY CASH/CHEQUE/DRAFT BUT ALSO OUT OF PAYMENT IN KIND (BY ANY OTHER MODE) IRRESPECTIVE OF WHETHER THE SAME IS CREDITED IN THE MILLER'S ACCOUNT OR IN FAT T, THE BY PRODUCTS (THEIR VALUE) ARC PASSED ON TO THE MILLER AT THE TUNE WHEN PADDY IS GIVEN FOR MILLING AS IN TURN, ONLY 67 /68KG. OF RICE ARE TAKEN BACK PER EVERY QUINTAL OF PADDY. THU S, THE LAW TAKES CARE OF THE PAYMENT IN KIND ALSO AND FOR ALL INTENTS AND PURPOSES, THE BY PRODUCTS DO COMPENSATE FOR THE LOW COST OF MILLING AND THE GOVERNMENT HAS FAMED A POLICY IN TI NS REGARD FAR THEIR CONVENIENCE. 7. IN VIEW OF THE AFORESAID DISCUSSION, THE EXPLANA TION GIVEN BY THE ASSESSEE IS NOT ACCEPTED. J HOLD THE ASSESSEE IN DE FAULT FOR NOT DEDUCTING, TAX AT SOURCE ON FULL VALVE OF THE MILLING CHARGES I.E. PA ID IN CASH AND PASSED ON IN KIND. TAX IS BEING DEDUCTED AT SOURCE ON 5 ITA NOS.216 TO 216/ASR/2016 AYS: 2012- 13 TO 2014-15 THE MILLING CHARGES PAID IN CASH WHILE NO DEDUCTION IS BEING MADE IN RESPECT OF THE PRODUCTS WHICH ARE TOKEN US STUCK OF THE ADDER AND SOLD AT HIS CONVENIENCE. 8. AS REGARDS BY PRODUCTS, THE MAIN BY PRODUCTS OF PADDY ARE 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 BETWEE N GIVEN BY THESE PARTIES IS ADOPTED FOR WORKING OUT THE SHORT DEDUCT ION. THE AVERAGE VALUE COMES TO RS. 82/- PER QUINTAL DURING FINANCIA L YEAR '2011-12 AND RS. 86/- DURING FINANCIAL YEAR 2012-13. THE LAT TER FIGURE IS ALSO ADOPTED IN FINANCIAL YEAR 2013-14. THE FIGURES OF P ADDY GOT MILLED DURING DIFFERENT YEARS HAVE BEEN PROVIDED BY THE AS SESEE. 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 PROD UCTS IS WORKED OUT BY APPLYING THE AFORESAID FIGURES IN DIFFERENT YEAR S. 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 M ILLER WHEN PADDY IS GIVEN TO HIM FOR MILLING, HOT THIS PAYMENT IS DEEMED TO HAVE BEEN MADE IN MARCH OF THE RELEVANT FINANCIAL Y EAR 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 INTERE ST -THEREON IS CALCULATED AS UNDER BY APPLYING THE AFORESAID VALUE S 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 TDS DEDUCTIBLE @ 2% A 13,42,454 12,30,068 13,36,047/- 4 PERIOD OF DEFAULT 24 MONTHS 12 MONTHS 5 INTEREST @ 1% PER MONTH B 3,22,188 1,47,608 6 ITA NOS.216 TO 216/ASR/2016 AYS: 2012- 13 TO 2014-15 6 TOTAL TAX PLUS INTEREST (A+B) 16,64,642/- 13,77,676/- 13,36,047/- 10. IN VIEW OF THE ABOVE CALCULATION, DEMAND IS CRE ATED AS WIDER: FINANCIAL YEAR TAX DEMAND UNDER SECTION 201(1) INTEREST DEMAND UNDER SECTION 201(1A) TOTAL DEMAND 2011-12 13,42,454/- 3,22,188 16,64,642/- 2012-13 12,30,068/- 1,47,608/- 13,77,676/- 2013 -14 13,36,047- - 13,36,047/- 5. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) ALLOWED THE APPEALS OF THE ASSESSEE HOLDING AS UNDER: 8. I HAVE VERY CAREFULLY GONE THROUGH THE ORDER OF MY LD. COLLEAGUE (CIT(A), PATIALA AND ALSO THE ORDER OF THE HONBLE ITAT, DELHI, AS REFERRED ABOVE. THE ONLY DIFFERENCE BETWEEN THE CONTRACTS AS DISCUSSED IN THE DECISION OF THE ITAT, DELHI BENCH AND THE ASSESSEE GOVERNMENT AGENCY AND THE RICE MILLERS IS THAT APART FROM THE BYE PRO DUCTS LEFT WITH THE 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 FA CTS ARE IDENTICAL. THE HONBLE ITAT, HAS DISCUSSED IN GREAT DETAILS EVERY ASPECT OF THE TRANSACTION, LEGAL ISSUES INVOLVED AND HAD EXAMINED THE ISSUE AT HAND FROM VARIOUS ANGLES AND FOUND THAT IN TERMS OF SECT ION 194C OF THE ACT NO TAX WAS DEDUCTIBLE. MOREOVER, THIS IS THE ONLY DECI SION AVAILABLE BEFORE ME AND NO ADVERSE DECISION IS KNOWN AND RESPECTFULLY F OLLOWING THE SAME AS WELL AS THE ORDER OF MY LD.COLLEAGUES (CIT(A), PATI ALA WHO HAS, IN HIS ORDER DATED 29.11.2015 AS REFERRED ABOVE, I HEREBY DIRECT THE AO NOT TO TREAT THE ASSESSEE IN DEFAULT AS FAR AS THE PROVISIONS OF SEC TION 201(1)/201(1A) OF THE I.T ACT ARE CONCERNED. 6. HAVING HEARD THE RIVAL CONTENTIONS IN THE LIGHT OF THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE LD. CIT(A) HAS RIGHTLY DIRECTED THE AO NOT TO TREAT THE ASSESSEE IN DEFAULT AS FAR AS T HE PROVISIONS OF SECTION 7 ITA NOS.216 TO 216/ASR/2016 AYS: 2012- 13 TO 2014-15 201(1)/201(1A) OF THE I.T ACT ARE CONCERNED. THE OR DER OF THE LD. CIT(A) IS REASONED ONE AND DOES NOT REQUIRE ANY INTERFERENCE. 7. AN IDENTICAL ISSUE HAS ALSO BEEN DECIDED BY THIS BENCH BY AN ORDER OF EVEN DATE IN THE CASE 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 2 012-13 TO 2014-15, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY H OLDING AS UNDER: 14. HAVING CONSIDERED THE RIVAL CONTENTIONS ON TH E MERITS OF THE LEGAL ISSUE RAISED BY THE ASSESSEE, WE FIND THAT THE FACT S, AS CONVASSED, ARE NOT IN DISPUTE, THE LD. IN THE CASE OF PUNJAB STATE GR AIN PROCUREMENT CORPORATION LIMITED, VIDE ORDER DATED 25.01.2016, O N EXACTLY SIMILAR FACTS AND CIRCUMSTANCES, AS DECIDING THE LEGAL ISSUE RAIS ED 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 L D. COLLEAGUE (CIT(A), PATIALA AND ALSO THE ORDER OF THE HONBLE ITAT, DELHI, AS REFERRED ABOVE. THE ONLY DIFFERENCE BETWEEN THE CON TRACTS AS DISCUSSED IN THE DECISION OF THE HONBLE ITAT, DELH I 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 HONBLE ITAT HAS DISCUSSED IN GREAT DETAILS EVERY ASPECT OF THE TRAN SACTION, LEGAL ISSUES INVOLVED AND HAD EXAMINED THE ISSUE AT HAND FROM VARIOUS ANGLES AND FOUND THAT IN TERMS OF SECTION 194C OF T HE I.T. ACT NO TAX WAS DEDUCTIBLE. MOREOVER, THIS IS THE ONLY DECISION AVAILABLE BEFORE ME AND NO ADVERSE DECISION IS KNOWN AND RESPECTFULL Y FOLLOWING THE SAME AS WELL AS THE ORDER OF MY LD. COLLEAGUE (CIT( A), PATIALA WHO HAS, IN HIS ORDER DATED 29.11.2015 AS REFERRED ABOV E, I HEREBY DIRECT THE AO NOT TO TREAT THE ASSESSEE IN DEFAULT AS FAR AS THE PROVISIONS OF SECTION 201/201(1A) OF THE I.T. ACT ARE CONCERNED. 15. HENCE, THE SAME LD. CIT(A), IN OUR CONSIDERED, COULD NOT HAVE BEEN TAKEN A DIFFERENT VIEW IN THE CASE OF A SIMILARLY P LACED ASSESSEE. THE RULE 8 ITA NOS.216 TO 216/ASR/2016 AYS: 2012- 13 TO 2014-15 OF CONSISTENCY SQUARELY APPLIES. THE ABOVE APART, I N AHAAR CONSUMER PRODUCTS (P) LTD. (SUPRA), IT HAS BEEN HELD AS FOL LOWS: 12. NOW, WE HAVE TO EXAMINE WHETHER THE ASSESSEE I S OBLIGED TO DEDUCT TAX AT SOURCE ON THE SO-CALLED CONSTRUCTIVE PAYMENT AS CONSTRUED BY THE ASSESSING OFFICER IN TERMS OF THE AGREEMENT. THE ASSESSEE, IN THIS CASE, SUPPLIES 100 KG OF WHEAT AN D TAKES BACK 88 KGS. OF ATTA OR 85 KGS. OF DALIA AFTER ITS PROCESSI NG DONE BY THE AIL AND AM- IS REQUIRED TO DELIVER THE END PRODUCT IN T HIS PROPORTION TO THE ASSESSEE WHO HAS SUPPLIED THE RAW MATERIAL. DOE S THE PROVISION OF SECTION 194C OF THE ACT CREATE AN OBLIGATION ON THE PART OF ASSESSEE TO DEDUCT TAX AT SOURCE IN RESPECT OF ANY OF THE TRANSACTIONS IT HAS ENTERED INTO WITH THE AIL? SECTION 194C OF THE ACT WAS BROUGHT INTO STATUTE BY THE FINANCE ACT, 1972. CIRCULAR NO. 86 DATED MAY 29, 1972 WAS ISSUED INTER ALIA STATING TH AT THE PROVISIONS OF SECTION 194C WOULD APPLY ONLY IN RELATION TO LAB OUR CONTACTS AND WOULD NOT COVER CONTRACTS FOR SALE OF GOODS. IF A M ANUFACTURER PURCHASES MATERIAL ON HIS OWN AND MANUFACTURES A PR ODUCT AS PER THE REQUIREMENT OF A SPECIFIC CUSTOMER, IT WAS A CA SE OF SALE AND NOT A CONTRACT FOR CARRYING OUT ANY WORK. THE FACT THAT THE GOODS MANUFACTURED WERE ACCORDING TO THE REQUIREMENT OF T HE 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 CONTRA CT 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 HONBLE SUPREME COURT IN STATE OF TAMIL NADU V. SH THIRUMAG AL MILLS LTD. AIR 1972 SC 1148. THE BOMBAY HIGH COURT HAS ALSO AN ALYZED THE DIFFERENCE BETWEEN THE SALE AND WORKS CONTRACT IN T HE 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 ESTABLI SHMENT SUPPLIED THE PRINTED LABELS TO BE WRAPPED ON THE BOTTLES TO THE ASSESSEE. THE ITO (TDS) DID NOT ACCEPT THE CONTENTIONS OF THE ASS ESSEE 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 O F 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 SCRE ENS, 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 'CONTR ACT OF SALE' AND IT COULD NOT BE TERMED A 'WORKS CONTRACT'. HENCE THE P ROVISIONS OF SECTION 194C WERE HELD TO BE NOT APPLICABLE. 9 ITA NOS.216 TO 216/ASR/2016 AYS: 2012- 13 TO 2014-15 13. THE HIGH COURT WHILE DECIDING THIS CASE HAS REV IEWED A NUMBER OF CASES AND DECIDED THAT THE SALE OF CONTRACT DOES NOT CONVERT A CONTRACT OF SALE INTO A WORKS CONTRACT ALTHOUGH WE AGREE THAT THESE CASES BY THEMSELVES MAY NOT BE ABLE TO THROW ANY LI GHT ON THE PRESENT CONTRACT ENTERED INTO BY THE ASSESSEE. HENC E, THE ASSESSEE IS SUPPLYING WHEAT AND GETTING BACK ATTA OR DALIA A S THE CASE MAY BE, IN AN AGREED PROPORTION. FOR SUCH EXCHANGE, THE RE IS ABSOLUTELY NO PAYMENT OF ANY CONSIDERATION. EVEN IF ONE WERE T O TREAT IT AS A WORK CONTRACT AND NOT A CONTRACT OF SALE, IT IS DIF FICULT TO SAY THAT THERE IS A PAYMENT AS A CONSIDERATION FOR THE LABOU R OR THE WORK THAT IS RENDERED. THE ASSESSEE IS JUST EXCHANGING THE PR ODUCT; IN THE EXCHANGE HE IS NOT GETTING THE SAME PRODUCT BUT A D IFFERENT PRODUCT AND NOT TO THE SAME EXTENT BUT TO A DIFFERENT EXTEN T. IN OTHER WORDS, IT IS DIFFICULT TO SAY THAT THE ASSESSEE HAS MADE A NY PAYMENT IN UNDERTAKING THIS CONTRACT ON THE BASIS OF THE AGREE MENT THAT IS ACTED UPON BY THE PARTIES. THERE IS NO PAYMENT OF ANY SUM BY THE ASSESSEE TO AIL. EVEN IF ONE WERE TO SAY THAT THERE IS A CONSTRUCTIVE PAYMENT, IT IS DIFFICULT TO QUANTIFY THE SAME AND S AY THAT THE ASSESSEE WAS UNDER AN OBLIGATION TO DEDUCT TAX AT S OURCE AT SUCH CONSTRUED PAYMENTS. THE ASSESSEE HAS NOT EVEN CREDI TED SUCH CONSTRUED CONSIDERATION FOR SUPPLY OF LABOUR IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. IN FACT, IT HAS NOT EVEN CLAIMED A NY EXPENDITURE AS DEDUCTION. TO SAY THAT SUCH EXPENDITURE HAS RESULTE D IN AN OUTFLOW WITHOUT DEDUCTION OF TAX AT SOURCE IS TOO MUCH AND IS NOT BORNE OUT FROM THE TRANSACTION ENTERED INTO BETWEEN THE PARTI ES. THE QUESTION OF DISALLOWANCE BY APPLYING THE PROVISIONS OF SECTI ON 40(A)(IA ), IN OUR OPINION, IS NOT IN ACCORDANCE WITH LAW AS THE A SSESSEE IS UNDER NO 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 TH E EXTENT OF SHORTFALL IN GETTING THE WHEAT SUPPLIED BACK AND CO NSTRUE IT AS THE PAYMENT TO THE OTHER FOR PROCESSING THE WHEAT INTO ATTA OR DALIYA. THE DEPARTMENT MUST HAVE APPRECIATED THE CONTRACT A S A WHOLE WHICH DOES NOT INVOLVE ANY PAYMENT OR GETTING THE P AYMENT FOR SERVICES RENDERED. IT IS A CASE OF BARTER OR EXCHAN GE 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 UNDERST OOD BY THE COURTS IN CASES UNDER THE SALES TAX WHICH WAS DISCUSSED BY THE HONBLE SUPREME COURT IN THE CASE CITED IN SIR THIRUMAGAL M ILLS 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 TH E CONTRACT WHICH IT HAS ENTERED ON 2-2-2005, IN OUR OPINION, DOES NO T 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 10 ITA NOS.216 TO 216/ASR/2016 AYS: 2012- 13 TO 2014-15 SOME PAYMENT FOR WHICH DEDUCTION HAS BEEN CLAIMED U NDER THE ACT. THE ASSESSEE HAS NOWHERE CLAIMED THE PAYMENT AS DED UCTION. ONLY PU R CHASE ONCE OF WHEAT IS WHAT IT HAD PAID ON WHICH NO DEDUCTION OF TAX IS REQUIRED AND THAT GOT LOST IN EXCHANGE FOR O BTAINING A FINISHED PRODUCT IN THE FORM OF ATTA OR DALIA, NOT INVOLVING THE MEDIUM OF PAYMENT. IT IS A CONTRACT OF BUSINESS WHICH DOES NO T INVOLVE ANY PAYMENT OF CONSIDERATION FOR THE SERVICES RENDERED. WE MUST EXAMINE THE ISSUE FROM ANOTHER ANGLE. HAD THE ASSES SEE OWNED THE PLANT AND GOT THE ATTA AND DALIA MANUFACTURED FROM WHEAT, IT COULD HAVE CLAIMED A PROCESS LOSS AND THAT COULD HAVE BEE N IMPLIEDLY A PART OF BUSINESS TRANSACTION AND NO QUESTION OF ANY DISALLOWANCE OF SUCH LOSS COULD POSSIBLY HAVE ARISEN. MERELY BECAUS E THE ASSESSEE HAS GOT IT ROUTED THROUGH ANOTHER CONCERN ON A SORT OF OUTSOURCING BASIS, IT DOES NOT RESULT IN AN OUTFLOW. IT IS JUST AN EXCHANGE AND BARTER OF ONE COMMODITY AGAINST THE OTHER AND THE W HOLE CONTRACT CANNOT BE TERMED AS WORKS CONTRACT IN THE STRICT SE NSE OF THE TERM WHICH IS GENERALLY UNDERSTOOD UNDER THE PROVISIONS OF SECTION 194C. IN OUR OPINION, THE ASSESSING OFFICER WENT WRONG IN PRESUMING THAT THE DIFFERENCE IN THE WHEAT SUPPLY AND THE ATTA OR DALIA GOT IN RETURN REPRESENTS SUM PAID FOR SERVICES RENDERED AND PAYME NTS FOR SUCH SERVICES ARE CLAIMED AS DEDUCTION FROM THE PROFIT A ND GAINS OF BUSINESS UNDER SECTION 32 TO SECTION 38. ONLY WHEN THE CLAIM OF THE ASSESSEE FOR DEDUCTION IS UNDER SECTION 32 TO SECTI ON 38, THE PROVISIONS OF SECTION 40(A)( IA) CAN BE PRESSED INT O SERVICE TO DISALLOW SUCH CLAIMS FOR DEDUCTION. AT THE COST OF REPETITIO N, WE MAY SAY THAT TO INVOKE SAID PROVISION OF SECTION 40(A)(IA ), FIR ST OF ALL, THE CASE SHOULD BE MADE OUT BY THE DEPARTMENT THAT THE ASSES SEE IS CONTEMPLATING DEDUCTION UNDER SECTIONS 32 TO 38 ON WHICH TAX IS DEDUCTIBLE AND THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE. IN OUR OPINION, TAX IS NOT DEDUCTIBLE AND THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION UNDER SECTION 32 TO SECTION 38. THIS LOSS , IF ANY, IS IN THE NET PROFIT IN THE TRADING ACCOUNT WHICH IS A COMPUT ATION UNDER SECTIONS 28 AND 29 AND NOT CLAIMS UNDER SECTIONS 32 TO 38 OF THE INCOME-TAX ACT. EVEN TAKING THIS VIEW OF THE MATTER , IN OUR OPINION, THE ASSESSEE IS ENTITLED TO SUCCEED AND THERE IS NO QUESTION OF DEDUCTION OF TAX AT SOURCE AND CONSEQUENTLY NO QUES TION OF MAKING ANY DISALLOWANCE BY INVOKING THE PROVISIONS OF SECT ION 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 WHEA T 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 QUA NTITY. THE ASSESSEE BY THIS METHOD HAS PREVENTED ITSELF FROM F ACTORS LIKE FALL IN THE PRICES OF EITHER RAW MATERIAL OR OF THE FINISHE D PRODUCTS. THE 11 ITA NOS.216 TO 216/ASR/2016 AYS: 2012- 13 TO 2014-15 MARKET VALUE OF THE WHEAT AND THE END PRODUCTS ARE TOTALLY DIFFERENT AND FLUCTUATE IN DIFFERENT DIRECTIONS. ALL THESE FL UCTUATIONS ARE WARDED OFF BY THE PRESENT AGREEMENT, WHICH IS JUST EXCHANGE OF GOODS FOR GOODS AND DOES NOT INVOLVE ANY CASH OUTFL OW. ALTHOUGH SERVICES WERE TAKEN, IT IS DIFFICULT TO SAY THAT TH E RESIDUALS AND THE LOSSES LEFT BY THE ASSESSEE IN FAVOUR OF AIL ARE PU RELY CONSIDERATION FOR THE JOB THAT IS DONE THE MARKET FLUCTUATIONS IN THE PRICE STRUCTURE OF THE RAW MATERIAL AND THE END PRODUCT CANNOT BE J UST IGNORED IN THE WHOLE TRANSACTION NOR THE PROCESS LOSS. THE PRO CESS LOSS COULD BE EITHER MORE OR LESS THAN THE PERCENTAGE AGREED TO B ETWEEN THE PARTIES. BUT STILL THE PARTIES SETTLE THE TRANSACTIONS AT AN AGREED PROPORTION. IN OTHER WORDS, THE RESIDUAL THAT IS LE FT BY THE ASSESSEE, APART FROM COVERING THE LABOUR COST OF PROCESSING, ALSO INCLUDES THE PROTECTION FROM MARKET FLUCTUATIONS AS ALSO PROTECT ION FROM ADVERSE PROCESS LOSS. TO CONCLUDE, THE ENTIRE RESIDUAL IS O NLY FOR THE PURPOSE OF JOB WORK IS NOT FAIR AND CORRECT HAVING REGARD T O THE TOTALITY OF THE TRANSACTION ENTERED INTO BY THE PARTIES. THE CIT(A) HAS GIVEN THE FAVOURABLE ORDER RELYING U PON THE ORDER OF THE HONBLE DELHI ITAT IN THE ABOVE NOTED CASE. IN LIGHT OF THE ABOVE, THE PROVISIONS OF SECTION 19 4C ARE NOT APPLICABLE TO THE CASE OF THE APPELLANT AND THE APP ELLANT PRAYS THAT THE QUESTION OF LAW BE ANSWERED IN FAVOUR OF T HE APPELLANT. 16. THE FACTS IN THE PRESENT CASE ARE DIRECTLY AND SQUARELY COVERED BY AHAAR CONSUMER PRODUCTS P LTD. (SUPRA). IN FACT, AHAAR CONSUMER PRODUCTS P LTD. (SUPRA) FORMED THE BASIS OF THE DE CISION OF THE LD. CIT(A), DECIDING THE LEGAL ISSUE IN FAVOUR OF THE ASSESSEE IN THE CASE OF PUNJAB STATE GRAIN PROCUREMENT CORPORATION LTD. (PUNGRAIN) , HOSHIARPUR. TO REITERATE, THE STAND OF THE PRESENT ASSESSEE IS EXA CTLY SIMILAR TO THAT OF PUNGRAIN. THEREFORE, IT CANNOT BE DISPUTED THAT THE OBSERVATIONS OF THE TRIBUNAL IN AHAAR CONSUMER PRODUCTS P LTD. (SUPRA ) ARE ALSO DIRECTLY APPLICABLE TO THE PRESENT ASSESSEE AS WELL. THEREF ORE, FOLLOWING AHAAR CONSUMER PRODUCTS P LTD. (SUPRA), WE HOLD THAT THE ASSESSEE WAS NOT REQUIRED TO MAKE TDS UNDER SECTION 194C ON THE VALU E OF THE BYE PRODUCTS. THIS ISSUE IS, ACCORDINGLY, DECIDED IN FAVOUR OF TH E ASSESSEE. 17. AS NOTED IN THE INITIAL PORTION OF THIS ORDER, THE FACTS IN ALL THE APPEALS OF THE YEARS UNDER CONSIDERATION ARE EXACT LY SIMILAR INTER-SE , THEREFORE, OUR OBSERVATIONS ARE, MUTATIS MUTANDIS , EQUALLY APPLICABLE TO THE OTHER YEARS. 18. IN THE RESULT, ALL THE THREE APPEALS OF THE ASS ESSEE ARE ALLOWED. 12 ITA NOS.216 TO 216/ASR/2016 AYS: 2012- 13 TO 2014-15 8. THEREFORE, RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL OF EVEN DATE IN THE CASE 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 2 012-13 TO 2014-15, WHEREBY WE HAVE ALLOWED THE APPEALS OF THE ASSESSE, ALL THE THREE PRESENT APPEALS OF THE REVENUE ARE DISMISSED. 9. IN THE RESULT, ALL THE THREE APPEALS OF THE REVE NUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01/07/2016. SD/- SD/- (T. S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 01/07/2016. /SKR/ COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE:DISTRICT MANAGER, PUNJAB STATE GRAIN P ROCUREMENT CORPN. LTD. HOSHIARPUR. (2) THE ITO (TDS), JALANDHAR. (3) THE CIT(A), JLR (4) THE CIT, JLR (5) THE SR DR, I.T.A.T. TRUE COPY BY ORDER