SHREE CHALTHAN VIBHAG KHAND V. INCOME TAX OFFICER

TAXAP/211/2006

AI Insights

The case involves two cooperative societies, Shree Chalthan Vibhag Khand Udyoug Sahakari Mandli Ltd. and Shree Madhi Vibhag Khand Udyoug Sahakari Mandli Ltd., which appealed against the orders of the ITAT, Surat, which had held them liable for not deducting TDS under Section 194C of the Income Tax Act, 1962, from payments made to farmers for sugarcane. The societies argued that the transaction was a part of a sale and not a separate work contract, and thus, TDS was not applicable. The Revenue supported the ITAT's decision, arguing that the transaction constituted a work contract. The High Court, referencing a similar case, sided with the appellants, concluding that the transaction was part of a sale and not a separate contract, thereby not requiring TDS deduction.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 753899 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 01-12-2014
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX (TDS) VS. KRISHAK BHARTI CO-OPERATIVE LTD., SHREE CHOUDHARY TRANSPORT COMPANY Vs. ITO, PALAM GAS SERVICE VS. CIT
• Laws Referred To: Income Tax Act, 1962
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S UDHIR M EHTA
• Assessee Lawyers: J P SHAH; MANISH SHAH
• Keywords: Cooperative Societies; Income Tax; ITAT; Penalty; Sugarcane purchase; TDS
• Section: 201(1); 194C

Judgement Text

"O/TAXAP/211/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 211 of 2006 With TAX APPEAL NO. 440 of 2006 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ SHREE CHALTHAN VIBHAG KHAND....Appellant(s) Versus INCOME TAX OFFICER....Opponent(s) ================================================================ Appearance: MR JP SHAH, ADVOCATE for the Appellant(s) No. 1 MR MANISH J SHAH, ADVOCATE for the Appellant(s) No. 1 MR SUDHIR M MEHTA, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 01/12/2014 COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) Page 1 of 7 O/TAXAP/211/2006 JUDGMENT 1. Since, the issue involved in both these appeals is common, they are heard together and disposed of by this common judgment. 2. Tax Appeal No. 211 of 2006 is filed by Shree Chalthan Vibhag Khand Udyoug Sahakari Mandli Ltd., seeking to challenge the order of the learned ITAT, Surat (for short, ‘the Tribunal’), Dated : 31.08.2005, rendered in ITA No.3691/Ahd/2004 for the A.Y. 2003-04, whereas, Tax Appeal No. 440 of 2006 is preferred by Shree Madhi Vibhag Khand Udyoug Sahakari Mandli Ltd., seeking to challenge the order of the learned ITAT, Surat, Dated : 31.08.2005, rendered in ITA No.3734/Ahd/2004 for the A.Y. 2003-04. 3. The brief facts of the case are that the appellants-assesses in both the appeals are the Cooperative Societies, which deal in the manufacture of sugar from the sugarcane supplied by the farmers and sell, thereof. According to the appellants, they used to purchase the sugarcane from the farmers on condition that the farmers will supply the same to the gate of the factory of the respective appellant. Later on, the Revenue issued notices to the appellants, holding them defaulter under Section 201(1) of the Income Tax Act, 1962 (‘the Act’ for short). The revenue also levied penalty on the appellants Page 2 of 7 O/TAXAP/211/2006 JUDGMENT for committing breach of the aforesaid section. Hence, the appellants approached the learned CIT(A), which dismissed the appeals of the assesses. Being aggrieved thereby, the assesses carried the matter before the learned ITAT, which passed the impugned orders. Hence, the present appeals. 4. At the time of admitting these appeals, this Court framed the following question; “Whether in the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was liable under Section 194C to deduct tax from the payments made by the farmer’s Samiti in respect of various expenses including labour charges, transport charges, insurance charges etc. on behalf of farmers?” 5. Mr. Shah, learned Advocate for the appellants, submitted that the Tribunal committed grave error in passing the impugned orders, as it failed to appreciate the material on record as well as the provisions of Section 194C of the Act in its proper perspective. Mr. Shah, submitted that the assesses purchased sugarcanes from the farmers, on condition that they shall supply the same at the factory gate and the same being a part of sale transaction, they are not required to deduct TDS. Page 3 of 7 O/TAXAP/211/2006 JUDGMENT 6. In support of his submissions, Mr. Shah placed reliance on a decision of this Court in “COMMISSIONER OF INCOME TAX (TDS) VS. KRISHAK BHARTI CO-OPERATIVE LTD.”, [2012] 349 ITR 68 (Guj). 7. As against this, Mr. Mehta, learned Advocate for the respondent-Revenue, supported the orders passed by the Tribunal and submitted that the supply of sugarcanes at the factory gate being a work contract, the Tribunal rightly passed the impugned order and the present appeals be dismissed. 8. In support of his submissions, Mr. Mehta relied on the following decisions; (1) “SHREE CHOUDHARY TRANSPORT COMPANY Vs. ITO”, [2009]225 CTR 125 (Raj.); (2) “PALAM GAS SERVICE VS. CIT”, [2014] 47 taxmann.com 310 (HP). 9. Heard, learned Counsels for the parties and perused the material on record as well as the orders passed by the learned CIT(A) and the Tribunal. It is an admitted position that in the case on hand the assesses-cooperative societies Page 4 of 7 O/TAXAP/211/2006 JUDGMENT used to purchase the sugarcanes from the farmers, on condition that the farmers shall supply the same at the gate of their respective factory. Meaning thereby, here, the supply of sugarcane at the gate of the factories of the assesses is not a separate work contract, but, it is essentially the part of the sell transaction. In that view of the matter, here, it would be relevant to refer to the decision of this Court in “CIT (TDS) VS. KRISHAK BHARTI CO-OPERATIVE LTD.”(Supra). In that case, the assessee was engaged in the manufacture of fertilizers and for the said purpose, it used to consume natural gas. The assessee, therein, was supplied natural gas by different agencies through pipelines. In that case, according to the Revenue, while purchasing the gas from different agencies, the assessee had entered into a work contract for transportation of natural gas from the seller’s premises to the buyer’s consumption point, and therefore, they held that the assessee, therein, was required to deduct TDS. However, this Court, in that case, held that to transport the gas was a part of sale transaction, and therefore, the assessee, therein, was not required to deduct TDS. In our view, therefore, the decision of the Apex Court in the case of “CIT (TDS) VS. KRISHAK BHARTI CO- OPERATIVE LTD.”(Supra) applies in full force to the facts of this case. The aforesaid provision Page 5 of 7 O/TAXAP/211/2006 JUDGMENT would apply to the person, who had paid any sum, and the respondent has not paid any charges. The case of the assessee in Tax Appeal No. 211 of 2006 is identical, and hence, the authorities below grossly erred in interpreting the provisions of law, and therefore, the grounds urged by the appellant find favour with us. 10. In the case on hand, the supply of sugarcanes at the gates of factories of the respective assesses was a part of sale transaction, and therefore, we are of the opinion that the assesses are not liable to deduct TDS. In view of the above discussion, the decisions relied on by Mr. Mehta shall not apply to the facts of the present case. Hence, the present appeals deserve to be allowed. 11. In the result, both the appeals are ALLOWED. The orders of the Tribunals, Dated : 31.08.2005, are QUASHED and set aside. The question of law arising in these appeals is answered in favour of the appellant-assesses and against the respondent-Revenue. No order as to costs. (K.S.JHAVERI, J.) (K.J.THAKER, J) Page 6 of 7 O/TAXAP/211/2006 JUDGMENT UMESH Page 7 of 7 "