Income Tax Appellate Tribunal - Jaipur
Sikar & Jhunjhunu Zila Dugdh Utpadak ... vs Assessee on 21 July, 2015
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IN THE INCOME TAX APPELLATE TRIBUNAL,
JAIPUR BENCHES (SMC), JAIPUR
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BEFORE: SHRI R.P. TOLANI, JUDICIAL MEMBER
vk;dj vihy la-@ITA No. 277/JP/2013
fu/kZkj.k o"kZ@Assessment Year : 2008-09
Sikar & Jhunjhunu Zila Dugdh cuke The DCIT
Utpadak Sahakari Sang Ltd. , Vs. Circle- Sikar
N.H.11, P.O. Palsana, Sikar Sikar
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABASO 852 L
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 382/JP/2013
fu/kZkj.k o"kZ@Assessment Year : 2008-09
The DCIT cuke Sikar & Jhunjhunu Zila Dugdh
Circle- Sikar Vs. Utpadak Sahakari Sang Ltd. ,
Sikar N.H.11, P.O. Palsana, Sikar
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABASO 852 L
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal, CA
jktLo dh vksj ls@ Revenue by :Shri Raj Mehra, JCIT
lquokbZ dh rkjh[k@ Date of Hearing : 14/07/2015
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 21/07/2015
vkns'k@ ORDER
PER R.P. TOLANI, JM
These are cross appeals filed by assessee and revenue, against the order of the ld. CIT(A)-III, Jaipur dated 28-01-2013 for the assessment year 2008-09.
2 ITA No. 277/JP/2013
Sikar & Jhunjhunu Zila Dugdh Utpadak Sahakari Sangh Ltd. vs. DCIT, Circle- Sikar . 2.1 The assessee has raised following grounds in its appeal.
''1. The ld. CIT(A) has erred on facts and in law in holding the cess paid to RCDF is in the nature of fees for professional for technical services, liable for deduction of tax u/s 194J land they confirming the action of the AO in holding that the same is not allowable u/s 40(a)(ia) of the Act since the assessee has not deducted the tax at source.
2. The ld. CIT(A) has erred on facts and in law in confirming that milk purchase difference paid to milk societies is commission, liable for deduction of tax u/s 194H and thereby confirming the action of the AO in holding that the same is not allowable u/s 40(a)(ia) of the Act since the assessee has not deducted the tax at source.'' 2.2 The Revenue has raised following grounds in its appeal.
''(1) The ld. CIT(A) has erred in fact and in law restricting the disallowance of Rs. 42,41,575/- made u/s 40(a)(ia) to Rs. 97,110/- only and thus in deleting the disallowance of Rs. 41,44,465/-.
(ii) The ld. CIT(A) has erred in fact and in law restricting the disallowance of Rs. 54,73,480/- made u/s 40(a)(ia) to Rs. 2,42,809/- only and thus, in deleting the disallowance of Rs. 52,30,671/-.
(iii) The ld. CIT(A) has erred in relying upon the decision of Hon'ble ITAT Jaipur Bench in case of M/s. JVNL vs. DCIT (ITA No. 132/JP/2009 dated 30-04-2009 for A.Y. 2006-07) even when this decision was based on different facts and circumstances of a unrelated assessee and even when the appeal before the Hon'ble High Court was pending in that case.
(iv) The ld. CIT(A) has erred in restricting the disallowance to the amount remaining unpaid at the end of the year and directed the Assessing Officer to verify this. 3 ITA No. 277/JP/2013 Sikar & Jhunjhunu Zila Dugdh Utpadak Sahakari Sangh Ltd. vs. DCIT, Circle- Sikar .
(v) The ld. CIT(A) has erred in deleting the disallowance of Rs. 4.52 lacs and in holding that this expenditure was related to purchase of goods and did not attract the provisions f Section 40(a)(ia) of the Act.'' 3.1 Brief facts of the case are that the assessee is a Cooperative Society which purchases milk from Primary Cooperative Society at village level which is pasteurized and sold to consumer. During the course of assessment proceedings, the AO made various disallowance. The assessee paid Cess @ 1.25% to RCDF a parent cooperative society which according to the AO, constituted commission/ brokerage liable for TDS u/s 194H of the Act. The assessee was following its consistent past practice and did not deduct TDS holding it to be a statutory payment not liable for TDS. The AO however held it to be liable for TDS, as it was not deducted, disallowed the same u/s 40(a)(ia) r.w.s. 194H of the Act . 3.2 In first appeal, the ld. CIT(A) took a different opinion and held the cess paid to RCDF as fees for managerial services liable for TDS u/s 194J of the Act and not u/s 194H as held by the AO. However ld CIT(A) reduced the disallowance by relying on judgment of M/s. Merilyn Shipping & Transport (70 DTR 81) (Vizag) SB and Jaipur Bench in the case of JVVNL (supra) that provisions of Section 40(a)(ia) are applicable 4 ITA No. 277/JP/2013 Sikar & Jhunjhunu Zila Dugdh Utpadak Sahakari Sangh Ltd. vs. DCIT, Circle- Sikar . qua the outstanding payments at the end of the year. Ld. AO was directed to verify the outstanding amount payable to RCDF and allow the expenditure to that extent. Both the parties are in appeal. The assessee is by way of Ground No. 1 and Revenue is by way of Ground No. 1. 3.3 The AO further enquired into the claim of expenditure of Rs. 54,73,480/- on account of milk purchase difference Cess. The assessee filed detailed reply contending that the amount was paid @ 2.5% to District Primary Cooperative Societies (for short ''DPCS'') for maintaining their activities of collecting milk and to Primary District Cooperative Society (for short '' PDCS) @ 2% on milk purchased. Since the payment was made to these societies for maintaining the cooperative activities of the societies and meeting their expenses, the payments were not liable for TDS provisions. The AO however, held it to be liable for TDS u/s 194H of the Act by following observations.
''6............This amount is not passed on to the cattle owners who supply the milk but it is retained by these samities for meeting their expense. These samities render services to the assessee because they collect milk from the cattle owners and supply the same to assessee. The payment is bade on quantum of purchase through these samities as it is a fixed percentage. The expenditure is obviously in the nature of commission/ brokerage as understood in common parlance and also as per the inclusive definition given in the Explanation to Section 194H. Since the assessee has failed to deduct tax at source on the payment, expenditure is disallowed u/s 40(a)(ia) of the Act. This results in an 5 ITA No. 277/JP/2013 Sikar & Jhunjhunu Zila Dugdh Utpadak Sahakari Sangh Ltd. vs. DCIT, Circle- Sikar . addition of Rs. 54,73,480/- to the declared income of the assessee.'' 3.4 In first appeal, the ld. CIT(A) though held that payment was liable for TDS u/s 194H, however, applying the judgment of M/s. Merilyn Shipping(supra), held that the amount to the extent of outstanding as on 31-03-2008 Rs. 2,42,809/-was liable for disallowance, consequently disallowance u/s 40(a)(ia) r.w.s. 194H was restricted to this amount. Both the parties are in appeal. The assessee is by way of Ground No. 2 and Revenue is by way of Ground No. 2.
3.5 The Ground No. 3 and 4 of the Revenue are connected with Ground No. 1 and 2 inasmuch as to Ground No. 3 and 4 are in support of the contention that theory of paid and payable in view of SB judgment in the case of Merilyn Shipping & Transport (supra) as applied by the ld. CIT(A) is not tenable.
3.6 The remaining Ground No. 5 of the Department is in respect of deleting the disallowance of Rs. 4.52 lacs by holding that this expenditure was related only to purchase of goods and did not attract provisions of Section 40(a)(ia) of the Act. Ld. AO disallowed the following amounts u/s 40(a)(ia):
6 ITA No. 277/JP/2013
Sikar & Jhunjhunu Zila Dugdh Utpadak Sahakari Sangh Ltd. vs. DCIT, Circle- Sikar .
Name of Parties Amount Paid
RCDF Ltd. 3,62,111/-
Bansal Printers 66,312/-
Mahalaxmi Welding Works shop 24,410/-
Total 4,52,833/-
3.7 The ld. CIT(A) deleted this disallowance by following
observations.
''04. The next ground of appeal is against the disallowance of sales promotion expenses to the extent of Rs. 4,52,833/-
04.1 Appellant claimed the expenditure of Rs. 5,07,114/- under the head sales promotion. As per the details filed by the appellant, a sum of Rs. 3,62,111/- was paid to RCDF, Rs. 66,312/- was paid to Bansal Printers and Rs. 24,410/- was paid to M/s. Mahalaxmi Welding Workshop for advertisement. AO disallowed these expenditure u/s 40(a)(ia) since no tax was deducted at source on these payments.
04.2 Ld. AR submitted that the advertisement charges was actually incurred by RCDF and due TDS was made by RCDF at the time of making payment to respective parties. The appellant reimbursed the expenses to RCDF who has filed the return showing such receipts. Ld A.R. claimed that the liability to make TDS was on RCDF and not on the appellant. It was alternatively claimed that since the entire payment was made during the year itself, provisions of Section 40(a)(ia) are not applicable on these payments.
In respect of payments made to Bansal Printers and M/s. Mahalaxmi Welding Workshop, ld. AR produced the relevant invoices to show that the payments were made for the purchase of printed banners and iron frame. The payment was not for the advertisement.
04.3 On due consideration of the appellants arguments and the evidences produced, the disallowance made by AO u/s 40(a)(ia) in 7 ITA No. 277/JP/2013 Sikar & Jhunjhunu Zila Dugdh Utpadak Sahakari Sangh Ltd. vs. DCIT, Circle- Sikar . respect of aforesaid expenditure, is deleted. The payments made to RCDF is not disallowable since the entire payment was made during the year itself, as held by Hon'ble ITAT Jaipur in the case of M/s. JVVNL (supra). The payments made to M/s. Bansal Printers and M/s. Mahalaxmi Welding Workshops was for the purchase of goods and not for advertisement. Hence, the ground raised by the appellant is allowed.'' 3.8 Aggrieved, the Revenue is in appeal.
3.9 The ld. counsel for the assessee contends that:-
''1. In pursuance of these objectives, RCDF developed dairy market, coordinated with government/ financial institutions, finalized rate contract, developed the brand image, launches new products, develop MIS system etc. To recover part of the expenditure incurred by it for all these activities, it levy a cess of 1.25% of the turnover of the district societies. Thus, no specific service is rendered by the RCDF to societies. One cannot identify that payment made by the society as cess to RCDF is for any particular service more so managerial service. In fact, RCDF do not provide any managerial service as such to the society, rather it only develop the market, brand, liaison with government/ institutions, identify the new product etc. in general. Therefore, cess paid to RCDF is not liable for deduction of tax at source either u/s 194H as held by AO or u/s 194J as held by CIT(A).
2. Similar disallowance was made by the AO in case of Alwar Zila Dugdh Utpadak Sahakari Sangh Ltd. for A.Y.'s 2004-05 to 2006-07 for alleged non-deduction of tax at source u/s 194J on payment of cess to RCDF. On appeal, the Ld. CIT(A) vide order dt. 29.03.2010 in Appeal No. 250 to 252/09-10 (PB 17-19) deleted the disallowance by giving the following findings:-
"......The payment of cess made by the assessee to RCDF is in the nature of reimbursement of expenses, whereupon no liability to deduction of tax arises. Therefore, no liability can be fastened upon 8 ITA No. 277/JP/2013 Sikar & Jhunjhunu Zila Dugdh Utpadak Sahakari Sangh Ltd. vs. DCIT, Circle- Sikar . the assessee within the meaning of section 194J of the Income Tax Act, 1961."
3.10 Apropos Ground No. 2 i.e. milk price difference, the assessee contends that the AO has misconceived entire issue while holding that society pays the amount to cattle owners. The fact of the mater is that milk price difference is paid to Primary Cooperative Societies and not the cattle owners as held by AO. The ld. AR of the assessee contended to this effect as under:-
''1. It may be noted that assessee purchases the milk from various primary co-operative societies who raises the bill for the milk and for their margin named 'milk price difference'. These primary co-operative societies are constituted by the milk producers for the purpose of collective disposal of milk produce by them. The assessee society purchases milk directly from the primary societies on principal to principal basis. Therefore, the payment of the milk to the primary co-operative societies along with the fixed margin called 'milk price difference' is only a payment towards purchase of milk and not a payment of any commission or brokerage since the transaction is between principal to principal. Commission is paid to a person when he acts on behalf of other person. In such a case, the payment for value of the goods or service is made directly to the owner of goods/ provider of service and the payment of commission is made separately to the person who is acting on behalf of the owner of goods or provider of service. In the present case, the assessee is making payment of the milk to the primary society and not to the cattle owners. Therefore, the observation of the AO that the assessee purchases milk from individual cattle owners is factually incorrect. The assessee purchase the milk from the primary society who purchases the milk from the cattle owners and therefore 9 ITA No. 277/JP/2013 Sikar & Jhunjhunu Zila Dugdh Utpadak Sahakari Sangh Ltd. vs. DCIT, Circle- Sikar .
payment of milk is made by the assessee to the primary society and not to the cattle owners. How the primary societies make payment to the cattle owners or from whom and at what rate the primary co-operative society procures the milk is there outlook with which the assessee is not at all concerned. The payment of fixed margin to the primary society is therefore not a payment of commission as envisaged u/s 194H of the Act.'' 3.11 Apropos Departmental grounds on the theory of paid and payable, the ld. counsel for the assessee contends that Merilyn Shipping & Transport vs. ACIT judgment has been upheld by Hon'ble Allahbad High Court in the case of CIT vs. Vector Shipping Services Ltd. Revenue's SLP against the same also has been dismissed by the Hon'ble Supreme Court, thus the issue stands settled in favor of the assessee. Consequently, there is no merit in Revenue's ground.
3.12 The ld. DR is heard 3.13 I have heard the rival contentions and perused the materials available on record. Apropos the payment to RCDF cess, it has not been demonstrated by the Department that any managerial services in this connection have been rendered to assessee by RCDF qua this amount.
RCDF is an apex cooperative body and cess is paid to it by virtue of federal structure in Rajasthan cooperative set up. Thus as far as assessee's business is concerned, there is no rendering of any managerial services by 10 ITA No. 277/JP/2013 Sikar & Jhunjhunu Zila Dugdh Utpadak Sahakari Sangh Ltd. vs. DCIT, Circle- Sikar . RCDF as alleged by the AO u/s 194H and upheld ld. CIT(A) u/s 194J. Since there is no rendering of any services and the payment is not made for any managerial services to RCDF, therefore, payment can neither be held as liable for TDS u/s 194H of the Act as commission/ brokerage as held by the AO nor u/s 194J for rendering any managerial services as held by the ld. CIT(A). In view thereof, we hold that assesee's impugned payments to RCDF are not liable for TDS. This ground of the assessee is allowed.
3.14 Apropos payment for milk price difference, the assessee society does not purchase milk from cattle owners as mistakenly held by ld. AO. Since the liability has been fastened under misconception of facts, we hold that this payment also is not liable u/s 194H of the Act. In view thereof, second ground of the assessee with regard to disallowance u/s 40(a)(ia) stands allowed.
3.15 Since I have held that there no TDS liability on the assessee qua these payments, consequently, Revenue's grounds in this behalf regarding applicability of Merilyn Shipping & Transport vs. ACIT (supra) become irrelevant.
3.16 Apropos Ground No. 5 of the Revenue relating to the amount paid to Bansal Printers and M/s. Mahalaxmi Welding Workshop for purchases 11 ITA No. 277/JP/2013 Sikar & Jhunjhunu Zila Dugdh Utpadak Sahakari Sangh Ltd. vs. DCIT, Circle- Sikar . of goods and remaining amount of Rs. 3,62,111/- being reimbursement of expenses, the ld. CIT(A) has rightly held that this amount is not liable for TDS. His order is upheld.
4.0 In the result, the appeal of the assessee is allowed and that of the Revenue is dismissed.
Order pronounced in the open court on 21 /07/2015 Sd/-
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(R.P.Tolani)
U;kf;d lnL;@Judicial Member
Tk;iqj@Jaipur
fnukad@Dated:- 21 /07/ 2015
*Mishra
vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s. Sikar & Jhunjhunu Zila Dugdh Utpadak Sahakri Sangh Ltd., Sikar
2. izR;FkhZ@ The Respondent- The DCIT , Circle- Sikar
3. vk;dj vk;qDr¼vihy½@ CIT(A).
4. vk;dj vk;qDr@ CIT,
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No.277/JP/2013) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar