Income Tax Appellate Tribunal - Pune
Government Milk Scheme vs Assistant Commissioner Of Income-Tax on 26 September, 2005
Equivalent citations: [2006]98ITD306(PUNE), [2006]281ITR88(PUNE)
ORDER
Mukul Shrawat, Judicial Member
1. This is an appeal filed by the appellant arising out of the order of CIT(A) dated 31-3-2004. The grounds are narrative, however, the prayer as per grounds of appeal reads as follows:
The appellant therefore prays that the demand of tax on account of non-deductof tax at source amounting to Rs. 1,35,38,222 on account of commission paid to Milk Federations and Kiosk Owners and Rs. 5,87,180 on account of transportation and interest under Section 201(1A) of Rs. 27,13,976 be deleted and necessary directions be given to lower authority in this matter.
2. For the sake of completeness, relevant paras of grounds of appeal are also reproduced below :--
The Hon. CIT (Appeals)-I, Pune has erred in treating the transaction between Government Milk Scheme and the Kiosk Owners as Sell on Commission basis but not on 'Principal to Principal' basis. He has also erred in not following the Gujarat High Court judgment in the case of Ahmedabad Stamp Vendors Association v. Union of India .
The learned Assessing Officer has erred in treating assessee, as assessee in default under Section 201(1) of the Income-tax Act, 1961 and demanded Rs. 1,35,38,222 on account of non-deduction of tax at source on commission and Rs. 5,87,180 on account of non-deduction of tax at source on transportation charges.
The facts of the case in brief are that the appellant is a government establishment under the Department of Dairy Development of Government of Maharashtra and engaged in the following activities :--
(i) Procurement of milk from various Milk Federations, District Milk Sanghs and other agencies like Agriculture College, Pune etc.
(ii) Chilling and processing of the milk so procured. Processing involves preparation of products like Paneer, Shrikhand, Ghee, Lassi etc.
(iii) Selling the milk in open market through authorized agents who are called as Centre Managers.
(iv) Carrying out a Public Welfare activity by way of giving jobs to unemployed youth, physically handicapped persons, persons below the poverty line, destitute woman, etc., who operate out of kiosks called 'Doodh Sarita'.
(v) Ensuring that the farmers who supply the milk through cooperative societies and federations get a fair price for their produce.
(vi) Ensuring that the people at large get quality milk at reasonable rates.
So, under the Government Milk Scheme, the assessee-company used to purchase liquid milk through various Sanghs and Federations and on pasteurizing and cooling the milk, it is re-packed and sold through appointed several milk centres to be supplied to the general public. A survey was conducted under Section 133A by T.D.S. authorities of Revenue Department on 29-7-2003. During the course of survey, few statements of the officials of the company were recorded and the relevant agreements through which the milk centres were appointed have also been examined. On examination of Clause 1 of the said agreement, it was observed by the Assessing Officer that 'commission' was payable to the agents appointed to run the milk centers. As per Clause 11 those agents were required to sell the milk at the price fixed by the Government. Clause 15 stated to be in respect of termination of agencies. Further, it was observed by the Assessing Officer that Clause 24 was in respect of fixing of targets for sales, if not achieved, results into termination of agency. On the basis of these Clauses, the Assessing Officer has held that there was existence of relationship of 'Principal and Agent' between Government Milk Scheme and Milk Centres. He has also observed that the 'commission' was, therefore, paid by the assessee to those agents. However, he has noted that the assessee, Government Milk Scheme (in short 'GMS') has not deducted the TDS on this commission paid to the agents ie., the Milk Centres, as required under Section 194H of the Income-tax Act. The Assessing Officer has reproduced a Government resolution dated 27-12-2000, according to which, commission rate was prescribed at 90 paise per litre to the agents for distributing the milk supplied to them by the Government. The Government has also fixed selling rate of milk depending upon the quality of milk. The observation of the Assessing Officer was that though the selling rate was different but the rate of commission was fixed at 90 paise per litre for the said milk centres. So, he has mentioned that the said commission was prescribed under the head 'Milk Distributor's Commission' at the rate fixed at 90 paise per litre to its agents.
3. The General Manager of the GMS has given the reply to the Assessing Officer in following terms :
GMS sells a 1000 ml. bag to the kiosk owner at Rs. 11.10 paise and he, in turn is expected to sell it at Rs. 12. The difference between the price at which GMS sells the milk to the kiosk owner and the price at which he sells it in the market is the element of profit that he earns on the sale of this milk in retail. By no stretch of imagination can it be termed as 'commission' paid/payable to the kiosk owner though the said word has been mentioned in the Government Resolution. Therefore, if the amount that the kiosk owner earns is 'profit' on carrying out the activity of selling milk in retail and it is not commission paid to him by GMS, then GMS cannot be held responsible for the deduction of tax at source.
If the TDS deducted @ 90 paise per litre from the commission of the kiosk owner, the activity of the Govt. Milk sale will be reduced in large quantity. In such circumstances there would be no alternative than stopping the activity of milk distribution. It will adversely affect the Dairy activity and ultimately the public welfare programme have to be closed.
In addition to the above said reply, his statement has also been recorded wherein it was stated that the commission was for the purpose of reimbursement of transportation, containers, managerial charges, electricity bill, running of booth etc. He has also clarified that as per G.R. dated 27-12-2000, the word 'commission' includes the reimbursement charges of milk transport, container expenditure, milk chilling charges etc. It was also explained to Assessing Officer that if GMS started deducing tax, then those small centres would have run away, resulting into the closure of the Government organisation.
4. The Assessing Officer was not convinced with those arguments and explanations and after reproducing Section 194H, he has opined that the words 'by any other mode' used in this section has great significance and the payment of commission directly or indirectly was subjected to TDS. He has also stated that to get rid of the hardship of T.D.S. the Income-tax Act provides Section 197(1) through which the deductees could have obtained a 'Nil' Certificate or Certificate of lower rate of deduction from Income-tax Department. Next he has also discussed the payments made to Sanghs/Federations. According to him, the GMS has given the nomenclature of the said expenditure as 'commission', therefore, required to deduct TDS on the commission paid. Due to non-deduction of TDS under Section 194H, the GMS was rendered liable to be treated as assessee in default under Section 201(1) of the Income-tax Act and the quantum of default was computed as under:--
Section 201(1) :
(1) Short Deduction in respect of :
(a) Transportation charges to Rs. 5,87,180
Sanghs/federation
(b) Commission to Centres Rs. 16,31,553
(c) Commission to Sanghs/Federations Rs. 1,19,06,666
-----------------
Total Rs. 1,41,25,399
Against the above computed liability fixed upon the assessee, an appeal was preferred.
5. Before the first appellate authority, certain CBDT Circulars have been discussed and in respect of the alleged commission paid to Unions/ Federations from whom milk was procured, the nature of payment was explained as under :--
3. The rate of procurement of milk from such Unions/Federations have been stated in the above GR. The rate depends on the quality of milk. Besides, the amount paid for procurement of milk GMS pays 90 paise per litre on an average to the Union/Federation which it is expected to spend in the following manner :
(i) Transport Cost 50 paise per litre
(ii) Can (Container) Charges 3 paise per litre
(iii) Management Expenses 20 paise per litre
(iv) Chilling charges for maintaining
good quality of milk 17 paise per litre
Considering that the GMS has specific guidelines from the State Government as to how the margin of 90 paise is to be used, it cannot be termed as 'commission' or 'brokerage.' We would also like to draw the attention of Your Honour to the letter written by the Dairy Development Commissioner, Maharashtra State, Mumbai to Hon. Commissioner of Income-tax-I, Pune vide his letter No. DDC-IB/Income-tax Recovery/GMS-Pune/2004 dated 21-2-2004, in connection with stay of recovery proceedings wherein it has been stated, and we quote. The word 'Commission' has been used in the vernacular and perhaps inadvertently in the Government Resolution. The matter regarding proper nomenclature instead of 'Commission' is under active consideration of the Government. The Government is intending to remove any doubt and complications created by word 'Commission'. A copy of the said letter is also enclosed by way of Annexure II for the perusal of Your Honour.
It was clarified before the first appellate authority that two of the Federations have preferred Writ Petition before the Hon'ble High Court praying for stay of deduction of TDS on the amount of 'commission', reference provided to CIT(A) of those Writ Petitions. It was mentioned that the Hon'ble High Court has stayed the recovery of TDS till the disposal of the case.
Next was the issue of alleged commission to Kiosk owners. In this regard, the explanation tendered was as follows :-
8. GMS sells a 1000 ml. bag to the kiosk owner at Rs. 11.10 paise and he; in turn, is expected to sell it at Rs. 12. The GMS has again specified in which manner the margin of 90 paise is to be utilized. It, too, has to be utilized as follows :
(i) Transport Cost 50 paise per litre
(ii) Can (Container) Charges 3 paise per litre
(iii) Management Expenses 20 paise per litre
(iv) Chilling Charges for maintaining good quality of milk 17 paise per litre Effectively, 90 paise, ie., the difference between the Maximum Retail Price and the procurement price for the kiosk owner is nothing but reimbursement and not 'commission' or 'brokerage'. The above break up of cost has been derived by the GMS on the basis standard cost as calculated by them, inclusive of profit margin that the kiosk owner should retain for carrying out this activity.
The relationship between the GMS and the kiosk owner is that of 'principal to principal' as can be seen from a sample agreement enclosed by way of Annexure IV. The fact that this relationship is that in the nature of 'Principal to Principal' can be established on perusing some of the clauses of the agreement. We take the liberty to highlight a few clauses of the agreement, broadly translated from the original in Marathi.
6. So, it was vehemently argued that in respect of both the instances, the payment was not in the nature of 'commission' but reimbursement of the expenditure. It was also argued that the relationship between the GMS and Kiosk owner was that of 'Principal to Principal' and not that of 'Principal to Agent'. Few more arguments had been advanced that the cost of the milk was to be paid every day by Milk Centres with the indent of milk required for the next day. Once the milk was so sold, under no circumstances, taken back by GMS from kiosk owner. Since kiosks were owned by the owners, hence electricity bill payment was their responsibility. Likewise, rates and taxes, ownership of refrigerator and investment made in those milk centres was stated to be the property of the centre owners. However, the Id. CIT(A) was not convinced with all those arguments and in a cursive manner rejected the claims without any elaborate discussion and held that the relationship between the appellant and the kiosk owners was not 'Principal to Principal' and the commission was paid indirectly, however, did not change the nature of payment, hence, held an defaulter of TDS. The Id. CIT(A) has also annexed a note in respect of judicial interpretation of certain terminology and held that the said annexure would clarify the stand taken by him. However, he has mentioned that relief as per CBDT Circular could be allowed which was in respect of tax deposited by kiosk owners respectively in their I.T. Returns. Being aggrieved, now the appellant is further in appeal.
7. From the side of the appellant, Mr. CD. Upasani appeared and vehemently argued that though the term 'commission' was used but later on, the same had also been clarified by the Government itself and the nature of payment was actually reimbursement of expenses. He has also mentioned that the payment of 90 paise per litre was in respect of transport cost, container charges, management expenses and chilling charges. So, the said payment was neither the commission nor brokerage but reimbursement of expenditure and ie., margin of the profit of the milk booth owners. He has also vehemently stated that the goods sold ie., Milk by GMS to the Kiosk owner becomes the property of kiosk owner. There was no condition of returning the unsold milk back to GMS. Therefore, the supply of milk is purely a trading activity wherein the goods are purchased and sold, however, with a margin of profit of 90 paise per litre. So, the nature of relationship between the GMS and Kiosk owner was nothing but 'Principal to Principal'. Relying upon various clauses of agreement, the Id. A.R. has cited few decisions as follows :-
(1) Ahmedabad Stamp Vendors Association v. Union of India (2) Asstt. CIT v. Samaj [2001] 77 ITD 358 (Cuttack) (3) Shree Baidyanath Ayurved Bhavan Ltd. v. Jt. CIT [2004] 83 TTJ (Cal.) 409 (4) National Panasonic India (P.) Ltd. v. Dy. C/7[2005] 94 TTJ (Delhi) 899.
In addition to the above decisions, the Id. A.R. has also placed on record an order of CIT(A) Nagpur dated 20-11 -2003 in the case of Govt. Milk Scheme, Civil Lines, Nagpur, wherein also the Id. CIT(A) has held that the provisions of Section 194-H were not applicable and there was no liability for deduction of TDS on payment to milk distributor.
8. On the other hand, the Id. D.R. has supported the action of the Assessing Officer and the view taken by Id. CIT(A) and argued that the 'commission' was fixed at 90 paise per litre, hence it was not profit as there was no chance of any valuation of the fixed commission. He has also argued that the Explanation to Section 194-H defines the commission or brokerage; includes any payment to a person acting on behalf of another person for services rendered in the course of buying or selling of goods and to deduct the TDS at the time of payment in cash or draft or by any other mode. So, he has pleaded that the liability of TDS was in respect of any payment in the nature of commission even in cases where the payment is in respect of buying or selling of goods. He has also relied upon few clauses of the agreement in support of his argument that the relationship was in fact Principal and Agent, hence the assessee was rightly held defaulter of non-deduction of tax at source. In support, he has cited the decision in the case of Around the World Travel & Tours (P.) Ltd. v. Union of India decision of the Single Judge.
9. We have conscientiously heard the submissions of both the sides and also thoroughly perused the orders of the authorities below in the light of material placed before us and the precedents cited. The facts of the case have already been discussed at length in above paras, according to which, the revenue authorities have held that the appellant was liable for deduction of tax at source firstly on procurement of milk from Unions/ Federations on payment of fixed amount of paise 90 and secondly, liable for TDS on payment of fixed 90 paise per litre to milk booth agents. To resolve this issue, we have to examine the relevant clauses of the agreement to verify the relationship between the assessee and the federation as well as the assessee and the kiosk owner. According to the above-mentioned factual matrix, the appellant used to procure milk from various milk federations. After proper processing of milk, the same was meant for sale in the open market. For this purpose, milk centres or milk booths (kiosks) were contacted, so the milk was sold in 500 or 100 m.l. pouches. At the time of procurement, the appellant pass 90 paise per litre to such Unions or Federations towards transport cost, container charges, management expenses, and chilling charges. The bifurcation of this 90 paise being incurred on such various heads has also been discussed above. The next phase was selling of milk through milk booths. Appellant used to sell 1000 ml pouch of milk to Kiosk owner at the rate of 11.10 paise per litre and expected to sell the milk at Rs. 12 per litre. So, there was a margin of 90 paise per litre. This difference between the procurement price and the maximum retail price for the Kiosk owner was stated to be reimbursement of transport cost, container charges, management expenses and chilling charges. In respect of both these transactions, the revenue authorities have held the appellant was liable for TDS and held the assessee a defaulter. As far as the related provision is concerned, Section 201(1) prescribes that if any person referred to in Section 194 does not deduct the tax or after deducting fails to pay the tax, then he shall be deemed to be an assessee in default in respect of the tax. Next comes into operation is Section 194H which states that any person who is responsible for paying any income by way of commission or brokerage shall at the time of credit of such income to the account of the payee or at the time of payment by cheque or draft or any other mode shall deduct income-tax thereon at the rate specified. Further, Section 194H has an Explanation (i) to define the term 'commission or brokerage' which includes any payment received or receivable directly or indirectly by any person acting on behalf of another person for services rendered or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable articles or things, not being securities. So, the revenue authorities have held that the payment made by GMS to both the parties was within the definition of 'commission'. We have examined this definition not only in the light of Section 194H but also as per Black's Law Dictionary wherein, 'Commission' is defined as "The recompense, compensation or reward of an agent, salesman, executor, trustee, receiver, factor, broker of bailee, when the same is calculated as a percentage on the amount of his transactions or on the profit to the principal. Weiner v. Swales 217 Md. 123, 141A/2nd 749, 750. A fee paid to an agent or employee for transacting a piece of business or performing a service. Frayer v. Currin Appeal 280 SC 241 : 312 S.E. 2nd 16, 18. Compensation to an administrator or other fiduciary for the faithful discharge of his duties." This definition was duly annexed by the Id. CIT(A) in the impugned order. To fall within this category, there must be a relationship of Principal and Agent as is evident from the above definition and the definition prescribed in IT. Act. The I.T. Act has also defined that commission or brokerage includes any payment receivable by a person acting on behalf of another person for services rendered, [Emphasis supplied]. So an agent is a person who acts on behalf of another person. In the present situation, we have to see whether the federations or the booth owners were acting on behalf of the appellant ie., the Government Milk Scheme. To examine this fact, we have perused few clauses and have found that in either case apparently the parties are independent not acting on behalf of the appellant. Though the Government is running a Public Welfare Activity by way of giving employment to youth and physically handicapped persons but such welfare activity was not binding in nature but rather optional only, on one hand, to ensure the farmers to get a fair price of their milk produced and, on the other hand, to ensure the people at large to get good quality of milk at reasonable rate to be supplied through milk booths. We have also examined some of the clauses, according to which, it is evident that the product once sold should not be taken back by the Milk Scheme. The Electricity Bill and the ownership of the kiosks having other incidental expenses shall be the responsibility of the booth owners. One more aspect was brought to our notice that the cost of the milk has always been paid in advance every day along with the indent for the requirement of the milk for the next day. This clause thus makes it clear that the activity was purely of trading in nature and the goods were procured on payment and there was transfer of ownership of the said good i. e., milk. So the transaction was purely on 'Principal to Principal' basis and there was no existence of an agency as the goods either procured or disbursed at every stage of transaction was on actual payment basis.
10. In the light of above factual matrix and legal position, we have examined few case laws cited supra. In the case of Ahmedabad Stamp Vendors Associations. Union of India the stamp vendors were required to purchase the stamp papers from Government on payment of prices less discount on 'principal to principal' basis and it was held that there was no contract of agency at any point of time. The Hon'ble Court has clarified that the liability of the stamp vendor to pay the price less discount was not dependent or contingent upon sale of stamp paper by the vendor. The Court has also held that neither of the two activities, ie., buying from the Government and selling to the customers can be termed as 'services in the course of buying or selling of goods' contemplated by Explanation (i) to Section 194H. So it was held that the provisions of Section 194 H shall not attract. An identical issue has come up before the ITAT Cuttack Bench in the case of Asstt. CIT v. Samaj[200l] 77 ITD 358 wherein the so-called agent purchased newspaper from the assessee, a Publisher, and sell them through hawkers. As per the agreement, the liability in respect of the unsold newspaper was with such agents. Facts of that case have revealed that the so-called agents had to make payment for entire quantity of newspapers lifted by him irrespective of papers actually sold. On examination of agreement between the assessee and the agent, it was held that the same should be treated as a contract of sale and not an agency agreement. The respected co-ordinate bench has held that under such circumstances, the assessee was not liable to deduct tax under Section 194H from the discount given to agents though in that case also, it was termed 'commission'. The Id. A.R. has also cited a decision of ITAT Calcutta Bench in Shree Baidyanath Ayurved Bhavan Ltd. v. Jt. CIT [2004] 83 TTJ (Cal.) 4092 and there was the issue of trade discount and the respected co-ordinate bench has held that the expression 'commission' shall not be extended to the trade discount and the demand raised by invoking the Section 194H was held unjustifiable.
11. On careful analysis of the above referred precedents, a conclusion can be drawn that the payment in question was not within the expression 'commission' or 'brokerage' as prescribed under Section 194H. Explanation(i) of IT. Act. We find that the expression 'commission and brokerage' have been used not only in juxtaposition but in collocation with another phrase, ie., 'acting on behalf of another person for services rendered'. It is well-settled that all statutory definitions or provisions must be read subject to the qualification variously expressed depending upon the subject or the context. So, a judicial authority has not only to look at the words but also to look at the context, the collocation and the object of such words relating to such matter and interpret the meaning intended to be conveyed by the use of words under the circumstances. Hence, the rule of 'ejusdem generis' has to be observed, i.e., whether statutes are to be understood in terms of their plain language or in terms of their intention have long been a matter of controversy and there are numerous judgments upholding the strength of the arguments on either side. In the final analysis there is no controversy and it is only a question of approach. The first approach should be to read the words as they are. If they give a coherent and cogent meaning without leading to absurd or anomalous results, then the only thing that should be done is to follow the words of the statute, literally. This is the rule of literal interpretation. Literal interpretation prevails, where the plain words of the statute are clear and unambiguous and not absurd or unjust. Otherwise also, the legal connotations of these two expressions namely 'commission' and 'brokerage' observed that in commercial law, the commission is a compensation to an agent for services to be rendered. According to the given definition, already described hereinabove, it is an allowance or reward made to agents. This is generally calculated on certain percentage basis on the amount of the transaction on the profits to the principal. So it is clear from the above discussion that as a matter of law, there is a distinction between a contract of sale and contract of agency. Through a contract of agency, an agent is authorized to sell or buy on behalf of the principal. On the other hand, the essence of a contract of sale is the transfer of title of the goods for a price paid or promised to be paid. In the context of 'contract of sale', the transferee is liable to the transferor as a debtor for the price paid and not as an agent for the proceeds of the sale. Distinction between the two is apparent because the essence of 'agency to sell' is the delivery of goods to a person who is to sell them not as his own property but as the property of the principal who continues to be the owner of the goods. In view of above discussion, the essence of the matter is that in the present context, while dealing with the milk procured and supplied, in both the cases, there was a contract of sale and not contract of agency. Once the buyer become the owner of the property and the seller has no vestige of title left in the property, the concept of sale prevails. Resultantly, applying the aforesaid definitions and the judicial pronouncements to the facts of present case and in the backdrop of the above discussion on facts, we hereby hold that the transaction was on principal to principal basis and the appellant was not liable for deduction of tax at source, hence there was no infringement of Section 194H of the I.T. Act. With the result, the liability created by an order under Section 201(1) and 201(1A) was bad in law. The appellant succeeds and grounds allowed.
12. In the result, the appeal is allowed.