Income Tax Appellate Tribunal - Chandigarh
Dcit (Tds), Chandigarh vs M/S Distt. Manager, Patiala on 13 July, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES, CHANDIGARH
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER &
DR. B.R.R. KUMAR, ACCOUNTANT MEMBER
ITA No. 1291/Chd/2016
Assessment Year: 2014-15
The DCIT(TDS), Vs. District Manager,
Chandigarh The Punjab State Warehousing
Corporation Ltd., Patiala
TAN No. PTLP11128F
&
ITA No. 1293/Chd/2016
Assessment Year: 2014-15
The DCIT(TDS), Vs. The District Manager,
Chandigarh M/s Punjab State Grain
Procurement Corpn. Ltd.,
Fatehgarh Sahib, Punjab
TAN No. PTLP11399D
Appellant By : Sh. Ravi Sarangal
Respondent By : Sh. Atul Goyal
ITA No. 1292/Chd/2016
Assessment Year: 2014-15
The DCIT(TDS), Vs. The Punjab State Grain Procurement,
Chandigarh Corporation Limited, Barnala
TAN No. PTLP13338D
Appellant By : Sh. Ravi Sarangal
Respondent By : Sh. Bhupinder Singh
2
ITA No. 1295/Chd/2016
Assessment Year: 2014-15
The DCIT(TDS), Vs. The District Manager,
Chandigarh M/s Punjab State Civil Supply
Corporation Ltd., Patiala
TAN No. PTLP10886B
Appellant By : Sh. Ravi Sarangal
Respondent By : Sh. Vibhor Garg
ITA No. 67/Chd/2016
Assessment Year: 2012-13
The ACIT(TDS), Vs. M/s Punjab Agro Food Grains
Chandigarh Corporation Ltd. Patiala
PAN No. PTLP10627B
ITA No. 68/Chd/2016
Assessment Year: 2013-14
The ACIT(TDS), Vs. M/s Punjab Agro Food Grains
Chandigarh Corporation Ltd. Patiala
PAN No. PTLP10627B
&
ITA No. 1294/Chd/2016
Assessment Year: 2014-15
The DCIT(TDS), Vs. The Punjab Agro Food Grain
Chandigarh Corporation Limited, Patiala
TAN No. PTLT10627B
Appellant By : Sh. Ravi Sarangal
Respondent By : S/Sh. Rakesh Jain & Gurjeet Singh
(Appellant) (Respondent)
Date of hearing : 10.07.2017
Date of Pronouncement : 13.07.2017
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ORDER
Per Sanjay Garg, Judicial Member:
The present appeals have been preferred by the Revenue against the separate orders of Commissioner of Income Tax (A), [hereinafter referred to as CIT(A)], Patiala dated 30.09.2016 (in ITA Nos. 1291, 1292, 1293 & 1294/Chd/2016), dated 27.09.2016 (in ITA No. 1295/Chd/2016) and dated 26.11.2015 (in ITA Nos. 67 & 68/Chd/2016).
2. Since the grounds raised and issues involved in all the appeals are identical, the same were heard together and are being disposed of by this common order for the sake of convenience. We shall be taking ITA No. 1291/Chd/2016 as the lead case for disposing of all the appeals together.
The grounds raised in this appeal are as under:-
(i) In the facts and circumstances of the case, the Ld. CIT (A) is erred in deleting the demand ignoring that the provisions of section 194C are squarely applicable on the work carried out by the millers.
(ii) In the facts and circumstances of the case, the Ld. CIT(A) is erred in deleting the demand created on account of non / short deduction of tax u/s 201(I) / 201(1A) of the Income-tax Act, 1961 ignoring the fact that the assessee deductor applied provisions of section 194C on the cash part of the payments but not on the payments which were paid in kind and thus not deducted TDS on whole payment.4
(iii) In the facts and circumstances of the case, the Ld. CIT(A) is erred in linking the judgment of Hon'ble ITAT, Bench 'A', New Delhi in the case of M/s Ahaar Consumer Products Pvt. Ltd. with the facts of the present case as in the case of M/s Ahaar Consumer Products Pvt. Ltd, there did not involve any payment of consideration for the services rendered whereas in the present case execution of work upon supplied material is in lieu of payments on which TDS has also been deducted by the assessee.
3. Both the Ld. representatives of the parties have submitted that the facts and the issues raised in these appeals are squarely covered by the decision of the Coordinate ITAT Chandigarh Bench of the Tribunal in the case of ACIT(TDS) Vs. Punjab State Grain Procurement Corporation Ltd, Barnala in ITA Nos. 69, 70 & 71/Chd/2016, decided vide common order dated 11.8.2016 wherein the Tribunal while relying upon the decision of the Delhi Bench of the Tribunal in the case of Aahar Consumer Products Pvt Ltd in ITA No. 2910/Delhi/2010 dated 28.2.2011 has held that the provisions of section 194C as well as section 201(1) / 201(1A) of the Income-tax Act, 1961 are not applicable to the facts and circumstances of the case. The relevant part of the order of the Tribunal for the purpose of reference is reproduced herewith:-
"7. We have heard the rival submissions. The Ld. DR has fairly admitted that the issue is squarely covered by the decision of the Delhi Bench of the Tribunal dated 28.02.2011 passed in ITA No. 2910/Del/2010 & another wherein the Tribunal after considering the rival submissions and discussing the issue in detail has observed that in case where the assessee was into the business of trading of wheat, atta and other food grains and the Assessing officer had found that they used to purchase 5 wheat from open market and deliver it to M/s Aahar International Ltd (AIL) for making by-product such as atta, dalia etc., the assessee was required to provide the raw material (wheat) and packaging material and in return M/s Aahar International Pvt. Ltd. would give 85% Dalia or 88% Atta by weight of the wheat supplied by the assessee. The waste or the remaining quantity of wheat / residuals, if any, shall be kept by AIL as a consideration for the services rendered. The Delhi Bench of the Tribunal while relying upon various case laws held that no TDS was liable to be deducted in respect of the value of the by-products retained by the miller.
For the sake of convenience, the relevant part of the order of the Tribunal is as under:--
"8. There is no dispute that the parties, apart from entering into agreement have also acted upon the agreement and the transactions appear to be strictly falling within the agreement that is entered into by the parties. That is to say, this agreement, although between the two related concerns, is entered in the ITA No.2310/Del/2010 & Othrs 14 course of business and is acted upon by both the sides. Therefore, one cannot ignore the terms of this agreement in determining the nature of the transaction that have taken place between the parties, as there is nothing in the impugned orders to doubt the genuineness of this agreement.
8.1 Now, it is for the revenue to understand this agreement and determine the nature of the assessee's tax liability arising from the transaction entered into through this agreement. In fact, it is stated that the assessee has given the wheat under a delivery challan-cum-invoice and the value is provided only for settlement of claims. On the basis of the quantity of the wheat supplied by the assessee to AIL, the assessee has collected the end products namely Atta or Dalia and is not bothered about the other products and wastage arising therefrom. In other words, under the terms of agreement, by-products, waste and the residual of the wheat after manufacture belong to AIL and not to the assessee. Nowhere in the books of the assessee, the assessee has made any payment towards the services rendered by AIL in producing the Atta and Dalia for and on behalf of the assessee in the packets and containers provided by the assessee in terms of the agreement.6
9. The AO has invoked the provisions of Section 194C and was of the opinion that even under the terms of the agreement, the assessee is under an obligation to deduct tax at source on this job work. According to him, the ITA No.2310/Del/2010 & Others 15 payments contemplated in Section 194C can also be made in kind and the assessee is under an obligation to deduct tax at source and such taxes have not been deducted. The so-called payment, constructively determined, attract the disallowance under the provisions of Section 40(a)(ia) of the Act.
10. The assessee relied upon the agreements and argued that the assessee has not paid any sum for carrying out any work including supply of labor in pursuance of a contract and the assessee is not obliged to make any payment nor the assessee has credited any amount in the account of the contractor as payable which requires the assessee to deduct tax and, therefore, the application of the provisions of section 194C as well as the provisions of section 40(a)(ia) of the act is not justified. All the contentions that were taken before the two revenue authorities are reiterated before us including the case laws.
11. Ld. DR, on the other hand, strongly supported the findings of the AO and to the extent the addition is sustained by the CIT(A) to the findings contained therein. The provisions of Section 194C which obliges the deduction of tax at source relevant to the AY 2006-07 are reproduced below:-
[Payments to contractors and sub-contractors.
194C.[(1) Any person responsible for paying any sum to any resident (hereinafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and--
(a) the Central Government or any State Government; or
(b) any local authority; or
(c) any corporation established by or under a Central, State or Provincial Act; or
(d) any company; or
(e) any co-operative society; or
(f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of 7 planning, development or improvement of cities, towns and villages, or for both; or
g) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or
(h) any trust; or
(i) any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956) ; or
(j) any firm; or
(k) any individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to--
(i)one per cent, in case of advertising,
(ii) in any other case two per cent, of such sum as income-
tax on income comprised therein:
Provided that no individual or a Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.] (2) Any person (being a contractor and not being an individual or a Hindu undivided family) responsible for paying any sum to any resident (hereafter in this section referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax on income comprised therein:8
[Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the sub-contractor, shall be liable to deduct income-tax under this subsection.] [Explanation I.--For the purposes of sub-section (2), the expression "contractor" shall also include a contractor who is carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Government of a foreign State or a foreign enterprise or any association or body established outside India.] [Explanation II].--For the purposes of this section, where any sum referred to in sub-section (1) or sub-section (2) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.] [Explanation III.--For the purposes of this section, the expression "work" shall also include--
(a) advertising;
(b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
(c) carriage of goods and passengers by any mode of transport other than by railways;
(d) catering.] (3) No deduction shall be made under sub-section (1) or sub-
section (2) from--
[(i) the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor or sub-contractor, if such sum does not exceed twenty thousand rupees:
Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds fifty thousand rupees, the person responsible for paying such sums referred to in sub-section (1) or, as the case may be, sub-section (2) shall be liable to deduct income-tax [under this section:] 9 [Provided further that no deduction shall be made under sub- section (2), from the amount of any sum credited or paid or likely to be credited or paid during the previous year to the account of the sub-contractor during the course of business of plying, hiring or leasing goods carriages, on production of a declaration to the person concerned paying or crediting such sum, in the prescribed form and verified in the prescribed manner and within such time as may be prescribed, if such sub-contractor is an individual who has not owned more than two goods carriages at any time during the previous year:
Provided also that the person responsible for paying any sum as aforesaid to the sub-contractor referred to in the second proviso shall furnish to the prescribed income-tax authority or the person authorised by it such particulars as may be prescribed in such form and within such time as may be prescribed; or]
(ii) any sum credited or paid before the 1st day of June, 1972; [or] [(iii) any sum credited or paid before the 1st day of June, 1973, in pursuance of a contract between the contractor and a co-operative society or in pursuance of a contract between such contractor and the subcontractor in relation to any work (including supply of labour for carrying out any work) undertaken by the contractor for the co-operative society.] [Explanation.--For the purposes of clause (i), "goods carriage" shall have the same meaning as in the Explanation to sub-section (7) of section 44AE.] (4) [***] (5) [***]]
12. Now, we have to examine whether the assessee is obliged to deduct tax at source on the so-called constructive payment as construed by the AO in terms of the agreement. The assessee, in this case, supplies 100 kg of wheat and takes back 88 Kgs of Atta or 85 Kgs of Dalia after its processing done by the AIL and AIL is required to deliver the end product in this proportion to the assessee who has supplied the raw material. Does 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 that the provisions of section 194C would apply only in relation to labour contacts and 10 would not cover contracts for sale of goods. If a manufacturer purchases material on his own and manufactures a product as per the requirement of a specific customer, it was a case of sale and not a contract for carrying out any work. The fact that the goods manufactured were according to the requirement of the 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 contract 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 Hon'ble Supreme Court in the AIR 1972 SC 1148. The Bombay High Court has also analyzed the difference between the sale and works contract in the case of BDA Ltd. vs ITO(TDS) 281 ITR 99. 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 establishment supplied the printed labels to be wrapped on the bottles to the assessee. The ITO(TDS) did not accept the contentions of the assessee that the transaction with 'M' 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 of 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 screens, etc. were being supplied by the assessee to 'M'. In the facts of this case, the supply of printed labels by 'M' to the assessee was "contract of sale" and it could not be termed a "works contract". Hence the provisions of section 194C were held to be not applicable.
13. The High Court while deciding this case has reviewed 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 light on the present contract entered into by the assessee. Hence, the assessee is supplying wheat and getting back Atta or Dalia as the case may be, in an agreed proportion. For such exchange, there is absolutely no payment of any consideration. Even if one were to treat it as a work contract and not a contract of sale, it is difficult to say that there is a payment as a consideration for the labour or the work that is rendered. The assessee is just exchanging the product; in the exchange he is not getting the same product but a different product and not to the same extent 11 but to a different extent. In other words, it is difficult to say that the assessee has made any payment in undertaking this contract on the basis of the agreement 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 say that the assessee was under an obligation to deduct tax at source at such construed payments. The assessee has not even credited such construed consideration for supply of labour in the books of accounts of the assessee. In fact, it has not even claimed any expenditure as deduction. To say that such expenditure has resulted in an outflow without deduction of tax at source is too much and is not borne out from the transaction entered into between the parties. The question of disallowance by applying the provisions of Section 40(a)(ia), in our opinion, is not in accordance with law as the assessee 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 the extent of shortfall in getting the wheat supplied back and construe it as the payment to the other for processing the wheat into Atta or Daliya. The department must have appreciated the contract as a whole which does not involve any payment or getting the payment for services rendered. It is a case of barter or exchange 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 understood by the courts in cases under the sales tax which was discussed by the Hon'ble Supreme Court in the case cited in AIR 1972 SC 1148 or in the case dealt with by the Bombay High Court in the case of BDA Ltd. (supra). The assessee having regard to the contract which it has entered on 2.2.2005, in our opinion, does not 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 some payment for which deduction has been claimed under the Act. The assessee has nowhere claimed the payment as deduction. Only purchase price of wheat is what it had paid on which no deduction of tax is required and that got lost in exchange for obtaining a finished product in the form of Atta or Dalia, not involving the medium of payment. It is a contract of business which does not involve any payment of consideration for the services rendered. We must examine the issue from another angle. Had the assessee owned the plant and got the Atta and Dalia manufactured from wheat, 12 it could have claimed a process loss and that could have been impliedly a part of business transaction and no question of any disallowance of such loss could possibly have arisen. Merely because 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 whole contract cannot be termed as works contract in the strict sense of the term which is generally understood under the provisions of Section 194C. In our opinion, the AO 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 payments for such services are claimed as deduction from the profit and gains of business u/s 32 to section 38. Only when the claim of the assessee for deduction is u/s 32 to section 38, the provisions of Section 40(a)(ia) can be pressed into service to disallow such claims for deduction. At the cost of repetition, we may say that to invoke said provision of Section 40(a)(ia), first of all, the case should be made out by the department that the assessee is contemplating deduction u/s 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 u/s 32 to section 38. This loss, if any, is in the net profit in the trading account which is a computation u/s 28 and 29 and not claims u/s 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 question of making any disallowance by invoking the provisions of Section 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 wheat 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 quantity. The assessee by this method has prevented itself from factors like fall in the prices of either raw material or of the finished products. The market value of the wheat and the end products are totally different and fluctuate in different directions. All these fluctuations are warded off by the present agreement, which is just exchange of goods for goods and does not involve any cash outflow. Although services were taken, it is difficult to say that the residuals and the losses left by the assessee in favour of AIL are purely consideration for the job that is done. The market 13 fluctuations in the price structure of the raw material and the end product cannot be just ignored in the whole transaction nor the process loss. The process loss could be either more or less than the percentage agreed to between the parties. But still the parties settle the transactions at an agreed proportion. In other words, the residual that is left by the assessee, apart from covering the labour cost of processing, also includes the protection from market fluctuations as also protection from adverse process loss. To conclude, the entire residual is only for the purpose of job work is not fair and correct having regard to the totality of the transaction entered into by the parties.
15. In the light of this discussion, we allow the assessee's appeal and dismiss the revenue's appeal on this issue."
8. In the case in hand, whatever amount the assessee has paid as 'milling charges' for the paddy, the assessee has deduced the TDS thereupon. However, the assessee was not obliged to make any payment on the value of the by-product retained by the miller, therefore, in the light of the decision of the Delhi Bench of the Tribunal in "Aahar Consumer Products Pvt. Ltd."(supra), provisions of section 194C of the Act as well as 201(1) / 201 (1A) of the Income-tax Act would not be applicable to the facts and circumstances of the case. The Ld. CIT(A) therefore, has rightly deleted the addition imposed by the AO on account of non / short deduction of tax us 201(1) / 201(1A) of the Act. We, therefore, confirm the order of Ld. CIT(A).
10. In the result, all the three appeals of the Revenue are hereby dismissed."
4. A perusal of the impugned order of the CIT(A) also reveals that the Ld. CIT(A) has also followed the decision of the ITAT Delhi Bench of the Tribunal in the case of Aahar Consumer Products Pvt Ltd (supra).
There being no contrary decision brought to our knowledge, we do not find any justification to interfere in the well reasoned order of CIT(A). The 14 issue being clearly covered by the decision of the Coordinate Bench of the Tribunal in favour of the assessee, we do not find any merit in the appeal of Revenue. Hence, all the seven appeals preferred by the Revenue are hereby dismissed.
5. In the result, all the appeals filed by the Revenue are hereb y dismissed.
Order pronounced in the Open Court on 13.07.2017.
Sd/- Sd/- (DR. B.R.R. KUMAR) (SANJAY GARG) ACCOUNTAN T MEMBER JUDICIAL MEMBER Dated : 13 t h July, 2017 Rkk Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR