2015 (11) TMI 1518 - AT - Income Tax

TDS u/s 194C - non tds on contractual payments of cutting and transporting of sugarcane from the fields to the factory gate - Held that - There is no dispute with regard to the fact that the payment @ ₹ 185/- P.M.T. was given as advance purchase price to farmers to enable them to meet the expenditure of harvesting, cutting and transporting. Therefore, in our considered view, the Assessing Officer was not justified in making the assessee liable for deducting the tax on such payments as the payments were not given for carrying out the work of harvesting, cutting and transporting on behalf of the assessee. In the case on hand, the supply of sugarcanes at the gates of factories of the respective assessees was a part of sale transaction, and therefore, we are of the opinion that the assessees are not liable to deduct TDS - Decided in favour of assessee.

Summary

Issues:
- Appeal against deletion of order passed u/s 201(1) & interest charged u/s 201(1A) of the I.T. Act
- Interpretation of tax deduction on contractual payments for cutting and transporting sugarcane
- Applicability of Section 194C of the I.T. Act
- Judicial precedent and interpretation of sale transaction regarding TDS deduction

Analysis:

1. Deletion of Order under Section 201(1) & Interest under Section 201(1A):
The Revenue appealed against the deletion of the order passed under Section 201(1) and interest charged under Section 201(1A) of the Income Tax Act. The issue arose when the Assessing Officer found that the assessee had not deducted tax on contractual payments for cutting and transporting sugarcane. The Commissioner of Income Tax (Appeals) allowed the appeal, leading to the Revenue's challenge before the ITAT Ahmedabad.

2. Tax Deduction on Contractual Payments:
During a survey conducted at the assessee's office premises, it was observed that tax was not deducted on payments for cutting and transporting sugarcane. The Assessing Officer declared the assessee as "assessee in default" and made additions. However, the CIT(A) deleted the addition based on the argument that the payments to farmers were in the nature of a purchase price, not falling under Section 194C of the I.T. Act. The ITAT upheld this decision citing the Gujarat High Court's judgment in a similar case.

3. Applicability of Section 194C:
The crux of the matter revolved around whether Section 194C of the I.T. Act applied to the payments made by the assessee to farmers for sugarcane. The ITAT found that the payments were advance purchase prices to meet expenses like harvesting and transportation, not falling under the purview of Section 194C. The CIT(A) and ITAT both agreed that the Assessing Officer's action was not justified.

4. Judicial Precedent and Sale Transaction Interpretation:
The ITAT relied on the judgment of the Hon'ble Gujarat High Court in a similar case, where it was held that the supply of sugarcane at the factory gate was part of a sale transaction, absolving the assessee from TDS deduction liability. This interpretation supported the decision of the CIT(A) in deleting the addition made by the Assessing Officer.

5. Conclusion:
Ultimately, the ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the order passed under Section 201(1) and interest charged under Section 201(1A) of the I.T. Act. The judgment highlighted the nature of the payments made to farmers, the applicability of tax deduction provisions, and the significance of judicial precedents in interpreting sale transactions for TDS purposes.