2011 (9) TMI 1080 - AT - Income Tax

Summary

Issues Involved:
The issues involved in this judgment are related to the applicability of tax deduction at source under section 194H of the IT Act on payments made by the assessee to distributors for supplying milk and milk products, and the correct section under which tax deduction should be made for chilling charges paid by the assessee for storage and chilling facilities.

Issue 1 - Applicability of Section 194H:
The department appealed against the holding that the supply of milk and milk products by the assessee to distributors was a sale agreement on a principal to principal basis, and thus not liable for tax deduction at source under section 194H of the IT Act. The department relied on the AO's order and a decision of the Hon'ble Delhi High Court. However, the assessee argued that the facts were different and cited decisions in favor of the assessee. The Tribunal found that the provisions of section 194H were not applicable in this case, as the assessee, a Co-operative Society, was engaged in the production and distribution of dairy products, and the distributor agreements indicated a principal-agent relationship, not subject to TDS under section 194H.

Issue 2 - Correct Section for Chilling Charges:
The AO held that chilling charges paid by the assessee were liable for tax deduction at source under section 194-I, not under section 194C. The AO raised a substantial liability under sections 201(1) and 201(1A) of the Act. The assessee contended that the chilling charges were paid as per agreement and satisfied conditions for deduction under section 194C, not 194-I. The Tribunal found that the assessee did not hire the plant and machinery but paid for work carried out under contract, thus section 194C was applicable, and the AO's decision under section 194-I was incorrect. The Tribunal also held that interest under section 201(1A) could not be charged as the assessee had paid full tax and the principal had also paid tax on the amount received.

In conclusion, the Tribunal dismissed the department's appeals and allowed the cross objection of the assessee, confirming the orders of the ld. CIT (A) for both issues.