2005 (8) TMI 701 - AT - Income Tax

Summary

Issues Involved:

1. Justification of raising demand against the assessee under section 201 and 201(1A) of the Income-tax Act, 1961.
2. Applicability of section 194C of the Income-tax Act regarding tax deduction at source (TDS) on payments made to mukadams and transporters.
3. Validity of affidavits submitted by farmers.
4. Nature and role of the "Samiti" in the context of the assessee's operations.
5. Onus of proof regarding the "Samiti" being a benami organization of the assessee.

Detailed Analysis:

1. Justification of Raising Demand under Section 201 and 201(1A):

The assessee, a cooperative society engaged in manufacturing sugar, was scrutinized for not deducting tax from payments made to mukadams and transporters for harvesting and transporting sugarcane. The Assessing Officer (AO) found that the assessee failed to deduct TDS as required under section 194C, leading to a demand under section 201 and 201(1A). The assessee argued that the payments were made by a "Samiti" formed by farmers, and thus, the TDS provisions were not applicable. However, the AO rejected this argument, concluding that the "Samiti" was essentially a part of the assessee's operations, making the assessee liable for TDS.

2. Applicability of Section 194C:

The AO noted that payments exceeding Rs. 13 crore were made to mukadams and transporters without TDS. The assessee contended that these payments were the responsibility of individual farmers and were managed by the "Samiti." However, the AO found that the "Samiti" was not an independent entity but a part of the assessee's operations, thus making the assessee responsible for TDS under section 194C. The AO's detailed investigation revealed that the "Samiti" did not have its own funds or manpower and was managed by employees of the assessee. Consequently, the AO concluded that the payments to mukadams and transporters were made by the assessee, necessitating TDS.

3. Validity of Affidavits Submitted by Farmers:

The assessee submitted affidavits from farmers claiming that they were responsible for harvesting and transporting the sugarcane. The AO dismissed these affidavits, stating they were uniform and lacked credibility. The CIT(Appeals) upheld this view, noting that the affidavits did not align with the actual practices observed during the AO's investigation. The Tribunal also found that the affidavits were not required by the AO and were merely supportive of the assessee's arguments, thus lacking evidentiary value.

4. Nature and Role of the "Samiti":

The AO and CIT(Appeals) both concluded that the "Samiti" was not an independent entity but a part of the assessee's operations. The "Samiti" was found to be managed by the assessee's employees, and its funds were provided by the assessee. The Tribunal agreed, noting that the "Samiti" acted as a branch office of the assessee, handling the harvesting and transportation activities. The Tribunal emphasized that the rules and regulations cited by the assessee were unilateral and not binding on the farmers, further supporting the conclusion that the "Samiti" was an extension of the assessee's operations.

5. Onus of Proof Regarding the "Samiti" Being a Benami Organization:

The Tribunal held that the onus was on the Revenue to prove that the "Samiti" was a benami organization of the assessee. The AO successfully demonstrated that the funds and surplus of the "Samiti" were controlled by the assessee, thereby proving it to be a benami outfit. The Tribunal noted that the surplus funds of the "Samiti" were returned to the assessee, further supporting the AO's conclusion.

Conclusion:

The Tribunal upheld the findings of the AO and CIT(Appeals), confirming that the assessee was liable for TDS under section 194C and the demand raised under section 201 and 201(1A) was justified. The "Samiti" was determined to be a part of the assessee's operations, and the affidavits submitted by the farmers were deemed irrelevant. The appeal of the assessee was dismissed.