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2016 (7) TMI 1483 - AT - Income TaxTDS u/s 194C - indeterminate value of bye products retained free of cost by the rice millers in accordance with policy framework and guidelines of the Central Government agency - consideration in kind - Held that - As decided in ITO VERSUS AHAAR CONSUMER PRODUCTS (P) LTD. 2011 (2) TMI 488 - ITAT, DELHI occurrence of 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 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 - 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. - Decided in favor of assessee.
Issues Involved:
1. Whether the assessee can be deemed to be in default under Section 201/201(1A) of the Income Tax Act, 1961. 2. Whether the assessee was required to deduct TDS under Section 194C of the Income Tax Act, 1961 on the value of by-products retained by rice millers. 3. Applicability of the decision in the case of Hindustan Coca Cola Beverages (P) Ltd. vs. CIT, 293 ITR 226 (SC) regarding the assessee being treated as in default. Detailed Analysis: Issue 1: Default under Section 201/201(1A) The Assessing Officer (AO) treated the assessee as in default for not deducting tax at source on the value of by-products retained by the millers. The AO argued that the milling charges paid in cash were only a part of the total consideration, with the by-products forming the other part, and thus, TDS should have been deducted on the combined value. The assessee contended that the by-products were retained by the millers as per government policy and were not accounted for in their books, thus no TDS was required. The CIT(A) initially allowed relief to the assessee based on the Supreme Court’s decision in Hindustan Coca Cola Beverages (P) Ltd., which stated that if the deductees have paid the due taxes, the deductor cannot be treated as in default. Issue 2: Requirement to Deduct TDS under Section 194C The primary legal issue was whether the assessee was required to deduct TDS on the value of the by-products. The assessee argued that the by-products were considered wastage and not a part of the milling charges. The milling charges were fixed by the government at ?15 per quintal, and TDS was deducted on this amount. The AO, however, deemed the value of the by-products as additional consideration for the milling services and calculated a short deduction of TDS accordingly. The CIT(A) did not address this primary issue but instead focused on the alternative argument that the deductees had already paid the taxes. The Tribunal found that the CIT(A) should have first decided whether TDS was required on the by-products' value. Issue 3: Applicability of Hindustan Coca Cola Beverages (P) Ltd. The CIT(A) allowed relief to the assessee based on the Supreme Court’s decision in Hindustan Coca Cola Beverages (P) Ltd., which states that the deductor cannot be treated as in default if the deductees have paid the due taxes. The CIT(A) verified the records and found that most deductees had paid the taxes, except for a few cases where the assessee was still treated as in default. Tribunal’s Findings: The Tribunal emphasized the need to address the primary legal issue of whether TDS was required on the value of the by-products before considering the alternative argument. The Tribunal referred to a similar case, ‘Ahaar Consumer Products (P) Ltd.’, where it was held that TDS was not required on the by-products as it was a barter transaction and not a work contract. The Tribunal concluded that the assessee was not required to deduct TDS on the value of the by-products, following the decision in ‘Ahaar Consumer Products (P) Ltd.’. This decision was based on the understanding that the transaction was an exchange and not a payment for services rendered. Conclusion: The Tribunal allowed the appeals for all the assessment years, holding that the assessee was not required to deduct TDS under Section 194C on the value of the by-products. The rule of consistency and the decision in ‘Ahaar Consumer Products (P) Ltd.’ were key factors in this judgment. The Tribunal’s decision effectively resolved the recurring issue in favor of the assessee, negating the need for further additions based on the deemed value of the by-products.
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