2017 (3) TMI 881 - AT - Income Tax

TDS u/s 194C - payments to HGL and transporters - non deduction of tds - Held that - In this case undoubtedly, the assessee in not the person who makes the payment directly to HGL and Transporters. The assessee categorically proved with necessary proof that it had made payments on behalf of the farmers out of amount payable to the farmers towards cost of sugarcane. The assessee also proved with evidence that the impugned payments to HGL and transporters is not its expenditure, but only advance payment to farmers which was finally adjusted against cost of sugarcane payable to the assessee. We, therefore, of the opinion that where assessee a sugar manufacturer made payment of harvesting and transportation charges to harvesting and transport contractors on behalf of farmers which formed part of purchase price of sugar cane for assessee, and same had not been claimed as separate deduction, provisions of sections 194C of the Act is not applicable, consequently the assessee is not liable to deduct TDS on such payments. Thus the impugned payments to HGLs and transporters paid by the assessee company on behalf of farmers are not hit by the provisions of sec. 194C of the Act. The CIT(A) after considering relevant facts, rightly deleted additions made by the A.O. u/s 201(1) of the Act. - Decided n favour of assessee

Summary

Issues Involved:
1. Applicability of TDS provisions under Section 194C on payments made to Harvesting Gang Labours (HGL) and transporters.
2. Determination of whether the payments made by the assessee on behalf of farmers are liable for TDS.
3. Examination of the nature of the relationship between the assessee, farmers, and contractors.
4. Analysis of the CIT(A)'s decision and its alignment with the legal provisions and precedents.

Detailed Analysis:

1. Applicability of TDS Provisions under Section 194C:
The Assessing Officer (A.O.) determined that the payments made to HGL and transporters by the assessee fall under the definition of "work" as per Section 194C of the Income Tax Act. The A.O. argued that the transaction between the assessee and the contractors constituted a valid contract for carrying out work, thereby necessitating TDS deduction. The A.O. referred to CBDT Circular No. 8/2009 and the Bombay High Court decision in the case of Dedicated Health Care Services TPA (India) Pvt Ltd., which held that third-party administrators must deduct TDS on payments made on behalf of insurance companies. The A.O. concluded that the assessee was in default under Section 201(1) for failing to deduct TDS on these payments.

2. Determination of TDS Liability on Payments Made by the Assessee:
The assessee contended that the payments to HGL and transporters were made on behalf of farmers and were adjusted against the purchase price of sugarcane. The assessee argued that these payments did not come under the purview of Section 194C as they were not claimed as the assessee's expenditure but were debited to the farmers' accounts. The CIT(A) accepted this argument, holding that the payments were part of the purchase price of sugarcane and thus not subject to TDS under Section 194C.

3. Nature of the Relationship Between Assessee, Farmers, and Contractors:
The CIT(A) found that the responsibility of harvesting and transporting sugarcane lay with the farmers, and the assessee merely facilitated this process by arranging for contractors and making payments on behalf of the farmers. The payments were debited to the farmers' accounts and adjusted against the purchase price of sugarcane. The CIT(A) also noted that the end receiver of the payments was the farmer, whose income from agriculture is exempt from tax, further supporting the argument that these payments were not subject to TDS.

4. Analysis of CIT(A)'s Decision and Legal Precedents:
The CIT(A) relied on the decision of the ITAT, Ahmedabad in the case of Shri Kamraj Vibagh Sahakari Khandi Udyog Mandli Ltd., which held that payments made by a sugar factory on behalf of farmers for harvesting and transportation were not subject to TDS under Section 194C. The CIT(A) also considered the decision of the ITAT, Pune Bench in the case of DCIT vs. Dwarkadheesh Sakhar Karkhana Ltd., which supported the view that payments made on behalf of farmers for harvesting and transportation, forming part of the purchase price of sugarcane, were not liable for TDS.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, concluding that the payments made by the assessee to HGL and transporters on behalf of farmers were not subject to TDS under Section 194C. The Tribunal noted that the payments were part of the purchase price of sugarcane and were not claimed as the assessee's expenditure. The Tribunal also agreed with the CIT(A) that the income of the farmers being agricultural income exempt from tax, the provisions of Section 194C did not apply. Consequently, the appeals filed by the Revenue were dismissed.

Judgment:
The appeals filed by the Revenue (ITA. No. 127 to 129/Vizag/2013) were dismissed. The Tribunal upheld the CIT(A)'s order, confirming that the payments made by the assessee to HGL and transporters on behalf of farmers were not liable for TDS under Section 194C. The judgment was pronounced in the open court on 9th December 2016.