2018 (3) TMI 1304 - AT - Income Tax

TDS u/s 194J - out of pocket expenses and payment to auditors - non deduction of tds - CIT-A deleted the tds levy - Held that - As per the AR some amount was given to auditor for out of pocket expenses were paid by the assessee after deduction of tax. So in considered opinion, ld. CIT(A) has passed detailed and reasoned order, therefore, we do not want to interfere in the order passed by the ld. CIT(A) hence, this ground of appeal is dismissed. TDS u/s.194H or 194C - commission payments made to Sahayak - Held that - Payment is made to Sahayak on percentage basis on various parameters like number of farmers pouring milk, fat and SNF factor in milk, quantity to mild collected etc. which ensures payment is commensurate with work performed. The nature of work carried out by the Sahayak are covered by provisions of section 194C and accordingly tax was deducted on the same accordingly. On the basis of the consistency, we dismiss this ground of appeal of department. Non deduction of tax at source under section 194J OR 194C - short deduction of tax on payment of commissioner charges paid to dairies - Held that - Assessee provided raw milk and necessary materials to the dairies for processing as per specification of assessee. The dairies custom pack it on job work basis. Assessee deducted tax u/s.194C on conversion charges ₹ 19.77 crores paid to such dairies since the job work falls within definition of work u/s.194C. CBDT circular No.13/2006 dated 13th Dec, 2006 relied. Further stated the services rendered by the dairies are not technical services since the dairies are not expert on any technology which they could provide to the assessee, nor they provide any managerial services/consultancy services since there is no advice given by dairies to the assessee. The dairies are not assigned any exclusive work relating to quality check but are assigned work relating to conversion/processing of milk and milk products, wherein one of the requirements is to ensure quality parameters. Payment made for getting jobs done like testing, inspection of materials, etc. were of nature of material & labour contract liable to TDS u/s.194C.

Summary

Issues Involved:
1. Non-deduction of tax at source under section 194J on out-of-pocket expenses of auditors.
2. Non-deduction of tax at source under section 194H on commission payments made to Sahayak.
3. Non-deduction of tax at source under section 194J on short deduction of tax on payment of conversion charges to dairies.
4. Proportionate expenses disallowed under section 40(a)(ia).
5. Pre-operative expenses considered as revenue expenditure.

Detailed Analysis:

1. Non-Deduction of Tax at Source under Section 194J on Out-of-Pocket Expenses of Auditors:
The Assessing Officer (AO) contended that payments for boarding and lodging expenses made by the assessee to auditors should be subject to TDS under section 194J, as these payments were made on the basis of bills raised by auditors, including service tax. However, the assessee argued that these expenses were paid directly to the hotels and not to the auditors. The CIT(A) accepted the assessee's explanation, supported by relevant bills and proof of payment. The tribunal upheld the CIT(A)'s decision, finding no reason to interfere with the detailed and reasoned order.

2. Non-Deduction of Tax at Source under Section 194H on Commission Payments Made to Sahayak:
The AO argued that the assessee should have deducted tax under section 194H on commission payments made to Sahayak. The assessee explained that Sahayaks were engaged on a principal-to-principal basis to collect milk from members, and payments were made based on various parameters like the quantity of milk collected and its quality. The CIT(A) agreed with the assessee, noting that the relationship was not of an agency but a contractual one, covered under section 194C. The tribunal upheld this view, citing consistency with previous years' decisions and relevant case law.

3. Non-Deduction of Tax at Source under Section 194J on Short Deduction of Tax on Payment of Conversion Charges to Dairies:
The AO treated payments made to dairies for conversion and packing of milk as technical services under section 194J. The assessee argued that these were job work payments under section 194C, as the dairies processed milk based on the assessee's specifications. The CIT(A) ruled in favor of the assessee, stating that the main nature of the transaction was job work, not technical services. The tribunal upheld this decision, referencing relevant judgments that supported the classification of such payments under section 194C.

4. Proportionate Expenses Disallowed under Section 40(a)(ia):
The AO disallowed proportionate expenses under section 40(a)(ia) due to short deduction of tax. The CIT(A) and the tribunal found that the assessee had not short deducted tax and was not in default under section 201(1). The tribunal set aside the matter to the AO to calculate the proportionate expenses and give effect to the appellant.

5. Pre-Operative Expenses Considered as Revenue Expenditure:
The assessee appealed against the AO's decision to treat certain expenses as pre-operative and disallow them. However, the assessee later requested to withdraw these grounds. The tribunal dismissed this appeal as withdrawn.

Conclusion:
- Appeals by the department regarding non-deduction of tax at source under sections 194J and 194H were dismissed.
- Cross objections by the assessee regarding short deduction of tax and proportionate expenses were allowed.
- The appeal concerning pre-operative expenses was dismissed as withdrawn.

Order Pronounced:
This order was pronounced in open court on 23/03/2018.