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2018 (12) TMI 398 - AT - Income TaxTDS u/s 194C - determination of milling cost paid by the assessee - AO observed that the amount need to be increased by the cost of by-product for the purpose of deduction of tax at source - short deduction of TDS - Held that - Under the circumstances it cannot be said that the consideration was passed in kind, rather, it was passed in terms of the monetary value of the sale price received from the catch, subject to the condition that it would not be more than US 6,00,000. In the aforesaid case of Kanchanganga Sea Foods Ltd. 2010 (7) TMI 3 - SUPREME COURT OF INDIA the assessee, Kanchanganga Sea Foods Ltd., remained the owner of the catch until its sale value was realized and had right to retain the realized value that was more than US 6,00,000 and at the same time it was entitled to retain the sale value of the 15% catch, even though, the sale value of the remaining 85% of the purchase would fetch less than US 6,00,000. It was the sale value of the catch which was the determining factor and till the catch was not sold or its value was not determined, the property in the catch fish would remain under the ownership of the assessee Kanchanganga Sea Foods Ltd. (supra). In this case, the property in the by-products comes into ownership of the millers from the very point of coming of it into existence, hence, in this case the assessee were not the owners of the by-products. Another factor for consideration is that the property passed in kind should have some ascertainable and determinable value, which can be taken as part of the consideration paid for the work done. Further, it is the nature of the contract, term of the agreement, the intention of the parties and overall facts and circumstances of the case which are required to be analyzed and considered for determining whether the provisions of section 194C or other similar provisions of the Chapter would be attracted or not in a particular case. As discussed above in detail, since we have held that the property in the by-product was not passed on by the assessee / Procurement Agencies as milling charges, hence, it is held that TDS provisions of section 194C are not attracted in this case. This issue is decided in favour of the assessee / Procurement Agencies.
Issues Involved:
1. Applicability of Section 194C on payments made to millers. 2. Consideration of by-products as part of the payment for the purpose of TDS. 3. Relevance of the case of M/s Ahaar Consumer Products Pvt. Ltd. 4. Interpretation of Section 194C regarding payments in kind. 5. Reliance on government policies and reports. Issue-wise Detailed Analysis: 1. Applicability of Section 194C on Payments Made to Millers: The primary issue was whether the provisions of Section 194C of the Income-tax Act, 1961, were applicable to the payments made by the assessee to the millers for milling paddy. The Department contended that the assessee failed to deduct TDS on the entire consideration, which included not only the cash payment of ?15 per quintal but also the marketable value of the by-products retained by the millers. The assessee argued that TDS was deducted on the milling charges as per the agreement and government policy, and the by-products were not part of the consideration paid for milling. 2. Consideration of By-products as Part of the Payment for the Purpose of TDS: The Department argued that the by-products retained by the millers had considerable market value and should be considered part of the payment for the milling services. They relied on various government reports and policies, which indicated that the milling charges were fixed taking into account the value of the by-products. The assessee countered that the by-products were the property of the millers as per the agreement and not part of the consideration for the milling services. The CIT(A) and the Tribunal agreed with the assessee, holding that the by-products were not part of the consideration for the milling services and, therefore, not subject to TDS under Section 194C. 3. Relevance of the Case of M/s Ahaar Consumer Products Pvt. Ltd.: The CIT(A) relied on the decision of the Delhi Bench of the Tribunal in the case of M/s Ahaar Consumer Products Pvt. Ltd., where it was held that the by-products were not part of the consideration for the milling services and, therefore, not subject to TDS. The Department argued that the facts of the present case were different from those in the Ahaar Consumer Products case. However, the Tribunal found that the facts were similar and that the decision in the Ahaar Consumer Products case was applicable to the present case. 4. Interpretation of Section 194C Regarding Payments in Kind: The Department relied on the case of Kanchanganga Sea Foods Ltd. v. CIT, where it was held that payments in kind were also subject to TDS under Section 195. The assessee argued that the facts of the Kanchanganga case were different and that the provisions of Section 194C applied only to monetary payments. The Tribunal agreed with the assessee, holding that the provisions of Section 194C applied only to monetary payments and not to payments in kind. 5. Reliance on Government Policies and Reports: The Department relied on various government policies and reports, including the CAG report and the Tariff Commission report, to argue that the milling charges were fixed taking into account the value of the by-products. The assessee argued that these reports were not admissible in evidence and could not bypass the statutory provisions of law. The Tribunal agreed with the assessee, holding that the reports were not admissible in evidence and that the statutory provisions of law prevailed. Conclusion: The Tribunal dismissed the appeals of the Department and allowed the appeals of the assessees. It held that the by-products retained by the millers were not part of the consideration for the milling services and, therefore, not subject to TDS under Section 194C. The Tribunal also held that the provisions of Section 194C applied only to monetary payments and not to payments in kind. The Tribunal relied on the decision of the Delhi Bench of the Tribunal in the case of M/s Ahaar Consumer Products Pvt. Ltd. and rejected the Department's reliance on the case of Kanchanganga Sea Foods Ltd. v. CIT. The Tribunal also held that the government policies and reports relied on by the Department were not admissible in evidence and could not bypass the statutory provisions of law.
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