2022 (4) TMI 1623 - AT - Income Tax

TDS u/s 194C - payments to harvesting contractors H T for services falls within the realm Contract Payment triggering the liability to deduct Tax at Source TDS - HELD THAT - Such principal contractors are in turn engaged for services in terms of contract as per the requirement of the appellant contractee. The assessee company pursuant to contractual right, is independently capable bringing suit against the contractors for breach of any contractual terms without the reference to farmer or field. As admitted fact that, in terms of open contract or agreement, the assessee extends advance payments to the contractors creating a contractual rights and obligation without reference to farm-field or farmer and raises a separate bill for harvesting services against the services availed from respective contractors and the financial accounts of each of such contractors is settled at the end of each crushing seasons. Eventually the total payments made towards harvesting services and transport services availed by the company, is then added to the total cost of material in terms generally accepted accounting principle and norms of inventory valuation regularly employed by the appellant company. Case of the assessee for various years were taken for scrutiny and according due opportunity, the AO clearly brought on record that, the assessee company since engaged these resident contractors on its own account on principal-to- principal basis, for a services under a valid enforceable contracts and paid them sum of money in terms of such contracts / agreements for the services availed, consequently, held as liable to comply with the provisions of sections 194C. CIT(A), reconsidering the factual position in the light of judicial precedents, concurred with the findings of the AO. We prima-facie are not able to persuade ourselves to accept the argument of AR for the reason laid in immediately preceding paragraphs. It is hardly any legal ground for consideration as the non-compliance of statutory obligations shall always have their own consequences to flow. Interestingly, the appellant submitted a copy of purchase agreement entered on 18/08/2016 in the local language Kannada whereas the entire draft is in Kannada and demographical details are in English. Although uncertified, free translation copy thereof has been placed before us, however no contract / agreement pertaining to any of the five years under consideration brought before the bench controverting established the facts, in the absence thereof, findings of AO concluded on the basis of contact / agreement entered for sugar season year 2014-2015 reinforced. Per contra the appellant failed to establish on records that, there exist a contract between the farmer and the harvesting contractor on principal basis for harvesting of sugarcane at the behest of farmer to the assessee and the consideration for such harvesting is paid by the assessee out of the payment due to farmer against sugarcane supplied bill. AR in resting the submission adverting of the assessment order (referring answer to question number 8 of statement recorded) candidly brought to our notice that, the company from the financial year 2016-2017 has started making TDS from the payments made to harvesting contractor, however this is in no way have any implication on the present adjudication. We find substantial force in the view of the lower tax authorities, consequently we do not hesitate to upheld the orders of assessments with no infirmity to the effect that; assessee company having incurred itself liable, has defaulted in terms of section 201(1) and thereby exposed itself to consequential provisions of section 201(1A) 206AA(1) of the Act. Decided against assessee.

Summary

Issues Involved:
1. Whether payments to harvesting contractors fall within the realm of "Contract Payment" triggering the liability to deduct Tax at Source (TDS) under Section 194C of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Determination of Contract Payment and TDS Liability:

The primary issue in these appeals is whether payments made to harvesting contractors by the appellant company are considered "Contract Payments" under Section 194C of the Income-tax Act, 1961, thereby necessitating the deduction of Tax at Source (TDS).

The appellant company, engaged in sugar manufacturing, was surveyed under Section 133A of the Act, revealing non-compliance in TDS deductions for payments made to harvesting contractors. The Assessing Officer (AO) deemed the appellant as "assessee-in-default" under Section 201(1) for failing to deduct TDS, leading to consequential interest and penalties under Sections 201(1A) and 206AA(1).

2. Appellant's Contentions:

The appellant argued that:
- Harvesting charges are part of the cost of raw material (sugarcane) and not a separate service expenditure.
- Payments to harvesting contractors are agricultural income, exempt from TDS.
- Payments were made on behalf of farmers, and individual payments to harvesters were below the threshold for TDS under Section 194C.

3. AO's Findings:

The AO refuted these claims, establishing that:
- Contracts for harvesting cannot be equated with the purchase of goods.
- Harvesting expenses, although included in the cost of raw material, are independent service expenditures.
- Non-taxability of payments in the hands of contractors does not absolve the deductor from TDS obligations.
- Payments to contractors were made directly by the appellant, not on behalf of farmers, and were recorded as expenditures in the appellant's books.

4. CIT(A)'s Confirmation:

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's findings, emphasizing that payments to harvesting contractors are subject to TDS under Section 194C. The CIT(A) relied on the jurisdictional High Court decision in "Ryatar Sahakari Sakkare Karkhane Niyamit Vs ACIT" to support this conclusion.

5. Tribunal's Analysis:

The Tribunal examined the facts and legal positions, noting:
- The appellant entered into contracts with harvesting contractors on a principal-to-principal basis.
- Payments were made directly to contractors, independent of the farmers, and separate bills were generated for harvesting services.
- The contracts created enforceable rights and obligations between the appellant and contractors, necessitating TDS compliance under Section 194C.

6. Distinguishing Case Laws:

The Tribunal distinguished the appellant's case from others cited, such as "M/s Parry Sugar Industries Limited Vs DCIT," where farmers requested the company to engage harvesters on their behalf, and costs were deducted from cane bills. In contrast, the appellant independently contracted and paid harvesters.

7. Conclusion:

The Tribunal concluded that the appellant failed to comply with TDS provisions under Section 194C, affirming the AO's and CIT(A)'s orders. The appeals were dismissed, and the appellant was held liable for defaults under Sections 201(1), 201(1A), and 206AA(1).

Order Pronounced:

The appeals of the assessee are dismissed, and the orders of assessments are upheld, confirming the appellant's liability for non-compliance with TDS provisions.