2008 (5) TMI 355 - AT - Income Tax

Summary

Issues Involved:
1. Liability to deduct tax at source under section 194C of the Income-tax Act from payments made to Mukadams and Transporters by Zone Samiti.
2. Liability for deduction of tax under section 194C from payments made as advances to member farmers for the purchase of sugarcane.
3. Applicability of section 194C to payments made to Mukadams and Transporters who are member farmers of the Zone Samiti and have no direct contact with the applicant.

Detailed Analysis:

Issue 1: Liability to Deduct Tax at Source from Payments to Mukadams and Transporters by Zone Samiti
The Tribunal examined whether the payments made to Mukadams and Transporters by the Zone Samiti required the assessees to deduct tax at source under section 194C of the Income-tax Act. The Assessing Officer had concluded that the payments were effectively made by the sugar mill through the Zone Samiti, which was deemed a division of the sugar mill. The Tribunal, however, found that the Samiti was an independent body formed by the farmers to manage harvesting and transportation. The payments made by the Samiti were on behalf of the cane growers, not the sugar mill. Therefore, the Tribunal held that the assessees were not liable to deduct tax at source under section 194C from these payments.

Issue 2: Liability for Deduction of Tax from Advances to Member Farmers for Purchase of Sugarcane
The Tribunal explored whether advances paid to member farmers for the purchase of sugarcane necessitated tax deduction under section 194C. The assessees argued that these advances were part of the purchase price for sugarcane, which the farmers were responsible for delivering to the factory gate. The Tribunal agreed, noting that the payments were debited to the cane growers' accounts and adjusted against the cost of sugarcane. Since the payments were for the purchase of sugarcane and not for any work contract, the Tribunal concluded that section 194C did not apply, and no tax deduction was required.

Issue 3: Applicability of Section 194C to Payments Made to Mukadams and Transporters
The Tribunal assessed whether section 194C applied to payments made to Mukadams and Transporters who were member farmers of the Zone Samiti and had no direct contract with the applicant. The Tribunal found that the responsibility for harvesting and transporting sugarcane lay with the cane growers, as per the agreements and resolutions. The payments were made by the Samiti on behalf of the cane growers, not the sugar mill. Therefore, the Tribunal ruled that the provisions of section 194C did not apply, and the assessees were not liable to deduct tax at source from these payments.

Conclusion
The Tribunal concluded that the assessees were not liable to deduct tax at source under section 194C of the Income-tax Act from payments made to Mukadams and Transporters by the Zone Samiti. It also held that the assessees were not required to deduct tax from advances paid to member farmers for the purchase of sugarcane, as these payments were part of the purchase price. Finally, the Tribunal determined that section 194C did not apply to payments made to Mukadams and Transporters who were member farmers of the Zone Samiti and had no direct contract with the applicant. All appeals were allowed.