2017 (1) TMI 309 - HC - Income Tax

TDS u/s 194H - non deduction of TDS to milk societies from whom milk was purchased in lieu of services rendered by them in the form of collection of milk from the cattle owners and supply of the same to the assessee - Held that - Assessee s transaction with distributor is sale. The risk and reward is with the distributor. The transaction is principal to principal basis. The distributor is not the agent of the assessee. From the side of assessee, no amount has been paid in form of commission or brokerage and the case laws referred by the assessee are squarely applicable. No rendering of any services and the payment is not made for any managerial services Supply of milk and milk products by assessee to the distributors was a sale agreement on principal to principal basis not liable for deduction of tax at source u/s 194H. See Principal Commissioner of Income Tax vs. Sikar & Jhunjhunu Zila Dugdh Utpadak Sahakari Sandh Ltd 2017 (1) TMI 242 - RAJASTHAN HIGH COURT - Decided in favour of assessee

Summary

Issues:
1. Disallowance of expenses under section 40(a)(ia) for failure to deduct TDS on payments made to milk societies.
2. Applicability of section 194H and 194J on payments to RCDF.
3. Interpretation of services rendered by RCDF and liability for TDS.

Analysis:
1. The appellant challenged the Tribunal's decision disallowing expenses under section 40(a)(ia) for not deducting TDS on payments to milk societies. The High Court referred to a previous judgment and observed that the appellant's payments to RCDF were for professional or technical services, falling under section 194J. As TDS was not deducted, the expenditure was not allowable under section 40(a)(ia) of the Income Tax Act.

2. The issue of applicability of section 194H and 194J on payments to RCDF was raised. The Tribunal examined the nature of services provided by RCDF and concluded that the payments made by the appellant were not for managerial services or commission/brokerage. Therefore, the Tribunal held that the appellant's payments to RCDF were not liable for TDS under sections 194H or 194J, as alleged by the assessing officer and CIT(A).

3. The appellant's counsel raised a query regarding the application of payments made until a certain date in December 2013. The High Court disposed of the appeal, considering the arguments presented and the findings of the Tribunal regarding the nature of services provided by RCDF and the liability for TDS under relevant sections of the Income Tax Act.

In conclusion, the High Court upheld the Tribunal's decision regarding the disallowance of expenses under section 40(a)(ia) for failure to deduct TDS on payments made to milk societies. The Court also affirmed the Tribunal's ruling on the applicability of sections 194H and 194J on payments to RCDF, determining that the payments were not subject to TDS. The appeal was disposed of based on the findings and interpretations of the services rendered by RCDF and the relevant provisions of the Income Tax Act.