2023 (11) TMI 200 - HC - Income Tax

TDS u/s 194C or 194J - Short deduction of TDS - Addition u/s 40(a)(ia) - payments for conversion of raw milk into processed milk and milk products - HELD THAT - 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. The main and basic nature of transaction viz. conversion/processing of mild on job work basis does not lose its true characteristic. Tribunal relying on assessee s own precedent 2018 (3) TMI 1304 - ITAT RAJKOT which was not challenged, held that processing of milk falls under Section 194C of the Act and there is no question of short deduction by the assessee. The Tribunal therefore rightly deleted the addition made by the AO u/s 40(a)(ia) of the Act.

Summary

Issues involved:
The issue involves the correct classification of payments made by an assessee engaged in selling milk and milk products to dairies for processing raw milk into processed milk and milk products, regarding whether TDS should be deducted under section 194C or section 194J of the Income-tax Act, 1961. Additionally, the issue pertains to the applicability of section 40(a)(ia) for short deduction of TDS.

Summary of the Judgment:

Issue 1: Classification of Payments and TDS Deduction
The assessee made payments to dairies for converting raw milk into processed milk and milk products. The Assessing Officer contended that these payments should have been subjected to TDS at 10% under section 194J instead of the 2% TDS deducted by the assessee under section 194C. The CIT (Appeals)-1 Rajkot had previously allowed the appeal of the assessee, holding that TDS under section 194C was correctly applied to the payments made to dairies. The CIT(A) concurred with this decision, stating that the disallowance under section 40(a)(ia) for short deduction of TDS was not sustainable based on the earlier ruling. The Tribunal upheld this decision, emphasizing that the nature of the transaction fell under section 194C, and there was no short deduction of TDS by the assessee.

Issue 2: Applicability of Section 40(a)(ia)
The assessee argued that section 40(a)(ia) could only be invoked in case of non-deduction of tax at source and not for short deduction. The CIT(A) agreed with this contention, citing that previous judgments supported this interpretation. Consequently, the disallowance made by the Assessing Officer under section 40(a)(ia) was deleted. The Tribunal, based on the assessee's precedent, affirmed that the processing of milk fell under section 194C, and there was no basis for short deduction by the assessee. Therefore, the addition made by the Assessing Officer under section 40(a)(ia) was rightly deleted.

In conclusion, the Tribunal found no substantial question of law involved and dismissed the appeal, thereby upholding the decisions of the CIT (Appeals) and the Assessing Officer regarding the classification of payments, TDS deduction, and the applicability of section 40(a)(ia) in this case.