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TMI Blog2008 (5) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... to deduct the tax at source from the payments made to Mukadams and Transporters who are member farmers of the Zone Samiti and who have no contact with the applicant?" 2. These appeals, as is apparent from the questions referred, are against the orders of the CIT(A) upholding the liability of the two assessees to deduct tax at source under section 194C and interest under section 201 of the Act. Since they all contain almost similar and identical facts they are being disposed of by this common order for the sake of convenience. We are, discussing the facts as they appear in the case of first assessee in the appeal for assessment year 2003-04 they are stated to be almost identical in all cases, except the amounts and certain names etc. 3. There was a survey action in this case. The Assessing Officer during the course of survey recorded statements of various persons under section 131 of the Act and came to the conclusion that the payments were made by Samiti which were formed to escape the liability of deducting the tax. He, accordingly, held the assessee responsible for making the payments and passed order dated 8-4-2004 under section 201 of the Act for the assessment year 2003-04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s retained money (amount) of sugar mill amount of Rs. 195 per M.T. out of first instalment of purchase price of sugarcane to be paid to members. 32. In short even after careful consideration of letter of Authorized Representative of sugar mill received in the office on 24-3-2004 along with annexure, the direct link of sugar mill is established and the contents of submission extracted here above are not contrary to whatever discussed above. 33. From above elaboration all the reasons as listed in the initial part of this order for not deducting tax on payments made to the transporters and mukadam are as below:- (1) As provided in the bye-laws of sugar factory especially Nos. 2(A) and 6(2) prime liability to cut and transport the sugarcane from field to factory gate is of farmer/member but in fact no individual member is performing this task as established here above. (2) As prime liability to cut and transport the sugarcane is of member/individual. Farmer making arrangement to cut and transport the sugarcane is not correct but sugar factory under the facade in the name of Khedut Zone Samiti makes arrangement to cut and transport the sugarcane. (3) The individual farmer/memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income though there is huge excess of income over its expenditure in the books of account. 34. After careful examination of letters, show cause notice evidences gathered it is noticed that the payments made to mukadams and transporters are liable for TDS under section 194C of the Income-tax Act. The reasons stated by the deductor for non-deduction do not satisfactorily explain and are not accepted. In financial year the total amount of Rs. 9,19,02,670 (as per Annexure) was spent for the payment of transportation and cutting charges to the transporters and mukadams in financial year 2002-03 on which the TDS at the rate of 2 per cent was not deducted as required under the Income-tax Act for this short deduction the order under section 201 of the Income-tax Act is passed thereby you are required to pay Tax Rs. 18,38,053 + S.C. Rs. 91,903 aggregating to Rs. 19,29,956." 5. For the assessment year 2004-05 also similar orders were passed in both the cases. The details of demand raised in the case of both the appellants for the assessment years 2003-04 and 2004-05 are as under:- ------------------------------------------------------- Particulars KAMREJ VIBHAG SAYAN V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer for fresh consideration in accordance with law and after giving opportunity to the assessee to distinguish the facts. It was, but with a caution that if the facts of this case were found to be same and similar as were in the case of 'Chelthan' the Assessing Officer will take appropriate step for initiating prosecution proceedings against the assessee for making false claim before the Tribunal. 10. In view of the above two orders passed by the Tribunal in similar matters, the present assessee in these appeals once again tried to distinguish before the Tribunal its case from that of 'Chelthan' and the President, Income-tax Appellate Tribunal, on 26-3-2007 constituted this Special Bench to decide the controversy arising in the matter, looking to the gravity of the situation. 11. The ld. counsel of the assessee, Shri K.C. Patel submitted that assessees are registered Co-operative societies under the provisions of Gujarat Co-operative Societies Act, 1961; that they are running sugar mills at Kamrej and Sayan respectively in Surat district; that the sugarcane is raw material for manufacture of sugar which is procured by the assessees from the farmer agriculturists; that for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two clerks and a peon are further offered by the Mill to the Samiti for miscellaneous work; that similarly, for Sayan Vibhag, services of 173 cane quality boys and 22 supervisors with two clerks and one peon are also supplied to the Samiti by the Mill for doing the aforesaid work; that the Assessing Officer recorded statements of respective office bearers of both the Mills that the said Committee/Samiti is performing the work of cutting and transportation since more than 10 to 15 years respectively; that in case of Kamrej the area covered under the Mill is divided into 5 Talukas and 14 Zones within the range of 5 Km. to 30 Km. comprised of 317 villages. Similarly, in the case of Sayan the area covered under the Mill is divided into 5 Talukas comprised of 207 villages. The transport work is being done in the case of Kamrej by truck while in the case of Sayan the same is being carried out by trucks as well as bullock cart. 13. Referring to the case of Shree Chalthan Vibhag Khand Udyog Sahakari Mandli Ltd. order dated 31-8-2005 deciding the issue of liability of deduction of tax at source by similarly situated assessee by holding that sugar factory is liable for deduction of tax at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecided by the sugarcane minimum price by the Government of India, Ministry of Consumer Affairs, Food and Public Distribution Department; (2) In the beginning of the season of cutting, harvesting and transporting of sugarcane the assessee society passes a Resolution in the meeting of Board of Directors for payment of advance for harvesting and transporting and to decide the first instalment followed by subsequent Resolution for payment of second instalment of the price of sugarcane and lastly to decide the sugarcane price to be paid to the farmer members; (3) when it is resolved to pay advance of Rs. 195 per M.T. of sugarcane to farmer members towards cutting, harvesting and transporting advance the same is debited in Sabasad Sherdi Advance No. II account and the amount was credited in Sugarcane Management Account. Simultaneously, the first instalment is also paid which is debited in Sabasad Sherdi Advance No. I account and the amount is paid to farmers in cash by crediting the cash account; (4) Similarly, the second instalment of Rs. 325 is debited in Sabasad Sherdi Advance No. II and credited in cash account by making payment to the farmer members; (5) The farmer members' Zone Sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han Rs. 20,000, if they taken together and consequently not hit by the provisions of section 194C even otherwise. 19. The learned CIT-DR Shri N.S. Dayam, relied on the finding of the Tribunal order aforesaid to support the order of the Assessing Officer, and brought to our notice certain more facts in the case of the assessee, namely; (i) the so called Zone Samiti is nothing but, the outfit/branch of the assessee-society. It may have been created for making cash payments mainly exceeding Rs. 20,000 just to escape from the provisions of section 40A(3) of the Act and also for the cash payments without deducting tax at source; (ii) the so called Zone Samiti is funded by the assessee-society. The amount of Rs. 195 is retained by the assessee-society from the first instalment of the sugarcane purchase price paid to the member farmers. The amount so deducted by the assessee-society is given to the Zone Samiti as and when required by the so called Zone Samiti for cash payments which the assessee-society cannot make in cash due to certain restrictions of the provisions of the Act or may be certain other reasons. Reference was made to the details of amount deducted from the first inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee-society, Statement dated 10-3-2004; (iii) Kantibhai V. Patel, Managing Director of assessee-society, Statement dated 10-3-2004; (iv) P.N. Dobaria, Chief Accountant of assessee-society, Statement dated 10-3-2004; (v) Dharamsibhai P. Savalia, Member Farmer of assessee-society, Self statement dated 12-3-2003; (vi) Kiranbhai S. Patel, Accounts Clerk of assessee-society, Statement dated 12-3-2003; and (vi) the absence of any provision for constituting such society in the bye-laws of the assessee-society to deduct Rs. 195 or Rs. 190 from the amount payable to the member farmers. The members are bound by the bye-laws of the society and being comparatively illiterate/semi-literate, they cannot dare to constitute a Zone Samiti on their own against the bye-laws of the society. 20. He submitted that the finding of the Assessing Officer was confirmed by the CIT(A) and that similar issues were decided by the Division Bench of the Tribunal in the case of Chalthan Vibhag Khand Udyog Sahaki1ri Mandli Ltd. Considering the facts of the case, there is no reason to divert from the finding of the Division Bench given in the above-referred case. Even otherwise, the various substantial questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owers who are its members. By another resolution dated 8-10-2002 the first payment was made to the cane growers to enable them to meet the expenditure of own harvesting, cutting and transporting (Rs. 195/190 per MT) to enable them to bring the sugarcane to the factory gate as envisaged in the rules and the price fixation. By the same resolution an instalment of Rs. 300 per MT to the cane growers at that time itself but not contemplated to have any relation to any expenditure to be incurred by the cane growers. By yet another resolution dated 29-3-2003 the third payment of Rs. 325/200 again was made to the cane growers sometime after 15-5-2003. All these payments were before the Government notified the cane price. The final payment of Rs. 868 per MT for the supply between October 2002 to January 2003, Rs. 868 for February, 2003, Rs. 881 for March, 2003 and Rs. 900 for April, 2003 was settled keeping in view the fixation of the price by the Central Government. Similar was the position of the other year in case of Sayan and for both the years of Kamrej. 25. All these payments are debited, at the first instance, to the advance accounts of the cane growers and adjusted ultimately towa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly established by the fact that- (1) The assessee was required to pay the fixed price and make the payment to the cane growers for the cost of the cane. (2) The payments, though in instalments, were debited to the cane growers advance account and adjusted ultimately to as cost of the cane; (3) The assessee had given and Samitees have taken the amount from the assessee for and on behalf of the cane growers and on their behalf; (4) Samitees have also paid that amount to the labourers on account of cane growers; (5) Surplus and deficit is ultimately adjusted in the cane growers' account through the Samitees who have paid and received that amount from the assessee-company. 29. These facts, in our opinion, are clearly a pointer of the fact that it was their responsibility as per the Government Order and the Board's resolution of the Society to make payment to the cane grower and it were they who actually made the payments for harvesting, cutting and transporting the cane to the gate of the assessee's factory, though through the medium of the assessee and the Samitees. 30. In BDA Ltd., it is observed by the Bombay High Court that section 194C of the Act was brought into ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by M/s. Mudranika to supply to the assessee could not be sold to any other establishments in the market. This finding regarding no marketability is based on a fallacious premise that, M/s. Mudranika was printing an unlimited number of labels. When the printing work was being carried in the premises of M/s. Mudranika, though as per the specifications of the assessee, the supply was limited to the quantity specified in the purchase order and it would not do such printing beyond the numbers specified in the same. There is nothing on record to show that, all other ancillary costs like the labels, ink, papers, screen-printing, screens, etc., were being supplied by the assessee to M/s. Mudranika. In the facts of this case, the supply of printed labels by M/s. Mudranika to the assessee was a "contract of sale" and it could not be termed as a "works contract". The Tribunal has rightly held in the case of Wadilal Dairy International Limited [2002] 81 ITD 238 (Pune) that, the supply of printed packing labels amounted to a "sale contract" and not a "works contract", and the same ratio is applicable in the instant case, as well. The single Bench of the Tribunal thus fell in gross error in ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rks done. There is no similarity between the facts with which the Supreme Court was dealing in Viswanathan's case [1989] 73 STC 1 (SC) and those in the present case. It is nobody's case before us that the printing of the labels on the corrugated boxes required any special skill or involve any confidence or secrecy. In the circumstances, the Tribunal was justified in holding that the predominant object underlying the contract was one for sale of goods which took the contract out of the purview of section 194C of the Act. Finding no substantial question of law arises for consideration the appeal was dismissed." 32. Recently Punjab Haryana High court in C.T. v. Dy. Chief Accounts Officer Markfed 5 DTR 326 following these two decisions also took the same view and held in paragraphs 5 and 6 of its order as under: "5. We have considered the submissions made by the learned counsel for the revenue. There is no dispute that the main purpose of the assessee to buy packing material is to obtain goods for the purpose of packing of its finished products. The factum of such packing material carrying some printed work can only be regarded as the work executed by the supplier incidental to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de the payment for harvesting, cutting and transporting the cane to the gate of the assessee's factory, though through the medium of the assessee and the Samiti, the provisions of section 194C would not be applicable to require the assessee to deduct tax. 34. It may be stated that a survey action was taken by the Income-tax Department at the assessee-factory premises on 25-2-2004 wherein an alleged breach of not deducting the tax at source from the payments made to Mukadams and transporters bringing the sugarcane to the factory gate on behalf of farmers, was suspected. The Assessing Officer during the course of survey recorded statements of various persons under section 131 of the Act of various persons including the depositions of respective office bearers of both the Mills stating all these facts including the fact that the said Samiti was managing the work of cutting and transportation since more than 10 to 15 years respectively. The assessee in these cases before the Special Bench distinguished the case of Chelthan by referring to the statements of various officers of the assessee of the Samiti of the two factories, farmers, statements of accounts of assessees as well as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting, on a proposal as a member by a farmer member, supported by another farmer member but no written evidence was kept in this regard; that there was no constitution pertaining to the method as to how a member of the farmer zone committee should be appointed and Zone Committee was also not having any such constitution; that no resolution book or minute book was written or maintained for the decisions taken by the zone committee; that meetings were held from time to time for making proceedings and for taking decisions accordingly; that they have not obtained any recognition of any nature whatsoever from any institution or Government; that he did not have information as to when the Farmer Zone Committee came into existence, that daily Cash Book, Ledger, income vouchers, expenditure vouchers were maintained not on financial year-wise but on season basis by the farmer zone committee and that these accounts were got audited regularly; that he did not know as to from which year the books of account are maintained, because he was its member for last one year only; that the farmer zone committee did not have any intention of profit in the aforesaid work and the work was being done on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 1st instalment as the financial conditions of the farmers was very weak and, therefore, if the payment was not made in this manner, then the question of obtaining sugarcane by the society would have become difficult; that the amount of Rs. 195 per ton was given to the concerned Administrative Clerk under the instruction of the President of the Zone Committee; that signature of the farmer member is obtained on the cutting/transportation advance voucher; that funds so received were given to the member of the Zone Committee under the instructions of the President of the Zone Committee; that Zone Committee is not registered anywhere and this is one kind of committee formed by the members themselves, as Honorary Members, and the period is limited for 1 year and, therefore, the question of getting it registered did not arise; that Zone Committee was being formed since last 10 years and the same was formed by the different members right from the first year of the factory; that as to 'What is maintained in the Account Books' of the Zone Committee, and where they are kept; he expressed his ignorance; that there is no employee in the Zone Committee and honorary services is provided by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h whose help payment was made to the labourers by the Zone Committee; that the sugar factory is paying about Rs. 6 to 7 crores by way of tax to the Government, they would not even think about stealing such small amount of tax; that in last he stated that effort had been made by Institution with the view that the farmers should get best compensation for the crops grown by them, the Institution is being administered in a frugal manner in the interest of its members, total effort have been made by the Institution to see that, maximum rate is obtained by the members for the sugarcane supplied by them; that, it was consisting of boundary farmer of the financially weaker section of tribal caste. (v) Shri Kantibhai Virendrabhai Patel, Managing Director of Society in his statement recorded on 10-3-2004 stated that the farmer is responsible to cut his sugarcane and make arrangements for sending the same to the sugar factory; that the members do not make arrangements for cutting and transportation of their sugarcane in their individual capacity and this work is being done by a Committee formed by them; that out of the total farmers, 4-5 farmers are appointed for the purpose of making arran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Zone Committee, whereas the amount of Rs. 300 per ton is paid to the member towards the cost sugarcane supplied by him, therefore two vouchers are prepared; that since the payment of Rs. 195 was a part of the amount payable for the sugarcane supplied by the member, therefore, his consent in form of his signature was obtained and payment made to the Zone Committee; that Zone Committee is not part of the sugar factory; that his institution was paying taxes to the Government in crores of rupees, therefore they do not have any intention to evade this small amount of tax; that in accordance with their information, the payment which is Rs. 20,000 or more was made by cheque/draft only and not in cash. The cash payment of the sugarcane [agricultural produce] can be made in more amount as per legal provisions. (vi) Shri Popatbhai Nanjibhai Dobaria, Chief Accountant of the assessee-society in his statement recorded on 10-3-2004 stated that the final price of the sugarcane is fixed after completion of the year and season generally during the month of September/October by the Managing Committee, that all the income and expenditure, financial transactions and factual position of the insti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this amount as and when needed by it; that at the time of advance payment of 1st instalment, advance voucher for cutting and transportation is prepared and kept aside with the signature of the farmer member obtained thereon and, therefore, denomination of cash is not written on the cutting and transportation voucher; that an amount of Rs. 9,19,02,670 was paid during the financial year of 2002-03 towards cutting and transportation expenses. 36. Statements relating to Sayan Factory recorded under section 131 of the Income-tax Act during the course of survey proceedings carried under section 133A of the Income-tax Act, 1961 on 27-4-2004, these are: (i) Shri Mansinh Lakhabhai Rathod, Managing Director of Sayan Factory stated that sugarcane cutting and bringing the same to the factory gate is by a committee formed by the farmers before commencement of season by selecting 4 or 5 members amongst themselves; that after the formation of Samiti its Chairman etc., are looking after the work; that the constitution of Zone Samiti is changing every year, the Chairman, Secretary and directors of the factory are giving honourary service to this Samiti; that there is no any written information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayan Sugar Factory and paid by preparing voucher to the Zone Samiti as per requirement and on demand; that the formation of Zone Samiti is not with the approval by Central or State Government or any institutions and the same is not registered Society; that he did not know since when this Zone Samiti has been formed, nor whether earlier it was formed or not; that he did not know as to who is the person responsible for sugarcane cutting and transportation work in the Zone Samiti because Chairman of the Zone Samiti is managing this work; that the voucher for transportation and cutting of sugarcane is prepared at the rate of Rs. 190 per MT, the signature of the farmer is obtained on such vouchers, and its payment is made to the Zone Samiti and not to the farmers; that no employees are appointed in the farmer's Zone Samiti, and honorary service is provided by the employees of the Factory and their salary is paid by Zone Samiti, which is debited in the books of Zone Samiti (the evidences for payment were enclosed); that in the work of cutting and transportation about 173 Slip Boys and 22 Zone Supervisors are helping and their salary are paid by the assessee itself; that about after 30 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... boys and 25 supervisors and their salary and allowances are paid by the factory; that the voucher slip No. 3549 is of a farmer member Shri Chhaganbhai Karshanbhai Patel, village Mindhi in which the farmer member has given advance payment of Rs. 300 per MT as first instalment on 26-2-2004 and the another voucher is of the same farmer member on account of sugarcane cutting and transportation at the rate of Rs. 190 per MT on which no date is mentioned and the signature of farmer member was taken, and the amount was paid whenever the Zone Samiti require money by affixing on that particular date's stamp; that in the voucher of first instalment advance payment Rs. 300 per MT details of notes (denomination) are shown, because case payment has been made to farmer member but in the other voucher of Rs. 190 per MT was for the sugarcane cutting and transportation payment, the release of which payment has been done as per the Society's accounting method; that this payment is for the sugarcane of farmer member and, therefore, the question of TDS deduction did not arise; (the details of expenditure for financial years 2002-03 and 200304 sugarcane cutting and transportation were given.). (iv) S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the help of 173 Slip Boys and 22 Zone Supervisors of the factory whose salaries have been paid by the factory; that the financial sources of income to Zone Samiti is the first instalment of Rs. 190 received on account of sugarcane cutting and transportation for which a separate voucher is made and on this voucher farmer member's signature are taken. Like this it is credited in the books of the factory and as per the requirement of Zone Samiti money is taken; that the said Rs. 190 per MT basis voucher is signed and the amount credited in the books of Zone Samiti. 37. On a perusal of these statements we find that, except one farmer and an accounts clerk of Kamrej Factory who were not in knowledge of full facts, every officer of the two factories and the two Samitis almost unanimously have averred that Samiti were working independently and it was the Samiti who was harvesting, cutting and transporting sugarcane to the gates of the two factories. They were taking money from the factory as advance being Rs. 190/195 out of the cost agreed to be paid for the purchase of sugarcane by the factories for and on behalf of the cane growers who were supplying the sugarcane to the assessees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. The statements which are subject-matter of consideration in these cases were recorded by the Assessing Officer himself by summoning the parties as witnesses, as against the suo motu filing of the affidavits which were found be of no evidentiary value by the Division Bench in Shree Chalthan Vibhag Khand Sahakari Mandli Ltd.'s case. 39. Be that as it may, we may state that the fact, whether the Samitis were valid or not or whether they were not legally formed or registered with any State or Central Government authority or that they were being looked after for everything by the assessee, would also not make much of difference, so long as they are making the payments for and on behalf of the cane growers and at their directions and ultimately adjusting the liability of the cane growers. It were they who were responsible for making the payments and not the assessees, who only paid the amount to the cane growers for the cost of the sugarcane at Ex-factory gate price fixed as the sugarcane minimum price as per the Notifications issued by the Government of India, Ministry of Consumer Affairs, Food and Public Distribution Department. 40. Much has been said that Samitis were used as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting of Board of Directors for payment of advance for harvesting and transporting and to decide the first instalment followed by subsequent Resolution for payment of second instalment of the price of sugarcane and lastly to decide the sugarcane price to be paid to the farmer members. When it was resolved to pay advance of Rs. 190/195 per M.T. of sugarcane to farmer members towards cutting, harvesting and transporting advance the same is debited in Sabasad Sherdi Advance No. II account and the amount was credited in Sugarcane Management Account. Simultaneously, the first instalment is also paid which is debited in Sabasad Sherdi Advance No. I account and the amount is paid to farmers in cash by crediting the cash account. Similarly, the second instalment of Rs. 325 is debited in Sabasad Sherdi Advance No. II and credited in cash account by making payment to the farmer members. Zone Samiti received the funds from the assessee-society as and when it required out of the advance amount lying credited in Sugarcane Management Account. At that point of time the sugarcane management account is debited by making payments to Zone Samiti to make payments for cutting, harvesting and transporti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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