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TMI Blog2011 (2) TMI 488X X X X Extracts X X X X X X X X Extracts X X X X ..... terial i.e. HDPE/PP Bags, LDPE packets, Liners and other consumables required in production and packing i.e. coding ink, stamp, stitching thread etc. and M/s Ahaar International Ltd. (AIL) shall give 85% dalia or 88% Atta by weight of the wheat supplied by the assessee. The waste or the remaining quantity of wheat/residuals, if any, shall be kept by AIL as a consideration for the services rendered. 3. The Assessing Officer (AO) analyzed the details furnished by the assessee and held that M/s AIL has carried out the work of grinding of wheat as per the agreement dated 2.2.2005 and considering the total supply of the wheat to AIL for production of atta and dalia, 10,09,041 kgs were treated as kept by AIL as its processing charges. He worked out the said quantity in the following manner:- S. No. Item Quantity kept Rate Amount Equivalent 1. Daliya 1,60,996 Kg 14.76/Kg 23,76,301 2. Atta - 8,48,045 Kg 10.35/Kg 87,77,566 10,09,041 Kg 1,11,53,566 3.1 It may be stated that Ahaar International (I) Ltd. vide their letter dated 19-10-2009 has certified that it has received 8140350 kgs of wheat for w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to the assessee, no proper opportunity had been provided by the AO for explaining the actual amount of retention made by M/s AIL. The contentions of the assessee including certificate obtained from the Wholemeal Atta Manufacturers Association as well as the certificate of M/s AIL were forwarded to the AO for his comments. The AO submitted a remand report dated 4-2-2010. The substantive finding of the CIT(A) after considering the said remand report on this issue is as under:- "Findings; I have gone through the observations of the Assessing Officer, submissions of the AR of the appellant as well as the remand report. With regard to the admission of additional evidence the Assessing Officer has objected to the admission of the same, but since the issue regarding the valuation of the retained products had not been considered elaborately on merits, part of the documents provided by the AR of the appellant are being admitted to appreciate the grounds of appeal on merit and to uphold the purpose of providing a fair judgment. Some of the issues which needs to be considered before deciding the ground of appeal are as follows: (a) After considering the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e party only consisted of the atta and daliya. (c) From the terms of the agreement also it is observed that as per the price for the grinding and packing charges it has been mentioned that "the remaining quantity of wheat and refraction shall be kept by AIL as its expenses." By appreciating these terms of the agreement it is implicit that after supplying the amount of daliya/atta all the products retained by M/s AIL shall be treated as payment for the work done. Coming to the certificate provided by the Wholemeal Atta Manufacturers Association it can be seen that for the production of the atta the estimation of other by products varies between 8% to 14% of the total amount of wheat. This certificate can only be taken to an estimate and therefore the only logical point which needs to be accepted is that the total amount of by products retained by M/s AIL does not consists of atta/daliya and certainly of other by products including choker/refraction and wastage. (d) The Assessing Officer therefore has to arrive at the valuation for the products retained by M/s AIL on the basis of some estimate or actual verification from the books of M/s AIL. As per the certificate pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partly allowed." 5. The assessee and the revenue are aggrieved by the aforesaid findings of the CIT(A). According to the assessee, the arrangement of procuring atta and dalia against the supply of wheat to AIL is an arrangement or job work and this does not require any deduction of tax at source. Without prejudice to the main contention, the action of the CIT(A) in quantifying the disallowance at 40,00,000 as against the detailed working of 31,93,782 is not justified. 6. In the revenue's cross appeal, it is contended that the CIT(A) has erred in law and on facts in estimating the value of retention products at 40 lacs against 1,11,53,566 made by the AO. The above details pertain to the AY 2006-07. A similar exercise was made for the AY 2007-08 wherein as against the AO's calculation of 1,39,11,741, the CIT(A) quantified the disallowance at 45,00,000 as against the calculation of 27,88,252 made by the assessee before the CIT(A). 7. We have heard both the sides and carefully gone through the records. The assessee was asked to produce the copies of the agreement dated 2-2-2005 and also the copies of the delivery challan by which the wheat was supplied t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial every hour. 1.6 Ahaar shall buy 30 MT of Atta/Daliya per working day initially and it could be increased up to 100 MT per day (Maximum capacity of plant) as per market demand. 1.7 The AIL shall maintain the plant including cleaning section and milling section at his own cost. The plant shall be maintained as per international standards including HACCP; FIFO, etc. 1.8 The plant shall be completely cleaned stating production. The workers shall wear clean uniform; cap, shoes, tobbaco, cigarettes, gutkha etc. are not allowed in plant. 1.9 Ahaar shall provide Raw material (Wheat) and Packaging Material i.e. HDPE/PP Bags, LDPE packets, Liners and other consumable required in production and packing i.e. Coding ink, stamp, stitching thread etc. 2. Price: 2.1 AIL shall give 85% Daliya or 88% Atta of the wheat supplied by Ahaar. The remaining quantity of wheat/refraction shall be kept by AIL as its expenses. 2.2 AIL has to arrange from unloading of wheat till final packing, loading of Atta/Daliya. AIL has to arrange labour, electricity, power backup etc. and wheat shortage. 2.3 Wheat shall be supplied in Gross weight. Atta/D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also acted upon the agreement and the transactions appear to be strictly falling within the agreement that is entered into by the parties. That is to say, this agreement, although between the two related concerns, is entered in the course of business and is acted upon by both the sides. Therefore, one cannot ignore the terms of this agreement in determining the nature of the transaction that have taken place between the parties, as there is nothing in the impugned orders to doubt the genuineness of this agreement. 8.1 Now, it is for the revenue to understand this agreement and determine the nature of the assessee's tax liability arising from the transaction entered into through this agreement. In fact, it is stated that the assessee has given the wheat under a delivery challan-cum-invoice and the value is provided only for settlement of claims. On the basis of the quantity of the wheat supplied by the assessee to AIL, the assessee has collected the end products namely Atta or Dalia and is not bothered about the other products and wastage arising therefrom. In other words, under the terms of agreement, by-products, waste and the residual of the wheat after manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or (g) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or (h) any trust; or (i) any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or (j) any firm; or (k) any individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whicheve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of such income to the account of the payee and the provisions of this section shall apply accordingly.] [Explanation III:- For the purposes of this section, the expression "work" shall also include- (a) advertising; (b) broadcasting and telecasting including production of programs for such broadcasting or telecasting; (c) carriage of goods and passengers by any mode of transport other than by railways; (d) catering.] (3) No deduction shall be made under sub-section (1) or sub-section (2) from- [(i) the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor or sub-contractor, if such sum does not exceed twenty thousand rupees:] Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds fifty thousand rupees, the person responsible for paying such sums referred to in sub-section (1) or, as the case may be, sub-section (2) shall be liable to deduct income-tax [ under this section:] [Provided further that no deduction shall be made under sub-section (2), from the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial on his own and manufactures a product as per the requirement of a specific customer, it was a case of sale and not a contract for carrying out any work. The fact that the goods manufactured were according to the requirement of the customer did not mean or imply that any work was carried out on behalf of that customer. In case of any issue where the contract is a contract of sale and not a contract for carrying out any work, the matter should be decided in the light of the principles laid down by the Hon'ble Supreme Court in the AIR 1972 SC 1148. The Bombay High Court has also analyzed the difference between the sale and works contract in the case of BDA Ltd. v. ITO(TDS) 281 ITR 99. The assessee in that case had a distillery at Aurangabad and purchased materials required for bottling and marketing foreign made Indian liquor, including the printing and packing material. 'M', another establishment supplied the printed labels to be wrapped on the bottles to the assessee. The ITO(TDS) did not accept the contentions of the assessee that the transaction with 'M' was a contract for sale and not a works contract. When the printing work was being carried out in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce in terms of a contract where it does not require any payment of any sum even if the sum here means that the payment could be of some kind but it is difficult to say that the assessee has made these payments to the extent of shortfall in getting the wheat supplied back and construe it as the payment to the other for processing the wheat into Atta or Daliya. The department must have appreciated the contract as a whole which does not involve any payment or getting the payment for services rendered. It is a case of barter or exchange or one good against the other. It is a type of sale contract in a very crude form but it is certainly not a works contract as understood by the courts in cases under the sales tax which was discussed by the Hon'ble Supreme Court in the case cited in AIR 1972 SC 1148 or in the case dealt with by the Bombay High Court in the case of BDA Ltd. (supra). The assessee having regard to the contract which it has entered on 2.2.2005, in our opinion, does not give rise to any obligation for it to deduct tax at source as in our opinion it is not simply a works contract executed for consideration in the form of some payment for which deduction has been claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. We must also view the whole transaction under the agreement from a different angle. The assessee gives the wheat and accepts Atta and Dalia in return by weight to weight basis and what he got in return are the value added products of lower quantity. The assessee by this method has prevented itself from factors like fall in the prices of either raw material or of the finished products. The market value of the wheat and the end products are totally different and fluctuate in different directions. All these fluctuations are warded off by the present agreement, which is just exchange of goods for goods and does not involve any cash outflow. Although services were taken, it is difficult to say that the residuals and the losses left by the assessee in favour of AIL are purely consideration for the job that is done. The market fluctuations in the price structure of the raw material and the end product cannot be just ignored in the whole transaction nor the process loss. The process loss could be either more or less than the percentage agreed to between the parties. But still the parties settle the transactions at an agreed proportion. In other words, the residual that is left ..... X X X X Extracts X X X X X X X X Extracts X X X X
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