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TMI Blog2017 (3) TMI 881X X X X Extracts X X X X X X X X Extracts X X X X ..... s and transporters paid by the assessee company on behalf of farmers are not hit by the provisions of sec. 194C of the Act. The CIT(A) after considering relevant facts, rightly deleted additions made by the A.O. u/s 201(1) of the Act. - Decided n favour of assessee - I.T.A.Nos.127, 128 & 129/Vizag/2013 - - - Dated:- 9-12-2016 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Shri Satyanadham, DR For The Respondent : Shri K.J.D. Srinivas, AR ORDER PER G. MANJUNATHA, Accountant Member: These are three appeals filed by the Revenue are directed against common order of the Commissioner of Income-Tax (Appeals), Vijayawada dated 06-12-2012 and it pertains to the A.Y. 2009-10, 2010-11 and 2011-12. Since, the facts are identical and issue is common, they are head together and disposed off, by this common order for the sake of convenience. 2. The brief facts of the case are that the assessee is a company engaged in the business of manufacture of sugar and allied products. A survey under sec. 133A was conducted in the business premises of the assessee on 23-12-2010. During survey operation, it was come to the lig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sugar cane. The A.O., after analyzing the provisions of section 194C, come to the conclusion that arrangement between the assessee and Harvesting Gang Labours and transporters is undoubtedly coming within the ambit of work as defined under sec. 194C and accordingly, payments to HGLs and transporters is liable for TDS u/s 194C of the Act. The A.O. has elaborately discussed the provisions of sec. 194C, Clause (3) of sugar control order and case law relied upon by the assessee. According to the A.O., as per the provisions of sec. 194C, the liability to deduct tax at source arises to the person responsible for making payment whether or not said person making payment for itself or on behalf of third party. The moment payments are covered u/s 194C, any person making payments shall deduct TDS as per the rates prescribed thereunder. The A.O. drawn support from the CBDT circular No. 8/2009 dated 24-11- 2009 and also applied the ratio of the decision of Bombay High Court, in the case of Dedicated Heath Care Services TPA (India) Pvt Ltd. Reported in 232 ITR 41(Bom), and observed that third party administrators acting on behalf of insurance companies and entering into contracts with hospitals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on making payments are farmers out of agricultural income and any expenditure incurred against agricultural income is also not farming part of income and as such the payments are not coming within the definition of work u/s 194C of the Act. 5. The CIT(A), after considering submissions of the assessee, held that payments to harvesting gang labours and transporters are on account of agricultural cane growing farmers, forms part of purchase price of sugarcane, incurred by the farmers and paid by the assessee on behalf of farmers to be finally adjusted against purchase price are not coming within the ambit of the provisions of section 194C of the Act. The CIT(A) further held that from the records it transpires that it is the responsibility of the farmers to bring sugarcane to the factory on their own cost. The assessee purchases sugar cane for price fixed by the State Govt. It is also an admitted fact that amounts paid to HGLs and transporters is debited to farmers account as advance and finally adjusted against purchase price payable to the farmers, therefore payments to HGLs and transporters is not coming within the ambit of section 194C of the Act. The CIT(A) further held that al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... timely transportation of sugarcane without any delay so as to avoid loss to the farmers because perishable nature of crop. The A.R. referring to the individual farmers ledger account, further submitted that All the HGLs are engaged by the company on behalf of farmers and payment to HGLs and transporters are debited to individual farmers account and finally get adjusted against purchase price payable to the farmers. It was further submitted that all amounts paid to HGLs and transporters is accounted as advance given to farmers and the company did not claim it as its expenditure. In support of his arguments relied upon the decision of ITAT, Ahmedabad in the case of Shri Kamraj Vibagh Sahakari Khandi Udyog Mandli Ltd, reported in 394 ITR 1 (Ahd) and submitted that when harvesting gang labour charges and transportation charges paid by the assessee company on behalf of farmers and debited to farmers account and finally adjusted against purchase cost of sugarcane, the payments to HGL and transporters are not hit by the provisions of sec. 194C of the Act. 8. We have heard both the parties, perused materials available on record and gone through the authorities below. The factual matrix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments to HGL and transporters have been paid as per the authorization/instructions and also on behalf of the farmers, to be payable towards cost of sugarcane price which was finally adjusted against farmers accounts. The assessee has filed paper book which contains ledger account copies of farmers, HGL labours settlement bills, general ledger accounts of HGL labours and transporters. On perusal of ryots accounts, we find that the assessee has debited to farmer account payments towards HGL and transportation and finally adjusted against total amount payable to the ryots towards purchase price of sugarcane. We further observed from the HGL settlement account and general ledger accounts copies of transporters, the amount paid to individual HGL and transporters have been considered as advance payments to ryots and assigned to concerned farmers account based on the code number of the farmers. We further noticed from the general ledger account copies of HGL labour and transportation, the narration given to individual payment explains to which farmers account the payment is made. The assessee also proved with necessary evidence that the amount paid to HGL and transporters has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers which was finally adjusted against cost of sugarcane payable to the assessee. We, therefore, of the opinion that where assessee a sugar manufacturer made payment of harvesting and transportation charges to harvesting and transport contractors on behalf of farmers which formed part of purchase price of sugar cane for assessee, and same had not been claimed as separate deduction, provisions of sections 194C of the Act is not applicable, consequently the assessee is not liable to deduct TDS on such payments. 13. In so far as alternative plea of the assessee, the asessee made a alternative plea in as much the payer of the impugned payment being a farmer and the impugned payments are expenditure incurred against agricultural income, such payments against exempt income is outside the purview of the provisions of section 194C of the Act. we find force in the arguments of the assessee for the reason that, on carefully analyses of the definition of the assessee as defined u/s 2(7), the person as defined u/s 2(31) and the provisions of section 194C, it is abundantly clear that the provisions of section 194C is applicable to a person by whom any tax or other sum of money is payable und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 Samitis. Every officer of the two factories and the two Samitis almost unanimously has averred that Samitis 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 ₹ 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 assessee. The supply of sugarcane at the gate of the two factories as per agreements, rules and notifications of the Government, was the responsibility of the cane growers. Surplus or deficit was accounted for in the accounts of the cane suppliers and in all these matters the two factory staff including the accounts clerks and the chief accountants were helping them either free of cost or for cost recovered. The Samitis are maintaining separate records and they were audited. The assessee society also maintains the individual farmers account by debiting and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taneously, the 1st 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 2nd instalment of ₹ 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 transporting on behalf of the farmer members. At the end of the season the balance in the sugarcane management account is transferred to Sugarcane Advance Account No. II by debiting or crediting the same and the sugarcane management account is squared up. The balances in both the advance accounts are thereafter transferred to sugarcane purchase account. In view of the above on the facts and in the circumstances of the case the assessees are not liable to deduct the tax at source under s. 194C from the payment made to Mukamdams and transporters by Zone Samiti; th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price fixed for sugarcane is negotiated on ex-factory gate basis and the responsibility to harvest and transport the sugarcane is on the cane growing farmers and since such transportation and harvesting charges and commission paid by the assessee have not been claimed as separate deduction by the assessee and the same have been deducted from the purchase price of cane paid to the farmer and the assessee only has made the payment on behalf of the farmer to the harvesting and transport contractors, therefore, the provisions of ss. 194C and 194H, in our opinion, are not applicable to the facts of the present case. We find from the assessment order for the asst. yr. 2005-06 passed under s. 143(3) on 15th Dec, 2008 that no such disallowance was made in the said scrutiny assessment order. Further, the submission of the learned counsel for the assessee that in the past years also there was no such disallowance under s. 40(a)(ia) could not be controverted by the learned Departmental Representative. The various decisions relied on by the learned Departmental Representative are distinguishable and not applicable to the facts of the present case. In this view of the matter and in the light of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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