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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 ..... porting sugar cane from farmers' fields to its factory and making payments to such contractors. To ascertain the nature of payments to contractors and also to examine the applicability of TDS provisions of sec. 194C, the A.O. issued a detailed notice and asked explain the nature of contract and compliance with related TDS provisions. In response to notice, the assessee submitted that it is engaged in the business of manufacture of sugar. It was further submitted that to get raw material being sugar cane to its factory it enters into agreement with farmers growing sugar cane in command area for supply of sugar cane as per the Sugarcane Control order issued by the Govt. The assessee further submitted that as per the agreement entered with the farmers, the farmers shall supply sugarcane at factory gate for a agreed price fixed by the State Govt. However, as per the request of farmers and also to facilitate smooth supply of sugar cane, it has employed harvesting gang labours for cutting sugarcane and transporters for transporting sugarcane to the factory gate on behalf of the farmers and paid amount to such contractors out of amount payable to farmers towards sugarcane purchase price. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of insurance companies. The A.O. also distinguished case law relied upon by the assessee in the case of Shri Kamraj Vibagh Sahakari Khandi Udyog Mandli Ltd, reported in 394 ITR 1 (Ahd) and observed that facts are entirely different from the present case. The A.O. further observed that in the case before ITAT, Ahmedabd, in addition to Sugar factory and the farmers there was another entity known as "Zone Samithi" which made payments to the farmers, but not the Sugar Factory. With these observations, held that since, the assessee company made payments in pursuance of a agreement with HGLs and transporters, whether or not said payments or made on behalf of farmers, the payments are clearly covered under the provisions of sec. 194C. Since, the assessee failed to deduct TDS on such payments, held assessee as an assessee in default u/s 201(1) for the A.Y. 2009-10 to 2011-12. 4. Aggrieved by the order, the assessee preferred an appeal before the CIT(A). Before, the CIT(A), the assessee filed elaborate written submission. The assessee further submitted that responsibility of harvesting and transporting sugar cane to the factory is primarily on the farmers. The assessee Company buys suga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is agricultural income exempt from tax, as such any expenditures against such income is not coming within the definition of work u/s 194C of the Act. Thus, there is no TDS liability on the assessee on the payments to harvesting gang labours and transporters. Aggrieved by the CIT(A) order, the revenue is in appeal before us. 6. The ld. D. R. submitted that the ld. CIT(A) erred in holding that there is no TDS liability on the assessee on the payments made to HGL and transporters. The ld. CIT(A) erred in accepting that when sugarcane is considered as cash crop and part of sugarcane income is farms part of total income liable for tax, then also no farmer comes under tax net. The D.R. further submitted that the A.O. clearly brought out the facts that the arrangement between the assessee and HGL and transporters is coming within the definition of work as defined u/s 194C and the resultant payments are liable for TDS, failed to appreciate the facts, simply held that the payments are not liable for TDS u/s 194C without narrating how the impugned payments are not attracted TDS provisions. Since, the assessee company made the payments in pursuance of a agreement with HGLs and transporters, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rea. The assessee entered into a agreement with command area farmers for purchase of sugarcane for a purchase price fixed by the Govt. The assessee company engaged the services of harvesting gang labours and transporters for harvesting and transporting sugarcane from farmers field to assessee company factory. The assessee had paid HGL and transporters as per the rates fixed in consultation with farmers and HGL and also transporters association. The amount paid to HGL and transporters have been debited to individual farmer account and finally adjusted against purchase cost of sugarcane payable to the farmers. The A.O. held assessee as an assessee in default u/s 201(1) of the Act, for the reason that the payments to HGL and transporters are coming within the definition of work as defined u/s 194C of the Act. The A.O. further observed that the assessee ought to have deducted TDS u/s 194C on payments to HGL and transporters, but failed to deduct such TDS. The A.O. was of the opinion that the arrangement between Assessee Company, HGL and transporters is nothing but a work contract as deified u/s 194C of the Act. 9. The A.O. has made elaborate discussion on the provisions of sec. 194C, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disputed facts, we are of the view that the impugned payments to HGL and transporters have been made on behalf of the farmers out of advance/arrears payable to farmers towards purchase price of sugarcane. 11. Having said, let us examine the applicability of the provisions of section 194C of the Act. There is no dispute with regard to payments to HGL and transporters. The A.O. himself admitted that the assessee has paid amount on behalf of farmers out of amount payable towards purchase price to be payable to the farmers. But, the A.O. was of the opinion that as per the provisions of section 194C, any person responsible for making any payment to a contractor in pursuance of a work contract is under obligation to deduct TDS, whether or not said payments are made on behalf of third parties. No doubt, the provisions of section 194C applies where any person responsible for making payments to any resident for carrying out any work in pursuance of a contract between the contractor and the specified person. The person has been defined in sec. 2(31), which include an individual, HUF ....etc. Similarly, the word assessee has been defined in section 2(7) to mean a person by whom any tax or an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of section 194C, the payer is farmers. The income of the farmer being agricultural income exempt from income tax, the impugned payments are not hit by the provisions of section 194C of the Act. 14. Coming to the case laws relied upon by the assessee. The assessee relied upon the decision of ITAT, Ahmedabad Special Bench, in the case of Shri Kamrej Vibhag Sahakari Khand Udyog Mandli Ltd. v. ITO (2008) 116 TTJ (Ahd.) (SB) 425, wherein under similar circumstances, it is held that the sugar factory is not liable to make TDS, where payments towards harvesting gang labour and transport charges are made as a part of the sugarcane price. The relevant portion of order is reproduced below. Sec. 194C applies when the payments are made for carrying out any work including supply of labour for carrying out any such work in pursuance of a contract between the contractor and the persons stated therein. By sub-s. (1) of s. 194C a liability to deduct tax at source is cast upon the person responsible for paying any such sum. Here, the responsibility of paying the sum for harvesting, cutting and transporting is of the cane growers. The payments are, no doubt, made to the labour hired for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id for purchase of sugarcane were posted in respective accounts in the audited books of accounts of assessee society. 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. There is a reason for extending the help in administering the Samitis by the assessee, and that is, that the cane growers are illiterate people and might not be capable of independently handling the work of harvesting, cutting and transporting the cane to the assessee's factory so effectively as without the intervention of the assessee who are better placed in their managerial skills. One of the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sugarcane because as per the agreement it is for the cane grower to bring the sugarcane to assessee's factory and that the ingredients of s. 194C are not attracted to make the assessees liable to deduct the tax at source from the payments made to Mukamdams and transporters who are member farmers of the Zone Samiti and who have no contract with the assessee. 15. The assessee relied upon the decision of ITAT, Pune Bench, in the case of DCIT vs. Dwarkadheesh Sakhar Karkhana Ltd, [2015] 55 taxmann.com 471 (Pune - Trib.). The ITAT, Pune Bench under similar circumstances held as under. 8.2 From the details furnished by the learned counsel for the assessee in me paper book (p. 149) we find from the details of cane purchase price that these purchases include transportation and harvesting charges. Similarly, we find from the paper book pp. 186 and 187, which shows the chart giving the details of the gross amounts of purchase price payable to each farmer for the sugarcane and deductions therefrom on account of harvesting and transportation charges, etc., that the farmers have been paid the net amount only. All these indicate that the harvesting and transportation charges form the part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, the same is upheld and the grounds raised by the Revenue are dismissed 16. Coming to the case law relied upon by the revenue. The A.O. relied upon the decision of High Court of Bombay, 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 for settlement insurance claims are responsible for deducting TDS on payments made to hospitals on behalf of insurance companies. We have gone through the facts of the case law relied upon by the A.O. in the light of the facts of the present case and find that the case law relied upon by the A.O. is rendered under different facts. In the case before the Hon'ble Bombay High court, it is the business of the third party administrators to enter into agreement with Insurance companies for which the TPAs are paid charges for their services. Under those circumstances, the court held that, the payments are covered under sec. 194C of the Act. In the present case, the assessee categorically proved that the impugned payments are made on behalf of the farmers to facilitate smooth har ..... X X X X Extracts X X X X X X X X Extracts X X X X
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