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TMI Blog2018 (11) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... the owners of the by-products. Another factor for consideration is that the property passed ‘in kind’ should have some ascertainable and determinable value, which can be taken as part of the consideration paid for the work done. Further, it is the nature of the contract, term of the agreement, the intention of the parties and overall facts and circumstances of the case which are required to be analyzed and considered for determining whether the provisions of section 194C of the Act or other similar provisions of the Chapter would be attracted or not in a particular case. As discussed above in detail, since we have held that the property in the by-product was not passed on by the assessee / Procurement Agencies as milling charges, hence, it is held that TDS provisions of section 194C are not attracted in this case. - Decided in favour of assessee. - ITA Nos. 1309 & 1310/CHD/2016, ITA Nos. 1312 & 1313/CHD/2016, ITA No. 1314/CHD/2016, ITA Nos. 1424 & 1425/CHD/2017, ITA No. 78/CHD/2018, ITA Nos. 316 & 317/CHD/2018, ITA Nos. 318 & 319/CHD/2018, ITA No. 321 /CHD/2018, ITA No. 322/CHD/2018 - - - Dated:- 30-10-2018 - ITA No. 77/CHD/2018, ITA No. 336/CHD/2018, ITA No. 320 /CHD/2018, ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood Corporation of India / Government, get it milled and supply rice to Food Corporation of India (FCI). The entire cost in this respect is borne by the FCI / Government of India. The paddy is given to the millers for milling at the rates as fixed by FCI / Government of India. The Millers were provided with paddy and they after milling have to supply rice in the ratio of 67% of the paddy milled to the Procurement Agencies as per the specification. As per the agreement between the millers and the Procurement Agencies, the millers get ₹ 15/- per quintal as milling charges as fixed by the FCI / Government of India. Further, as per the policy of the Government and as per agreement between the Procurement agencies and the millers, the by-products, if any, arising from the process is the property of the millers and the procurement agencies have no right / liability in respect thereof. The assessee deducted the tax at source (TDS) u/s 194C of the Income-tax Act, 1961 (in short 'the Act') on the aforesaid amount of ₹ 15/- per quintal given to the millers on account of milling charges as per the agreement and as per Government policy. The Assessing officer, however, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o in the agreement nor any amount was credited in the accounts of the millers as payable which required the assessee to deduct tax thereupon. He, therefore, held that the assessee was not liable to deduct tax u/s 194C of the Act in respect of the value of the by-products. He, accordingly allowed the appeal of the assessee and quashed the demand raised by the Assessing officer on account of short deduction of tax . 6. Being aggrieved by the above order of the CIT(A), the Department has come in appeal before us. 7. The Ld., DR before us, has submitted that, in fact, ₹ 15/- per quintal paid by the assessee to the millers is not the actual consideration paid by the assessee to the millers. That ₹ 15/- is a meager sum paid by the assessee to the miller, whereas, actual consideration lies in the value of the by-products which are retained by the millers. That while fixing the milling charges by the Government, the value of by-product is duly taken into consideration and thereafter net milling charges payable are arrived at. That the cost of the by-product is inclusive of the total milling charges paid by the assessee to the millers and therefore, the assessee was sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereafter various statuary charges, fees and levies, milling charges of ₹ 15/- per quintal are added. He, thereafter has stressed that out turn ratio as per which, 67% of the rice is supposed to be the finished product (rice) coming out of the raw product (paddy). Accordingly, a price of one quintal of common rice is fixed at ₹ 2004.95 and ₹ 2056.10 of Grade A raw rice and so on. The Ld. DR thereafter has relied on a press release issued by the Ministry of Consumer Affairs, Food Public Distribution letter dated 8.12.2015, whereby, the Union Food Ministry has clarified that the milling charges for paddy paid by the Central Government to the State Agencies are fixed on the rate recommended by the Tariff Commission which takes into account value of the by-products derived from the paddy while suggesting net rate of the milling price payable to the rice millers. It has been further mentioned that as it is not practically feasible for the Food Corporation of India (FCI) or the state Agencies (SGA) to take over the by-product derived from the processing of paddy and market them out, therefore, the basic framework of Traffic Commission formula for milling charges has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y at the rate ₹ 33.96 / 37.38 per quintal adjusted while fixing milling charges of ₹ 15.32 / 25.48 per quintal of Raw rice and Par-boiled rice respectively. The Ld. DR, thereafter, referred to pages 7 8 of the said report, wherein, it has been mentioned that the milling charges were fixed by government long back in 2005 on the basis of recommendation of the Tariff Commission of India and that since then milling charges have not been revised. However, the rice millers are still carrying outing the work at the same milling charges without any demand for increase in the milling charges, even though, the cost of milling is increased significantly. This is, because the selling price of the by-products i.e rice bran, broken rice and husk generated in milling process has increased substantially. Therefore, the Performance Audit in question was conducted to examine such issues. While referring to Chapter V which deals with the (by product out-turn ratio), the Ld. DR has pointed out from the report that a study was conducted for fixation of milling charges way back in April 2009 and that out of 12 states covered in the study, only four states responded. The milers were stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that in the aforesaid case the consideration for hiring vessels was passed on by the assessee in kind i.e by way of 85% catched fish and it was held that the payment contemplated u/s 195 not only includes cash payment or payment by cheques or draft but also a payment even by any other mode and, therefore, the payment of hire charges made by the assessee by giving 85 per cent of the fish catch to the non-resident amounts to payment as contemplated under section 195 of the Act. The Ld. DR, therefore, has submitted that the proposition of law laid down by the Hon'ble High Court in the case of Kanchanganga Sea Foods Ltd. vs CIT (supra) can safely be applied in the case of the present assessee before us. That the present assessee, apart from making the payment of ₹ 15/- by way of cheques / cash, has also made the payment in kind by way of authorizing the millers to retain the by-products. 9. On the other hand, the Ld. Representatives of the assessees have submitted that the issue under consideration is squarely covered by the various decisions of the different Benches of the Tribunal, the lead case being in the case of M/s Aahar Consumer Products Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the catch fish was already determined and the amount was debited as an expenditure by the assessee company in its account; whereas, in the case of present cases, no such amount has been debited as an expenditure by the assessees nor any payment made thereof has been credited to the account of the millers. That in the case of Kanchanganga Sea Foods Ltd. vs CIT (supra), it was never the question before the Hon'ble Supreme Court that TDS was deductible on anything paid in kind. Further, that the said case has already been considered by the Banglore Bench of the Tribunal in the case of Chief Account officer Vs. ITO [2014] 52 Taxmann.com 453 (Banglore) and it was held that the facts in the case of Kanchanganga Sea Foods Ltd. vs CIT (supra) were totally on a different footing and the proposition laid down in the case of Kanchanganga Sea Foods Ltd. vs CIT (supra) could not be applied, where the value of the CDR was not quantifiable. The Tribunal further held that provisions of section 194LA of the Act would apply only when there was monetary payment. Referring to the decision of the Hon'ble Supreme Court in the case of H.H. Sri Rama Verma v CIT [1991] 187 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferring to the above decision have submitted that the provisions of section 194C being identically worded, the same proposition of law will apply and, hence, even otherwise, the assessees were not liable to deduct TDS even though it is assumed that the payment in kind in the shape of by products of the paddy were paid to the millers. It has been further submitted that the above said decision of the Banglore Bench (supra) of the Tribunal has been upheld by the Hon'ble Karnataka High Court vide order dated 29.9.2015 (supra). Further, the said decision of the Hon'ble Karnataka High Court (supra) has been followed by the Mumbai Bench of the Tribunal in the case of Red Chillies Entertainment Pvt Ltd. (supra) in the context of the provisions of section 194J of the Act and it was held that since the payment was made by the assessee was in kind, the provisions of section 194J were not applicable. Further, objecting to the reliance on the CAG report (supra) by the Ld. DR, the Ld. Counsel for the assessees have submitted that the report was not admissible in evidence and further that the report of the CAG cannot bye pass the statutory provisions of law. It has, therefore, been cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 by the assessee, apart from covering the labour cost of processing, also includes the protection from market fluctuations as also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, filling up bags of the rice, transportation, weight check etc., apart from the milling of the paddy. That the real consideration lies in the value of the by-product retained by the miller, therefore, the assessees i.e. Procurement Agencies were required to deduct TDS on the value of the by-products paid in kind as consideration for the milling charges. 16. On the other hand, the stand of the assessees before us is that the by-product did not constitute as a payment of consideration for the work contract of milling of the paddy. That the assessees have not debited even the value of the by-product as their expenditure in their books of account and have not claimed any deduction in respect thereof. Further, that even the provisions of section 194 C of the Act were applicable in respect of the monetary payment and not for payment in kind . That, even otherwise, the issue has now been squarely covered by the various decisions, not only of the Chandigarh Bench of the Tribunal, but other Benches also, and mainly by the decision of the Hon'ble Delhi Bench of Tribunal in the case of M/s Aahar Consumer Products Pvt. Ltd. (supra). That in the absence of any contrary decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms credited or paid or likely to be credited or paid during the financial year exceeds 50[one lakh] rupees, the person responsible for paying such sums referred to in sub-section (1) shall be liable to deduct income-tax under this section. (6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, where such contractor owns ten or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with his Permanent Account Number, to the person paying or crediting such sum. (7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such form and within such time as may be prescribed. 18. Now coming to the draft agreement entered into by the assessee with the millers, copy of which has been placed by the Department at page 27 of their paper book, wherein, the following clause (8) is relevant:- 8. The by-product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has been mentioned in the specific term that the by-product is the property of the miller which means that the property in the by-product passes immediately to the miller on the very coming of it into existence. Though, before the milling of the paddy, the Government / procurement agencies remain the owner of the paddy, however, the moment the paddy is milled, the Government / procurement agencies lose their ownership and control over the paddy and the by-product but have right only on the milled rice for which they pay a stipulated amount of ₹ 15/- as milling charges. The relevant words in the clause (8) of the Agreement that the Government / Procuring Agency shall have no right or responsibility in this regard speaks that to retain the by-product cannot always said to be right over a thing but sometimes it becomes a responsibility also and the Government / Procurement Agencies are not willing to own this responsibility. This decision is taken by the agencies perhaps on the ground that they want to escape the responsibility of procurement of the by-product, transporting this by-product and even selling this by-product, when they, themselves, are not sure about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration the peculiar circumstances and in the interest of business, a decision has been arrived at by the Government of India not to take responsibility of the by-product, thereby, also losing any rights in the said by product. As observed above, if the contention of the Revenue is to be accepted, then under the circumstances, the miller can insist upon to say to the other party that he is not interested in retaining the by product or to negotiate on the milling charges or to claim higher milling charges, irrespective of the value of the by-product either at a negotiable rate or at fixed rate. However, as observed above, neither such an option is available to the miller under the contract nor the property in the by-product, any time comes into the ownership of the procurement agency. Hence, in view of this, neither the value of the by-product can be said to be consideration for the work contract nor the provisions of section 194C of the Act will be applicable in this respect. Moreover, as pointed out in the CAG report (supra) and as discussed above, the value of the by-product is not ascertained to the Government, though the Government through its agencies such as Tariff Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g from the fish sales subject to the condition that this will not exceed 85% of the sales value of the catch per vessel per annum on voyage to voyage basis. Minimum 15% of the earning by way of sales value of catch of fish should accrue to the charterer. Payment to the Deponent Owners should not exceed the above charter fee. c) Export value of catch from the chartered vessels should not be lower than the prevailing international market price at the time of export. Thus, according to the terms of the agreement the Eastwide Shipping Co.(HK) Ltd., the owner of the fishing Trawlers (hereinafter referred to as the nonresident company ) was to provide fishing Trawlers to the assessee for all inclusive charter fee of US $ 600,000 per vessel per annum. In terms of the agreement the assessee was to receive ₹ 75,000/- or 15% of the gross value of catch, whichever is more. The charter fee was payable from earning from the sale of fish and for that purpose 85% of the gross earnings from the sale of fish was to be paid to the non-resident company. 21. A perusal of the above reveals that in the case of Kanchanganga Sea Foods Ltd. vs CIT , as per the terms of the agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id case of Kanchanganga Sea Foods Ltd. , the assessee, Kanchanganga Sea Foods Ltd., remained the owner of the catch until its sale value was realized and had right to retain the realized value that was more than US$ 6,00,000 and at the same time it was entitled to retain the sale value of the 15% catch, even though, the sale value of the remaining 85% of the purchase would fetch less than US$ 6,00,000. It was the sale value of the catch which was the determining factor and till the catch was not sold or its value was not determined, the property in the catch fish would remain under the ownership of the assessee Kanchanganga Sea Foods Ltd . However, in the case in hand, the neither the Procurement agency becomes the owner of the by product nor there is any ascertainable value of the by-product. Even, the Procurement Agencies have neither any inclination to know the price of the by-product nor they have right to claim any amount out of the value of the by-product on the ground that its sale value has exceeded the milling charges. In view of the above discussion, the case law in the case of Kanchanganga Sea Foods Ltd. is not applicable on the facts of the present case. 22. So f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in detail, since we have held that the property in the by-product was not passed on by the assessee / Procurement Agencies as milling charges, hence, it is held that TDS provisions of section 194C are not attracted in this case. This issue is decided in favour of the assessees / Procurement Agencies. 23. Even otherwise, while relying upon the decision of the Hon'ble Delhi Bench of the Tribunal in the case of M/s Aahar Consumer Products Pvt. Ltd. (supra), the issue in the present appeals has already been decided in favour of the assessee and the Ld. CIT(A) in this case has followed the aforesaid decisions of the Tribunal in various cases and Department, as submitted before us, has not agitated the issue before higher Judicial authority, and even in the absence of any contrary decision of the higher Judicial Forum directly on this issue, the issue is otherwise covered in favour of the assessee by the various direct decisions of the Coordinate Benches of the Tribunal on this issue. In view of this, we do not find any infirmity in the order of the CIT(A) while allowing the appeals of the assessee. 24. In the result, all the appeals of the Revenue bearing ITA Nos.1309 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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