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TMI Blog2018 (12) TMI 398X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial Member: These are bunch of appeals preferred by the Department and assessee for different assessment years against the separate orders of the respective Commissioner of Income Tax (Appeals) [hereinafter referred to as 'CIT(A)'] Since common issues are involved in all these appeals, hence, these were heard together and are being disposed of by this common order. ITA No. 1309/Chd/2016 for assessment year 2012-13 is taken as a lead case. ITA No. 1309/Chd/2016 2. The Department in this appeal has taken the following grounds of appeal:- (i) In the facts and circumstances of the case, the ld. CIT (A) is erred in deleting the demand ignoring that the provisions of section 194C are squarely applicable on the work carried out by the millers. (ii) In the facts and circumstances of the case, the ld. CIT(A) is erred in deleting the demand created on account of non / short deduction of tax u/s 201 (I) / 201(1 A) of the Income-tax Act, 1961 ignoring the fact that the assessee deductor applied provisions of section 194C on the cash part of the payments but not on the payments which were paid in kind and thus not deducted TDS on whole payment. (iii) In the facts and circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 201/201A of the Act for non-deduction of TDS as per the provisions of section 194C of the Act. The assessee explained that as per the milling policy issued by the Government of Punjab and as well as agreement entered into with the millers, the rice millers are paid milling charges for custom milling of the paddy at the rate as fixed by the Government of India and it has been agreed that all by-products viz. broken rice, rice kani (rice bran and husk) shall be property of the miller. The value of the said by- product is not part of the consideration paid for custom milling of the paddy. The milling charges are paid as per the rates fixed by the Government of India which is at the rate of Rs. 15/- per quintal of the paddy milled and TDS has been deducted on the aforesaid payment as per provisions of law. The Assessing officer, however, was not satisfied with the above submissions of the assessee and held that milling cost paid by the assessee were discounted cost and need to be increased by the cost of by-product for the purpose of deduction of tax at source. He, therefore, held that the assessee as assessee in default u/s 201(1) and 201(1A) of the Act for non-complia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utes by-products in the shape of broken rice, rice kani, rice bran and phuk and which has a quite reasonable market value, is retained by the millers. He has, further submitted that milling charges @ Rs. 15/-per quintal would be lesser than the milling cost including the transportation charges borne by the millers. No Miller will be ready to custom mill the paddy at this rate if, he is not given the right to retain the by-products. That the real value lies in the by-products, the market value of which is included in the consideration for milling charges. He, therefore, has submitted that the Assessing officer rightly held that the assessee was liable to deduct TDS taking into consideration not only of the cash amount of Rs. 15/- but also value of the by-products retained by the miller. He in this respect has further relied upon a letter bearing No. 192(20)2011-FCA/Cs dated 7.11.2012 of the Govt. of India addressed to the Secretary, Food and Civil Supplies Department, whereby, the Government of India has approved for payment at the provisional rate of Rs. 2004.95 for raw rice and Rs. 1976.03 for Par-boiled rice for the custom milled rice under the price support operation of the Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment Agencies for increase in the milling charges. However, it was observed that with the increase of milling cost, there was likely increase in the income of the millers from the appreciation of value of the by-product. That the Tariff Commission was requested to conduct study in this respect in the year 2009 and its report was received in the year 2012. That it had been pointed out that some news reports stated that on count of value of by-products, the Government was losing every year more than Rs. 1000 crores, however, there was no evidence in this respect. It has been further pointed out in the said press note that though, such reports talks of increase in value of the by-product of paddy buy they do not talk about increase in the expenses of the rice millers. On the other hand, there was demand from the States for upward revision of the milling charges, therefore, the Tariff Commission has been asked to conduct a fresh study and review the normative milling charges in December 2013, itself, and that the report was expected by December 2015. The ld. DR has further relied upon the report of the Comptroller and Auditor General of India (C&AG) on Procurement and Milling of Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Government of India should ascertain the full quantum of excess realization by millers in order to realistically revise the milling charges and reduce the final subsidy burden on the exchequer. Accordingly, the following recommendations have been made: "The GoI may take up with the State Governments to impress upon the millers to provide the date about milling and other costs to Tariff Commission for timely completion of study for refixation of the milling charges and out-turn ratio." The ld. DR has further pointed out from the said report of C&AG that it was also considered to revise out-turn ratio as in certain states like Andhra Pradesh the out-turn ratio of the rice out of paddy was fixed at 75% for the seasons covered during the period 2009-10 to 2013-14. Further, as per certain reports, the out-turn ratio for certain varieties of paddy was in two districts of Andhra Pradesh reported at 72.08%. It was therefore, recommend that out-turn ratio of 67% for certain varieties of paddy and in certain areas / region was required to be reassessed to ensure that he millers do not reap undue benefit at the cost of Government of India leading to non-deduction of subsidy on thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, Patiala, ITA No. 1291,1292,1293,1294, 1295,67,68/CHD/2016 dated 13.07.2017. (Chandigarh ITAT) iv) The ACIT (TDS), Vs. Punjab State Grain Procurements Corporation Ltd., Barnala ITA No. 69,70,71/CHD/2016 dated 11.08.2016. (Chandigarh ITAT) v) M/s The Punjab State Co-operative Supply & Marketing Federation Ltd. Vs, ITO, Jalandhar, ITA No. 54, 55 & 56/Asr/2016, dated 01.07.2016. (Amritsar ITAT) vi) ITO vs. Aahar Consumer Products Pvt. Ltd., 1TA No. 2910-1939- 1654 & 1705/DEU/2010, dated 28.02.2011. (Delhi ITAT) vii) Chief Accounts; Officer Vs. ITO, [2014] 52 Taxmann.com 453 (Bangalore Trib.) viii) CIT Vs. Chief Accounts Officer, ITA No. 94 & 466 of 2015, dated 29.09.2015, (Karnataka High Court). ix) Red Chillies Entertainment Pvt. Ltd. Vs. ACTT, ITA No. 5271/Mum/2013 dated 31.05.2016. (Mumbai ITAT) 10. It has been further submitted that the reliance of the ld. DR in the case of 'Kanchanganga Sea Foods Ltd.' (supra) was misplaced. That the Coordinate Bench of the Tribunal in the case of 'Area Manager, (Distt. Officer) Food Corporation of India' has already dealt with the said decision. The Tribunal, even after considering the said decision, has decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94LA of the Act, the expression 'any sum' has been used and, therefore, the CDR which was in the form of 'in kind' was not liable for deduction of tax at source. It was further held by the Tribunal that the expression in Sec. 194LA, "at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode," means that payment can be in the mode of giving cash, or by issuing cheque or draft or any other mode like telegraphic transfer or mail transfer, via money order or postal order, bill of exchange, promissory note, electronic transfer like RTGS, NEFT etc. That CDR cannot be brought within the meaning of the expression "by any other mode" used in Sec. 194LA of the Act. That the rule of "Ejusdem Generis" in interpretation of statutes, which lays down that where general words follow enumeration of persons or things, by words of a particular and specific meaning, such general words are not to be construed in their widest extent, but are to be held as applying only to persons or things of the same general kind or class as those specifically mentioned, is fully applicable to the interpretation of Sec. 194LA of the Act. That it is a canon of statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been further submitted that in the process of milling/shelling, there is a loss of the product which is called "processing loss" and it cannot be said that the by-products retained with the millers is exact 33% of the paddy. . That the Government is not interested in taking the by-product and moreover it cannot be quantified in terms of money, hence, the TDS provisions of section 194C of the Act would not apply. Further, referring to the para 13 of the decision in the case of 'Ahaar Consumer Products (P.) Ltd.' (supra) it has been submitted that the coordinate Delhi Bench of the Tribunal in the case of an assessee who was supplying wheat and getting back 'Atta' or 'Dalia', as the case may be, in an agreed proposition, held that for such an exchange, there was absolutely no payment of any consideration. That even if it is to be treated as a 'work contract' and not as contract of sale, it was difficult to say that there was any payment as a consideration for the labour or the work that was rendered. It was held that it was a case of exchanging of the product i.e wheat was exchanged with 'Atta' or 'Dalia' which was entirely a new produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessees have further submitted that earlier in many cases, some of which have been referred to above, the issue has been decided by the various Benches of the Tribunal in favour of the assessee and Department has not challenged the same in the High Court and in view of this, the findings arrived at in those cases have become final against the Department and thus the issue is squarely covered in favour of the assessee. 14. In rebuttal, the Ld. DR has submitted that in all the earlier decisions, the reliance has been placed on the decision in the case of the Delhi Bench of the Tribunal in the case of 'Ahaar Consumer Products (P.) Ltd.' (supra) and the facts in the case of Ahaar Consumer Products (P.) Ltd. (supra) were quite distinguishable of the present case and further that now the issue is squarely covered by the decision of the Hon'ble Andhra Pradesh High Court in the case of 'Kanchanganga Sea Foods Ltd.' (supra), which has been further affirmed by the Hon'ble Supreme Court. Further, that in the light of the CAG report (supra) and the clarification by the Government, milling charges are fixed taking into consideration the value of the by-product whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, whichever is earlier, deduct an amount equal to- (i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family; (ii) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income tax on income comprised therein. (2) Where any sum referred to in sub-section (1) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source- (i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or (ii) on the whole of the invoice value, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said purpose, the procurement agency enters into an agreement with the miller. The milling charges are fixed by the Government of India. It is not in the hands of the procurement agencies or millers to negotiate on the consideration payable for 'milling charges'. Admittedly, for the year under consideration, milling charges have been fixed @ Rs. 15/- per quintal. The out-turn ratio has also been fixed, which means that the miller has to return 67% of the manufactured rice, irrespective of the fact that the yield of rice manufactured was low or high from the paddy entrusted to him; which of course, not only depends upon the variety and quality of paddy but also on the climactic changes. Under the circumstances, the nature of contract, in our view, is not purely a work contract rather it is something more than that. In this contract, the miller has no choice to say that he will return the rice as well as the by-products as per the outcome of the actual milling of the paddy and that he will only claim the milling charges. There is no option for the miller to say that owing to the variety/quality of the paddy or other circumstances, the yield of manufactured rice was less and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances, as contended by the Ld. DR also, though the milling charges are fixed taking into consideration the fact that the by-product have also some marketable value, however, the value of the by-product as per the term of the agreement entered into by the procurement agencies with the millers, cannot said to be a consideration for the work contract of milling of the paddy. These cases are of peculiar circumstances, where the assessee/availer of services is not interested in retaining the by-product. Even as per agreement, the procurement Agency/assessee never becomes the owner of the by-product. The very point of coming into existence of the by-product, the same remains the property of the miller. When as per the terms of the agreement, the by-product is never involved to be the property of the procurement agencies, under the circumstances, it cannot be said that the said by-product has been handed over as consideration in kind by the procurement agencies to the millers. When one is not the owner of the product and the property in the product has never passed on to that person, he, under the circumstances, cannot pass the same to the others. The property in the by-product fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not ascertainable, hence, the procurement agencies will not otherwise will be in a position to deduct TDS by assuming any value of such by-product. 20. Now coming to the reliance placed by the Ld. DR in the case of 'Kanchanganga Sea Foods Ltd.' (supra), the brief facts of the case of 'Kanchanganga Sea Foods Ltd.,' (supra) as extracted from the decision of the Supreme Court, were as under:- "2. Facts giving rise to the present appeals are that the appellant M/s. Kanchanganga Sea Foods Limited is a company incorporated in India and engaged in sale and export of sea food and for that purpose obtained permit to fish in the exclusive economic zone of India. To exploit the fishing rights, the appellant-company (hereinafter referred to as the "assessee") entered into an agreement dated 7th March, 1990 chartering two fishing vessels i.e., two pairs of Bull Trawlers, with Eastwide Shipping Co. (HK) Ltd. a non-resident company incorporated in Hong Kong. Clause 4 of agreement which is relevant for the purpose reads as follows :- "4. Deponent Owners to provide: The Deponent Owners will provide fishing vessels, as approved by Government of India, for all inclusive cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er vessel, the mode of recovery was through sale price of the 85% of the total catch, however, if the 85% of the total catch is not enough to realize the maximum value of US$ 6,00,000, the owner of the vessel will not be entitled to claim more catch or more price, it has to restrict the hiring charges to the sale value of 85% of the catch. Further, it had been agreed that the assessee 'Kanchanganga Sea Foods Ltd' (supra) would receive minimum 15% of the earning by sale value of catch of fish. It was further agreed that the payment to the owner of the vessel, however, will not exceed the above said agreed charter fee of US $ 6,00,000, which means that the consideration was settled at sale price of 85% of the catch but maximum to the extent of US$ 6,00,000. However, if the sale price of 85% of the catch would exceed US$ 6,00,000, then the exceeded amount will not be retained by the assessee and not by the owner of the vessel. Similarly, minimum of 15% of the earning from the sale of fish would be retained by the assessee, however, it could exceed from that, if the value of the sale price of the remaining 85% of the catch would exceed US$ 6,00,000. In these circumstances, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the value of the consideration for the 'work contract' is settled in monetary terms, or at a value of money, it will be immaterial if thereafter the consideration is passed in monetary terms or 'in kind.'. Suppose, the consideration in the contract is settled at a certain price and instead of paying the said price in cash or through banking channel, such as, by way of cheque / draft / RTGS etc., the availer of the services / assessee pays / transfer valuable goods of the equal monetary value to the contractor such as gold or any other precious metal or anything else having almost equal monetary value at which the price was settled, to say that the provisions of section 194 will not be attracted in that case, will be against the spirit, intent and purpose of section 194C of the Act and such an interpretation will defeat the real intent and purpose of the provisions. Another important factor to be taken into consideration is that the assessee must be the owner / should have the authority to pass on the consideration 'in kind' to the contractor. As discussed above, in this case, the property in the by-products comes into ownership of the millers from the ve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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