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TMI Blog2020 (12) TMI 547X X X X Extracts X X X X X X X X Extracts X X X X ..... ulfilled by the assessee, therefore, disallowance u/s. 40(a)(ia) as confirmed by CIT (Appeals) is hereby sustained. Accordingly, grounds 1 to 4 of the assessee's appeal are dismissed. TDS on transport expenses in view of the provisions of Sec. 194C(6) - HELD THAT:- Since the provisions of Sec. 194C r.w.s. 194C(6) of the Act, imposes a specific liability of deducting TDS with respect to payment made under the contract to a contractor/transporter only and it does not extend to harvester by any state of imagination. The argument of the assessee that the harvester is the same person, who is transporting the cane is absolutely found false and untrue as regards the facts of the assessee's case since we have already analyzed from the facts that there exist two separate agreements one with the farmers and another with the contractor/transporter - there existed the prima facie liability on the part of the assessee to deduct TDS before making payment to these contractors/transporters. There is a clear cut contractor contractee relationship and the assessee cannot escape its legal obligations of deducting TDS - rigours of Sec. 40(a)(ia) of the Act applies to the assessee and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,70,865/- is part of purchase price of sugarcane, hence not liable for deduction of tax u/s. 194C of the ITA, 1961. 4. The learned CIT(A)-12 and learned AO erred in law and on facts in holding that the provisions of section 194C(4) of the ITA, 1961 are not applicable for payments made to H T Contractor amounting to ₹ 8,20,70,865/-. Learned IT-Authorities ought to have appreciated that appellant merely acted as a facilitator between H T Contractor and farmers and hence provisions of section 194C(4) of the ITA, 1961 squarely applies to the facts of the case. 5. The learned CIT(A)-12 and learned AO erred in law and on facts in holding that the provisions of section 194C(6) of the ITA, 1961 are applicable only to persons engaged in the business of plying, hiring or leasing goods carriages. 6. Alternatively and without prejudice to the above grounds, learned CIT(A)-12, Pune and learned AO erred in law and on facts in disallowing amount paid to H T Contractors not exceeding ₹ 30,000/- on individual transaction basis or amount not exceeding ₹ 75,000/- on aggregate basis. 2. The assessee also filed additional grounds of appeal which are as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o show cause as to why the stated sum should not be disallowed under Sec. 40(a)(ia) of the Act. In its reply dated 08.01.2014, the assessee stated that it got lower deduction certificates u/s. 197 of the Act in respect of its 120 cane transport and harvesting contractors and therefore in view of the certificates, no TDS was required to be deducted. The learned Assessing Officer found that TDS certificate u/s. 197 of the Act were only with respect to contractual payments i.e., 194C payment and not in respect of the payments to be made under Sec. 194J of the Act. Moreover, as per certificates u/s. 197 of the Act, the assessee was directed to deduct TDS @ 0.01% on the payments made to the said contractors between 28.03.2011 to 31.03.2011, whereas the assessee had not deducted even a single rupee on account of TDS. 6. The assessee filed written submissions before the learned Assessing Officer which were reproduced at Para 3.6 of learned Assessing Officer's order. The contentions of the assessee are that: (1) TDS was not deductible on the above three payments since it was the duty of the Members (sugar cane growers selling sugarcane to the assessee) to supply cane at the gate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of the case, submissions of the assessee and the assessment order gave a categorical finding on the disallowance under Sec. 40(a)(ia) of the Act. It was submitted before the learned Commissioner of Income-Tax (Appeals) that the assessee purchased sugarcane from the farmers on ex-gate basis. In other words, the responsibility and liability of bringing the sugarcane till the factory gate of the assessee was that of the farmers supplying the cane. Many farmers preferred to supply the cane directly at the factory and in such cases, these farmers incurred the cost of transportation on their own. However, some farmers were unable to deliver the cane to the factory gate of the assessee and in such case on behalf of these farmers, the assessee appointed the transporters for ensuring the transport of sugarcane to the factory gate. It was further observed that there was an agreement between cane growers i.e., farmers/suppliers and the company. It was submitted before the learned Commissioner of Income Tax (Appeals) that the assessee was not incurring harvesting and transport expenses on his own account and merely acting on behalf of the farmers. Hence, it was not responsible for deductin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee directly. As per clause (4) any damage in the process of cutting and transporting were made to be good to the assessee by the contractors. As per clause (8) rates for the entire activity of harvesting and transport were decided by the assessee directly with these contractors. As per clause (13), time-table of the assessee had to be adhered to by the contractors. As per clause (20), if any advance paid by the assessee remained pending, the same was to be refunded to the assessee by these contractors and as per clause (34), the assessee had a right of legal proceedings in case of failure of the contractors as regards their performance. Agreement shows that sugarcane growers were not a party to the contract made with the transporters/contractors and the contention that payments were made on behalf of the farmers was without any basis. Therefore, there is a categorical finding by the learned Commissioner of Income-Tax (Appeals) that there were contracts entered into by the assessee one with the farmers i.e., sugarcane growers and another with that of with the transporters. There is a direct control of the assessee and on perusal of the entire clauses of these two contracts, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges were paid, the same were the liability of the assessee. Farmers were only concerned with the receipts of the net sugarcane price before the start of the season and therefore it is clear that the relationship between the assessee and the contractor/transporter that of contractor and the contractee and the assessee was under the obligation to deduct tax at source u/s. 194C of the Act. In fact, the filing of application under Sec. 197 of the Act and securing lower deduction certificate also suggests that the assessee was aware of its responsibility as tax deductor and therefore, the learned Commissioner of Income-Tax (Appeals) upheld the action of the assessee in disallowing the expenses of ₹ 8,20,70,865/- under Sec. 40(a)(ia) of the Act for failure of the assessee to deduct TDS under Sec. 40(a)(ia) of the Act on payments made to harvesting and transport contractors. 11. At the time of hearing before us, the learned Authorised Representative of the assessee took us through the orders of the learned Assessing Officer as well as the learned Commissioner of Income-Tax (Appeals) and reiterated the submissions placed before them. The learned Authorised Representative also to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the farmers were not reaching the sugarcane to the gate of the assessee factory. 13. We are of the considered view that when the assessee is entering in his own right and capacity in contract and the payment to harvesters/transporters were the liability of the assessee and directly done by the assessee to them, when the farmers were only concerned with the receipt of net sugarcane price fixed before the start of the season and when the facts are crystal clear that the payments made by the assessee were not made on behalf of the farmers, in such scenario, there is a strict relationship between the assessee and the contractor/transporter as that of the contractor and the contractee and in such circumstances, the assessee was under the legal obligation to deduct TDS under Sec. 194C of the Act and since this legal obligation was not fulfilled by the assessee, therefore, disallowance of ₹ 8,20,70,865/- u/s. 40(a)(ia) of the Act as confirmed by the learned Commissioner of Income-Tax (Appeals) is hereby sustained. Accordingly, grounds 1 to 4 of the assessee's appeal are dismissed. 14. With regard to ground No. 5, the assessee has argued that it need not deduct TDS on tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar does not exceed ₹ 75,000/-. The assessee contends that in the present case, there are some instances wherein the payments to the H T contractors does not exceed both the limits prescribed under Sec. 194C(5) of the Act and as such within the limits payments to H T contractors, assessee is not required to deduct tax. The assessee admits that this ground could be remitted back to the learned Assessing Officer to reach a suitable finding. 18. That on perusal of the order of learned Commissioner of Income-Tax (Appeals), we find that whether there were some cases where payment made to some contractor does not exceed the limits prescribed under Sec. 194C(5) of the Act or not has not been brought out at all and it requires factual verification. Therefore, this limited issue with regard to Sec. 194C(5) of the Act is restored to the file of learned Assessing Officer for factual verification and adjudicating of the issue while complying with the principles of natural justice. Ground No. 6 is allowed for statistical purposes. 19. With regard to the Additional Ground No. 9, the contention of the assessee is that there is an amendment vide Finance Act, 2014 in respect of Sec. 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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