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2016 (4) TMI 42 - KARNATAKA HIGH COURT

2016 (4) TMI 42 - KARNATAKA HIGH COURT - [2016] 383 ITR 561 - TDS u/s 194C - payments made to the harvesters and transporters were pursuant to a 'Contract' - Held that:- In the instant case, assessee is involved in manufacturing Sugar and its byproducts in a large scale. Therefore, the assessee has no escape but to comply with various Fiscal Statues such as Income Tax, Sales Tax, Customs Act, Central Excise Act etc., and Labour Laws such as Factories Act, ESI Act, PF Act etc. Further, there is c .....

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194J of the Act stand proved. Therefore, in the light of the settled position of law the only consequence that flows is to invoke Section 40(a)(ia) of the Act as has been rightly held by the Assessing Authority and affirmed by the First Appellate Authority.

In the result, the appeals filed by the Revenue are allowed by answering the following substantial question of law in its favour and it is held that in the facts and circumstances of this case, the Tribunal was not correct in inte .....

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T : Sri Y.V. RAVIRAJ, ADV. Though these appeals are listed for admission, with consent of learned Counsel for the assessee and the Revenue, they are taken up for final disposal. 2. I.T.As. No. 100111-100120/2015 are filed by the assessee challenging the common order dated 4.8.2015 in ITAs No. 152 to 161/PNJ/2015 and connected appeals passed by the Income Tax Appellate Tribunal, Panaji Bench, Panaji, ('ITAT' for short). 3. I.T.A. No. 100012/16 to I.T.A. No. 100017/16 are filed by the Reve .....

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orters by the Appellant as an Agent on behalf of the Farmers constituted a CONTRACT as per the Indian Contract Act, 1872? iii. Whether the Tribunal was right in not determining the issue relating to the existence of a CONTRACT between the Harvesters/Transporters and Appellant as per the Bond Agreement/s? iv. Whether the Tribunal was justified in directing the Appellant to furnish details to the Assessing Officer for verifying whether or not the recipients of Harvesting, Transportation and Legal .....

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Whether on the facts and circumstances of the case and in law, the Tribunal erred in not appreciating the fact that section 40(a)(ia) cannot be interpreted to mean that it applies only to amounts "payable" and not to those which have been "paid", as held by the Hon'ble High Court of Kerala in the case of Thomas George Muthoot v. CIT in ITA No. 278 of 2014? 3. Whether the Tribunal erred in placing reliance on the decision of Hon'ble Allahabad High Court in CIT v. Vecto .....

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or the assessee and Sri Y.V. Raviraj, learned Standing Counsel for the Income Tax Department. 7. Brief facts of the case: Assessee is a Co-operative Sugar Factory. The returns filed by the assessee for the assessment years 2005-06, 2006-07 & 2008-09 to 2011-12 were taken up for scrutiny and notices under Section 143(2) of the Income Tax Act (for short 'the Act') were issued. Assessee was represented by its authorised representative. During the scrutiny, the Assessing Authority notice .....

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'Contract' within the meaning of Section 194C of the Act and therefore the assessee was liable to deduct tax at source. During the enquiry, the authority noticed that the assessee had not deducted any tax at source and held that the same were not allowable as expenditure under Section 40(a)(ia) of the Act and accordingly, added the said amounts to the total income. 8. The assessee was called upon to produce details regarding harvesting charges and transportation charges paid in excess of .....

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,27,626/- TOTAL ₹ 1,14,77,450/- For the assessment year 2006-07: Sl.No. Amount 1. Harvesting charges paid above ₹ 20,000/- ₹ 1,27,36,055/- 2. Transportation charges paid above ₹ 20,000/- ₹ 65,52,299/- 3. Harvester's commission ₹ 4,61,000/ TOTAL ₹ 1,97,49,354/- For the assessment year 2008-09: Sl.No. Amount 1. Harvesting charges paid above ₹ 20,000/- ₹ 2,79,07,609/- 2. Transportation charges paid above ₹ 20,000/- ₹ 3,32,18,255/ .....

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al Co-operative week ₹ 1,00,000/- 9. Donation to Chalukya Utsav ₹ 10,000/- TOTAL ₹ 5,14,67,002/- For the assessment year 2010-11: Sl.No. Amount 1. Harvester ₹ 30,86,504/- 2. Vehicle Hire ₹ 2,86,674/- 3. Legal fee ₹ 2,03,272/- TOTAL ₹ 35,73,450/- For the assessment year 2011-12: Sl.No. Amount 1. Transport contractor ₹ 2,09,90,671/- 2. Flooring work ₹ 6,71,919/- 3. Rents and professional charges to advocate ₹ 3,52,717/- TOTAL ₹ 2,23 .....

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; 96,762/- for the assessment year 2010-11, ₹ 13,39,441/- for the assessment year 2011-12 and ₹ 11,77,551/- for the assessment year 2012-13. 10. The aforementioned orders passed by the Assessing Authority holding that the assessee was in default for not deducting TDS under Sections 194C, 194I and 194J of the Act as also orders passed under Sections 201(a) and 201(1A) were unsuccessfully challenged before CIT (Appeals), Belagavi. 11. The orders passed by the CIT (Appeals), Belagavi we .....

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which the provisions of Sections 194C and 194J were invoked stood fully paid by the year end. It was further held that if the assessee proved that there was no outstanding and all the amounts had been paid in full then, in the light of the judgment in the case Commissioner of Income-tax, Muzaffarnagar v. Vector Shipping Services (P.) Ltd., reported in [2013]38 taxmann.com 77 (Allahabad) the Assessing Authority shall not invoke the provisions of Section 40(a)(ia) of the Act. Hence, these appeals .....

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by the National Federation of the Co-operative Sugar Factory Limited, which is called as 'Field Price' in the sugar industry parlance. The field price includes the cost of harvesting and transportation of sugarcane till the sugar factory. However, in order to ensure proper and timely procurement of sugarcane, the appellant engages the services of harvester and transporter. Engagement of contractor for harvesting and transportation of sugarcane has been recognized by the Central Board of .....

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Therefore, the view taken by the Assessing Authority that the assessee failed to deduct tax at source adversely affects profit/dividend to the members of the co-operative society defeating the purpose of establishment of co-operative sugar factories. (g) The impugned orders passed by the ITAT are unsustainable in the absence of recording a definite finding with regard to the existence of a valid contract between the harvester and the assessee. 13. In sum and substance, it is the case of the appe .....

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does not have the benefit of Expert Legal Consultants to advice with regard to statutory compliance. If it is held that non-deduction of tax at source by the assessee as a violation and the payments made to the contractors are brought to tax by invoking Section 40(a)(ia) of the Act, the same shall adversely affect the profit/dividend to the members of the society. 14. The learned Counsel for the assessee also submitted that an identical matter is pending consideration before the Hon'ble Hig .....

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that an assessee responsible to pay any sum to carry out any work in pursuance of contract is required to deduct tax at source. As a consequences of failure to comply with Section 194C of the Act, any payment made without deduction of tax at source shall be brought to tax under Section 40(a)(ia) of the Act. 17. Shri Y.V. Raviraj further submitted that the pleadings and arguments on behalf of the assessee that the agreement between the assessee and the harvester/transporter is not a legally enfo .....

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case of the assessee that payments have been made to the harvesters pursuant to the said agreement. Therefore, it is imperative to construe that the entire exercise of harvesting and transpiration has taken place with the approval and consent of the farmer. In such circumstances, the argument advanced on behalf of the assessee that the farmer has not ratified the agreement is fallacious. 18. In reply to the contention of the assessee that the factory is situated in a remote area and the assesse .....

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tion, assessee has violated Section 194J by not deducting tax at source while making payment to the lawyers. 19. Contesting the assessee's ground that, the view of Assessing Authority shall adversely affect the quantum of profit to the members, he submitted that this ground is devoid of merit because non-compliance of statutory provisions shall always lead to resultant consequences and assessee is no exception. 20. Supporting the appeals filed on behalf of the Revenue, Shri Y.V.Raviraj, lear .....

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g the year. 21. He further submitted that the ITAT erred in relying on the decision in the case of Vector Shipping Pvt. Ltd., [2013]38 taxmann.com 77(Allahabad) when the declaration of law was clear in the cases of Crescent Export Syndicate (2013) 33 Taxman.com 250 Cal and Sikandarkhan N.Tunvar & Ors(2013) 33 Taxman.com 133 Guj. 22. He next argued that CBDT in its Circular No. 10/DB/2013 (F No. 179/Misc/M61/2012-ITJ(Vol.II) dated 16.12.2013 has clarified that the provisions of Section 40(a)( .....

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94C, 194I and 194J of the Act. Ignorance of law cannot be an excuse. Thus, the orders passed by the Assessing Authority and the First Appellate Authority were just and proper and did not call for any interference. However, the ITAT by placing reliance on the judgment in the case of Vector Shipping Services Pvt. Ltd. [2013]38 taxmann.com 77(Allahabad) has remitted the matter back to the Assessing Authority. Therefore, the impugned orders passed by the ITAT are unsustainable in the light of the su .....

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the farmer is paid full value of sugarcane inclusive of harvesting and transportation charges, which is known in the sugar industry parlance as 'field price' as notified by the National Federation of Co-operative Sugar Factories Ltd., New Delhi; • Yet, in order to ensure uninterrupted supply of sugarcane, the assessee engages the services of 'Bond Harvester/transporter'; • Assessee enters into agreements with the harvester/transporter in an uniform manner as described i .....

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ee to present its case. Records before the Assessing Authority clearly disclose that the assessee had entered into agreements with the harvesters/transporters and paid money to such harvesters/transporters in terms of such agreement/s. Records also disclose that the assessee had paid money towards rents and professional charges. Consequently, Assessing Authority as also the First Appellate Authority namely CIT (Appeals) rightly held that assessee was liable to comply with the provisions of Secti .....

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ity. Assessee was directed to prove that no amount was left payable at the year end and all amounts claimed on which the provisions of Section 194C, 194I and 194J of the Act were invoked had been fully paid by the year end. 27. We have carefully gone through the judgment in the case of Vector Shipping Services Pvt. Ltd. [2013]38 taxmann.com 77(Allahabad). In the said case, Hon'ble High Court of Allahabad was considering an issue with regard to non-compliance of provisions of Section 194C by .....

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d had rendered the said decision. In contrast, in the instant case, it is an admitted position as borne out on records that the assessee has not deducted tax at source as required under Section 194C, 194I and 194J of the Act. However, non-compliance of the said provisions is sought to be justified on the ground that the agreement inter se between the assessee and the harvester is not a valid contract inasmuch as the farmer is not a party to the said agreement upon whose land the harvester works .....

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assessee. This leads to an irresistible inference that the produce namely the sugarcane has been harvested and transported by the contractor. Harvesting and transportation can be effected only with consent of the owner of the sugarcane namely farmer. 28. One other ground pressed into service by the assessee in support of its case is that, assessee is a co- operative sugar factory established for the benefit of its members and therefore, the view taken by the Assessing Authority would adversely e .....

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tive entity. In our view, it is hardly any legal ground for consideration. Non-compliance of statutory obligations shall always have their own consequences to flow. Therefore, the instant ground does not advance the case of the assessee any further. 30. Adverting to yet another ground urged on behalf of the assessee suggesting that it did not have the benefit of proper legal advice due to its locational disadvantage, we are of the view that this argument is too feeble to countenance. While canva .....

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cticing Chartered Accountants. We notice that the assessee has spent large sums of money towards legal advice. Assessee has not complied with Section 194J even while making payments towards professional charges to the advocates. It is fairly well settled that ignorance of law is no excuse. We hasten to add that we are conscious of the fact that the Doctrine 'ignorantia juris neminem excusat', has been interpreted by the Hon'ble Supreme Court and English Courts in several cases. There .....

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ied from conduct, but its basic requirement is that it must be "an intentional act with knowledge". Per Lord Chelmsford, L.C. in Earl of Darnley v. London, Chatham and Dover Rly. Co. [(1867) LR 3 HL 43, 57 : 16 LT 217] There can be no waiver unless the person who is said to have waived is fully informed as to his right and with full knowledge of such right, he intentionally abandons it. It is pointed out in Halsbury's Laws of England (4th Edn.) Volume 16 in para 1472 at p. 994 that .....

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June 25, 1970, it had full knowledge of its right to exemption under the assurance given by Respondent 4 and that it intentionally abandoned such right. It is difficult to speculate what was the reason why the appellant addressed the letter dated June 25, 1970 stating that it would avail of the concessional rates of Sales Tax granted under the letter dated January 20, 1970. It is possible that the appellant might have thought that since no notification exempting the appellant from Sales Tax had .....

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t the appellant must have had knowledge of its right to exemption on the basis of promissory estoppel at the time when it addressed the letter dated June 25, 1970. In fact, in the petition as originally filed, the right to claim total exemption from Sales Tax was not based on the plea of promissory estoppel which was introduced only by way of amendment. Moreover, it must be remembered that there is no presumption that every person knows the law. It is often said that everyone is presumed to know .....

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it was Lord Atkin who, as in so many other spheres, put the point in its proper context when he said in Evans v. Bartlam [(1937) AC 473, 479 : (1937) 2 All ER 646] : "… the fact is that there is not and never has been a presumption that every one knows the law. There is the rule that ignorance of the law does not excuse, a maxim of very different scope and application." It is, therefore, not possible to presume, in the absence of any material placed before the Court, that the. .....

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have knowledge of an enactment held that a publication in a gazette is a sufficient notice. Precisely, the Hon'ble Supreme Court has held as follows:- 14. In Lim Chin Aik v. Reginam [(1963) 1 All ER 223, 226 : 1963 AC 160 : (1963) 2 WLR 42 (PC)] , the Privy Council also observed: "It was said on the respondent's part that the order made by the minister under the powers conferred by Section 9 of the Ordinance was an instance of the exercise of delegated legislation and therefore tha .....

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the State of Singapore no provision, corresponding, for example, to that contained in Section 3(2) of the English Statutory Instruments Act, 1946, for the publication in any form of an order of the kind made in the present case or any other provision designed to enable a man by appropriate inquiry to find out what 'the law' is." 15. But then in State of Maharashtra v. Mayer Hans George [AIR 1965 SC 722, 742 : (1965) 1 Cri LJ 641 : (1965) 1 SCR 123] Rajagopala Ayyangar, J. referred t .....

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dgment are very brief. The decision has always been regarded as very doubtful, but it never came under review by a higher court." And observed: "We see great force in the learned author's comment on the reasoning in Sargant case [(1918) 1 KB 101 : 87 LJ KB 122 : 118 LT 95]. Taking the present case, the question would immediately arise is it to be made known in India or throughout the world, for the argument on behalf of the respondent was that when the respondent left Geneva on Nov .....

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y. Even if, therefore, the view enunciated by Bailhache, J. is taken to be correct, it would be apparent that the test to find out effective publication would be publication in India, not outside India so as to bring it to the notice of everyone who intends to pass through India. It was 'published' and made known in India by publication in the Gazette on the 24th November and the ignorance of it by the respondent who is a foreigner is, in our opinion, wholly irrelevant." 16. Again i .....

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or from the standpoint of Justice Holmes's 'unconscientious bad man' seeking to avoid the law, law must be known, that is to say, it must be so made that it can be known. We know that delegated or subordinate legislation is all pervasive and that there is hardly any field of activity where governance by delegated or subordinate legislative powers is not as important if not more important, than governance by parliamentary legislation. But unlike parliamentary legislation which is pub .....

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ndisputably the mode of publication prescribed by Section 25(1) was complied with. The notification was published in the Official Gazette on the 13-2-1986. As to the effect of the publication in the Official Gazette, this Court held [Srinivasan case [(1987) 1 SCC 658, 672 : AIR 1987 SC 1059, 1067] AIR at p. 1067 : SCC pp. 672-73, para 15] : "Where the parent statute is silent, but the subordinate legislation itself prescribes the manner of publication, such a mode of publication may be suff .....

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lure to make the law known and that, therefore, the notification did not acquire the elements of operativeness and enforceability. This contention of Shri Ganesh is unacceptable. (Underlining is by us) In the instant case, assessee is involved in manufacturing Sugar and its byproducts in a large scale. Therefore, the assessee has no escape but to comply with various Fiscal Statues such as Income Tax, Sales Tax, Customs Act, Central Excise Act etc., and Labour Laws such as Factories Act, ESI Act, .....

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applicable in the instant case. Swadeshi Cotton Mills Co. Ltd. v. Govt. of U.P. [1975] 4 SCC 378 at page 379, wherein it is held as follows: 3. We do not think that in this case it is necessary for us to consider whether Article 226 can be used for challenging the validity of the orders passed prior to January 26, 1950. But we are in agreement with the High Court on the other two grounds. As mentioned earlier, the impugned assessments were made in 1949. The writ petition was filed in 1956. The .....

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t the appellant did not know the true legal position is not one that can be accepted in law. That apart, even after the High Court rendered its decision in Modi Food Products' case [(1955) 6 STC 287] the petitioner did not move the High Court for over several months. There is no satisfactory explanation for that delay. That being so, the High Court was fully justified in refusing to exercise its discretion under Article 226 of the Constitution in favour of the appellant. (Underlining is by u .....

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leviable at the rate of 4%. If some assessing officers, due to their own ignorance or laxity accepted returns at the rate of 2% it did not permit the High Court to ignore the law and continue such laxity to prevail. It must be remembered that the assessing officer, who had assessed wrongly, could always reopen the assessment. 9. All that the errata, issued on 4-5-1998, does it reduce the rate of tax from 4% to 3%. The High Court has therefore also erred in concluding that the rate of tax has bee .....

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s also been overlooked by the High Court. 11. It was also submitted that since there was a lot of confusion and that number of parties including assessing officers were not clear as to what was the rate of tax, this Court should not interfere with the judgment of the High Court which has been passed on equitable basis. We see no substance in this submission. If the law is clear then it must be given effect to. Merely because the parties were unaware of the law does not mean that courts can ignor .....

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. (ii) In the case of Commissioner of Income Tax v. Sikandar Khan N. Tunvar reported in (2013) 259 CTR 0057 It is held by the Hon'ble High Court of Gujarat that: "The term used is interest, commission, brokerage etc. is payable to a resident or amounts payable to a contractor or sub-contractor for carrying out any work. The language used is not that such amount must continue to remain payable till the end of the accounting year. Any such interpretation would require reading words which .....

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id to the Government, would escape the consequence only because the amount was already paid over before the end of the year in contrast to another assessee who would otherwise be in similar situation but in whose case the amount remained payable till the end of the year. We simply do not see any logic why the legislature would have desired to bring about such irreconcilable and diverse consequences. We hasten to add that this is not the prime basis on which we have adopted the interpretation whi .....

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ussion, we answer the question as under:- The provisions of section 40(a)(ia) of the Income Tax Act, 1961, are applicable not only to the amount which is shown as payable on the date of balance-sheet, but it is applicable to such expenditure, which become payable at any time during the relevant previous year and was actually paid within the previous year. In the result the question is decided in favour of revenue and against the assessee." 32. While citing the aforesaid judgments, the learn .....

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