TMI Blog2014 (6) TMI 986X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned counsel for the assessee that in the past years also there was no such disallowance under s. 40(a)(ia) could not be controvered by the learned Departmental Representative. The various decisions relied on by the learned Departmental Representative are distinguishable and not applicable to the facts of the present case. - Decided in favour of assessee Disallowance of Bakshish under s. 40(a)(ia) - CIT(A) deleted the disallowance holding that the Bakshish paid to the harvesting and transport contractors directly by the assessee sugar factory is made on belief of sugarcane grower farmers - Held that:- It is the submission of the learned counsel for the assessee that such payment is made on completion of every harvesting season although the assessed is not contractually liable for such payment. However, same is paid to maintain good relationship with the labour force who come from outside Nashik and Marathawada Regions. It is also the submission of the learned counsel for the assessee that each individual payment is less than ₹ 20,000 and therefore tht provisions of s. 194C will not be applicable. The learned Departmental Representative could not controvert the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and harvesting and transport commissions were deducted from the sugarcane purchase payments made to the farmers. It was claimed that the assessee is not responsible for deducting the tax at source as per the provisions of s. 194C or s. 194H of the IT Act and that it was just a facilitator of the payments. It was also submitted later on that it was not a contract but a payment for purchase of goods and hence no liability for TDS deduction arose in the case of the assessee. 3. However, the AO was not satisfied with the explanation given by the assessee. He noted that the amount of transport contractor commission was @14 per cent of transport payments and the quantum of harvesting contractors commission was @16 per cent of the harvesting contractor payments. The assessee was also paying harvesting contractor Bakshish. 3.1 From the various details furnished by the assessee in his submission dt. 18th Nov., 2011 the AO noted that the quantum of transport contractor commission for the period from lst April, 2008 to 6th June, 2008 was ₹ 22,58,735 and the quantum of transport contractor payments was ₹ 1,61,33,819. Similarly, the quantum of harvesting contractor commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoked. 3.3 In response to the various points raised by the AO, the assessee made detailed submissions which have been reproduced by the AO at para 5 of the order and which reads as under : 5. In response to the above show-cause letter, the assessee filed detailed submissions vide letter dt. 22nd Dec., 2011 which are reproduced hereunder : 1. Our P L a/c disclosed cost of sugarcane as follows : (a) Cane purchase account ₹ 45,48,90,682 (b) Cane purchase tax account ₹ 1,11,38,783 (c) Cane supply allied expenses account ₹ 33,07,364 It may be noted that there are no expenses debited or claimed on cane harvesting and transport in the above accounts. 2. We are a private sector sugar factory and operate differently from the sugar factories working in the co-operative sector. We purchase sugarcane on 'ex-gate' basis. In other words, the obligation and the responsibility of cutting i.e., harvesting the sugarcane and its transport from their fields to our sugar factory is undertaken by respective farmers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to Mukadams and transporters by the Samiti as it was for the cane grower to bring the sugarcane to assessee's factory. 5. In our case, we pay advances to cane growers to enable them to tie up their harvesting and transport contractors. To facilitate accounting these are grouped under 8 sections ('Vibhag'). On receipt of sugarcane, such advances are recovered from the amounts payable and net amounts are paid on behalf of the farmers to their harvesting and transport contractors. As such we submit that our facts are similar to those obtaining before the Special Bench and the ratio of the Special Bench judgement shall apply with equal force. 6. Our software did not generate printed versions of the sugarcane bills payable to farmers. The payments to them were printed out in lists containing their names, bank account numbers and amounts to be paid. In the event any farmers desired a copy of the bill, the same was typed on our letter heads and given to them in the same manner we have submitted to your office. These are not self-made letters but are copies generated from DOS based software which is now outdated and cannot be run on PCs. Our sugar factory infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t being securities'. As already explained, payment is made by the farmers to the contractors for harvesting and transport of their sugarcane. Firstly, if at all any commission (which we do not agree) is paid, it is paid by the farmers and not by us. Secondly, the said payment to harvesting and transport contractors is nothing but additional payment for the same services which are rendered by them to the farmers. The payment of cane price is paid by us to the farmers. Now instead of we paying the full cane price to the farmers, and the farmers then paying the harvesting and transport contractors, at the request of the farmers, we deduct the charges payable by them to these contractors and pay them on behalf of the farmers. This constructive payment is like payment of salaries to workers where instalment of loans given by banks to workers are deducted and paid to the banks. 8. We submit that the decision of the Pune Tribunal would not squarely apply to our facts because in case of those SSKs (i.e., co-op sugar factories), they incur the cane harvesting and transport charges as they purchase cane on 'ex-field' basis and not like us on 'ex-gate' basis. We submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and is accounted as such. The facts at para 6(iv) need rectification. The organization of sugar factories which had a meeting with the Government was that of SSKs and no private sector sugar factories were involved. The harvesting contractors of SSKs were paid in season 2008-09. Hence, similar payment was demanded from our farmers of their harvesting contractors. We were nowhere involved till the time our farmers told us that their harvesting contractors are demanding arrear without which payment they were not willing to cut the cane. On grounds of commercial expediency we made the said payments directly to the harvesting contractors. 10. We respond to your goodselfs assertion that huge payments have been made to different contractors. There is a factual misstatement. There are no contractual payments made by our sugar factory under any contract; we have entered into with these harvesting and transport contractors. We have made these payments for and on behalf of the farmers. These payments are for purchase of sugarcane. It is from those payments that we have deducted and then paid the amounts to the farmers (who) were required to pay these contractors. What is sought to be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 98 Taxman 275(P H) held that no TDS was deductible on expenses incurred by Tata Steel, on freight included in its invoices and shown separately. 14. Without prejudice to the above, each goods consignment note (in our case) each weigh slip is a separate contract and therefore no TDS is deductible for each harvesting and transport contract which is less than ₹ 20,000. This is required to be viewed qua each farmer vis-a-vis his harvesting and transport contractor. We were only acting on behalf of the farmers. Therefore for liability of TDS we cannot be in any different shoes then that of the farmers. 15. Without prejudice to the above, we submit that we are separately filing Form Nos. 151 from the transporters who had earned out transport operations in the relevant financial year. We submit that in case of such transporters, no tax was deductible under s. 194C as held by the Tribunal in the case of Valibhai Khanbhai Mankad vs. Dy. CIT (2011) 139 TTJ (Ahd) 70 : (2011) 56 DTR (Ahd)(Trib) 89. 3.4 Distinguishing the various decisions cited before him and observing that the assessee has defaulted in making TDS on such payments under s. 194C and s. 194H of the IT Act th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignored, in absence of any adverse fact brought on record by the AO. I further find that, the assessee is instrumental in arranging for the services of harvesting and transport agencies, negotiating the charges payable to them and making actual payments to them. It is also true that, it is in the business interests of assessee to make available the pool of harvesting and transport agencies to cater the harvesting and transport needs of the cane growers, as it helps in co-ordinating the regulated supply of raw material for the manufacture of sugar. However, it is not compulsory on the part of cane growers to avail the services of the harvesting and transport agencies made available through the assessee. Cane grower is free to arrange for these services on his own. Thus, the role of the assessee is that of intermediary or facilitator in arranging for the optional services of harvesting and transport agencies. The assessee makes payment to the harvesting and transport agencies (including commission payments) but recovers the same from the sugarcane price payable to the growers. 6.1 In this context, during the course of hearing before me, a specific question was asked to the AO wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal, Pune Bench, in the case of M.D., Vasant Dada Shetkari Sahakari Sakhar Karkhana Ltd., in ITA No. 65/Pn/1999 for asst. yr. 1993-94 decided on 17th Jan., 2005 relied on by the learned AO was different than the issue involved in the case before me. In that case, it was not the claim of sugar factories that, they paid harvesting and transport charges on behalf of cane growers. Further, the issue involved was only with reference to liability to make TDS and not with reference to the disallowance under s. 40(a)(ia). The facts in the case of appellant are more similar to the facts in the case of Ahmedabad Special Bench decision in the case of Shri Kamrej Vibhag Sahakari Khand Udyog Mandli Ltd. vs. ITO (2008) 116 TTJ (Ahd)(SB) 425 : (2008) 8 DTR (Ahd)(SB)(Trib) 416 : (2008) 113 ITD 539(Ahd)(SB) wherein under similar circumstances, it is decided that the sugar factory is not liable to make TDS, where payments towards harvesting and transport charges are made as a part of the sugarcane price. Further, vis-a-vis each farmer, the payments to individual harvesting and transport agencies do not exceed the threshold limits of ₹ 20,000 ₹ 50,000 for liability to TDS under s. 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indirectly), in computation of the income from profits and gains of business or profession, the question of any disallowance under s. 40(a)(ia) simply does not arise. The decision of Hon'ble Delhi High Court in the case of Modipon Ltd. vs. CIT 18 taxman.com 294 fortifies this views. 6.6 The payments made by assessee to the harvesting and transport agencies (including commission payments) are reimbursed from the sugarcane price payable to the sugarcane growers. Thus, after reimbursement of entire payments made on the items of harvesting and transport charges, there remained no expenditure that could be claimed by assessee and which can be disallowed under s. 40(a)(ia). Thus, from this angle as well, the disallowance of above stated four items of harvesting and transport charges and commission, under s. 40(a)(ia) does not survive. The decision of the Hon'ble Delhi High Court in the case of Modipon Ltd. (supra) supports this view also. 6.7 The assessee has also argued that, for disallowance under s. 40(a)(ia) first an order determining liability to TDS must be passed before making disallowance under s. 40(a)(ia). In absence of such an order, the disallowance under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-05 season, agreed to be paid from assessee's own pockets. The AO has considered this sum of ₹ 31,32,713, as liable to TDS under s. 194C and in absence of it, has disallowed the same, on substantial basis, under s. 40(a)(ia). It is the case of the appellant that, the basic responsibility to pay for harvesting charges is that of cane grower. Therefore, according to the assessee, there exists no relationship of contractor and contractee between the assessee and harvesting contractor. Hence, it is contended by assessee that, no TDS liability under s.194C is attracted on the sums of arrear differential harvesting charges for the season 2004-05 and therefore the disallowance of the said sum is not attracted under s. 40(a)(ia). Earlier I have already held that, the harvesting labour performs the work for cane grower. Therefore, the relationship of contractor and contractee exists between harvesting labour and cane grower and not between the assessee and harvesting labour. Therefore, payments by assessee, on his own account, to the harvesting labour, for the harvesting work of cane growers relating to the 2004-05 season, are not covered by the provisions of s. 194C. Hence, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the form of advance to the harvesting and transport contractors as payment made on behalf of the cane growers ? 3. Whether on the facts and in the circumstances of the case, the learned CIT(A)-I, Nashik, was justified in holding that the Bakshishh of ₹ 20,28,757 paid to the harvesting and transport contractors directly by the assessee sugar factory is made on behalf of the sugarcane grower farmers ? 4. The appellant prays the order of the AO may be restored. 5. The appellant prays to adduce such further evidence to substantiate his case. 6. The appellant prays leave to add, alter, clarify, amend and/or withdraw any grounds of appeal as and when the occasion demands. 6. The learned Departmental Representative strongly opposed the order of the CIT(A). He submitted that the learned CIT(A) has not appreciated the facts and findings of the AO during the course of assessment proceedings. He has simply deleted the addition based on the arguments advanced by the assessee. Referring to the decision of the Tribunal in the case of ITO vs. M.D. Vasantdada Shetkari SSK Ltd. Ors., order dt. 17th Jan., 2005 he submitted that the Tribunal in the said decision has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Ahd)(SB)(Trib) 416 : (2008) 113 ITD 539(Ahd)(SB) is concerned which has been relied on by the CIT(A) he submitted that the said decision is not squarely applicable to the case of the assessee. So far as the order of the CIT(A) that the Bakshishh payments made by the assessee directly to the harvesting and transport contractors are the customary practice of the sugar industry and it was not made against any work of the assessee, he submitted that the assessee has made Bakshishh payment directly to these harvesting and transport contractors in lieu of the work done by them. The Bakshish was for advancement of interest of the assessee. The cane growers are nowhere involved in the issue. The harvesting and transport contractors apart from the contractual commission have received the Bakshish for the work done for the assessee. Therefore, TDS is clearly deductible on this issue and the learned CIT(A) was not justified in deleting the disallowance made under s. 40(a)(ia) of the Act for non-deduction of tax under ss. 194C and 194H of the IT Act. He accordingly submitted that the order of the learned CIT(A) be set aside and that of the AO be restored. 7. The learned counsel for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harges of these farm labours are being increased time to time. 7.2 Referring to p. 133 of the paper book the learned counsel for the assessee drew the attention of the Bench to the MoU between the representatives of sugarcane growers and the farm labour sugarcane harvesting transport farm labours union representatives, he submitted that in order to bring uniformity in their charges the agreement has been made on the intervention of the Government of India. Referring to pp. 252 to 259 of the paper book the learned counsel for the assessee drew the attention of the Bench to the P L a/c and the details of expenses and submitted that the expenses of harvesting and transportation are included in the cane purchase price account only/Referring to p. 149 of the paper book the learned counsel for the assessee drew the attention of the Bench to the details of cane purchases which include the transportation and harvesting charges. Referring to pp. 150 to 185, he drew the attention of the Bench to the list of transportation charges, harvesting charges and commission paid to different persons during financial year 2008-09. Referring to pp. 186 and 187 of the paper book he drew the attentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears. Referring to the decision of the Hon'ble Bombay High Court in the case of CIT vs. Kotak Securities Ltd. (2011) 245 CTR (Bom) 3 : (2011) 62 DTR (Bom) 339 : (2012) 340 ITR 333(Bom), he submitted that the Hon'ble High Court in the said decision has held that if the claim is accepted in the past years no disallowance under s. 40(a)(ia) be made in the later year. 7.5 As regards the payment of Bakshish of ₹ 20,28,757 paid to harvesting and transport contractors is concerned, he submitted that the harvesting labour demands Bakshish on completion of every harvesting season. To maintain good relations with them the assessee pays them the Bakshish. This payment is on the ground of business exigencies so that this labour, which comes from outside Nashik and mainly from the Maratawada Region, turns back in the next harvesting season. Referring to Circular No. 6 of 2007 [(2007) 212 CTR (St) 97], he submitted that the same also acknowledges the commercial exigency of such payment. In his alternate contention, he submitted that the provisions of s. 194C are not attracted to individual payments of Bakshish because the individual payments is less than ₹ 20,000 in each c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company, (a copy of which is placed at paper book pp. 117 and 118 and English translation in p. 114), it is the responsibility of the farmer to harvest and transport the sugarcane crop to the factory. Clause (4) of the said agreement states that if harvesting and transporting charges and commission are paid by the factory then the farmer authorises the factory to deduct such harvesting and transporting charges including commission from the cane price payable to the farmers. Therefore, we find force in the argument of the learned counsel for the assessee that the above clauses clearly indicate that it is the responsibility of the farmer to reach the sugar crop to the factory and bear the harvesting and transportation charges. We further find from the details furnished by the assessee as well as the finding given by the CIT(A) that the harvesting and transportation costs paid by the assessee have not been claimed as separate deduction by the assessee over and above the price paid for sugarcane. In fact, all such expenses of harvesting and transportation are included in the cane purchase price account only. 8.2 From the details furnished by the learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee. Assessee made payments in advance to cane growers for supply of sugarcane. In order to ensure that sugarcane should reach assessee's factory gate in time, the farmers zone Samiti was formed by cane growers. Assessee used to give money to Samiti in advance who used to accept the same for and on behalf of cane growers. Samiti paid said amount to cane growers, labourers, transporters etc. The AO held that there was a direct role of assessee society in payments made by Samiti to cane growers and transporters and accordingly considered all payments made by Samiti to cane growers and transporters as being made by assessee. He, therefore, held that the assessee was responsible for deduction of tax under s. 194C from payment made to cane growers and transporters by Samiti. It was the claim of the assessee before the lower authorities that it was the Samiti which was responsible for making payments to cane growers and transporters etc., and not assessee and moreover, it was an independent body and therefore, under such circumstances, assessee was not liable to deduct tax at source under S.194C from payments, made to cane growers and transporters by Samiti. The CIT(A) uphel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed to be paid for the purchase of sugarcane by the assessee for and on behalf of the cane growers who were supplying the sugarcane to the assessee. The supply of sugarcane at gate of the assessee, as per agreement, rules and notifications of the Government, was the responsibility of the cane growers. Surplus or deficit was accounted for in the accounts of the cane suppliers and in all these matters, the assessee's staff including the accounts clerk and the chief accountants were helping the Samiti either free of cost or for cost recovered. The Samiti was maintaining separate records and they were audited. The assessee society also maintained the individual farmer's account by debiting and crediting individual farmer's account on the basis of advance payments made in instalments. The details of each instalment paid for purchase of sugarcane were posted in respective accounts in the audited books of account of the assessee society. Thus, in the books of the assessee society only the cost of purchase of sugarcane was debited and the society facilitated the farmer members by maintaining sugarcane management account (Samiti account) (para 37). Further, whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were made by them (para 41). In the beginning of the season of cutting, harvesting and transporting of sugarcane, the assessee society passed a resolution in the meeting of board of directors for payment of advance for harvesting and transporting and to decide the first instalment followed by subsequent resolution for payment of second instalment of the price of sugarcane and lastly to decide the sugarcane price to be paid to the farmer members. When it was resolved to pay advance to farmer members towards cutting, harvesting and transporting advance the same, is debited in the advance account and the amount was credited in the sugarcane management account. Simultaneously, the first instalment was also paid which was debited advance account and the amount was paid to farmers in cash by crediting the cash account. Similarly, the second instalment was debited in the advance account and credited in the cash account by making payment to the farmer members. The Samiti received the funds from the assessee society as and when it required by it out of the advance amount lying credited in sugarcane management account. At that point of time the sugarcane management account was debited b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... freight charges for carriage of its goods on which tax was not deducted in terms of s. 194C of the Act and therefore such amount is not deductible while computing the taxable income. When the matter was heard by the Tribunal a copy of the distribution agreement between the assessee and the M/s Tata Steel was placed on record. According to the agreement, the assessee-respondent had appointed distributor for marketing of products of M/s Tata Steel which envisages purchase of production by the assessee-respondent and sale thereof. The Tribunal has quoted cl. 2.14 of the agreement which shows that M/s Tata Steel was to raise invoice on the assessee's per the list price to be published by Tata Steel. The Tribunal after reading the agreement reached the conclusion that the assessee-respondent had a responsibility of marketing the goods of M/s/Tata Steel after purchasing the same from them. The sample copy of the price list has been placed on the paper book. The amount of freight was found to be shown separately in the invoices but the AO considered payment by the assessee in respect of which deduction of tax at source under s. 194C of the Act was required to be made. However, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has paid any amount of freight separately because the same is part of the cost of product purchased. The assessee could not be said to be an assessee in default for non-deduction of tax at source in terms of s. 194C of the Act on the amount of freight billed separately by M/s Tata Steel. As a consequence, it follows that the provisions of s. 40(a)(ia) of the Act cannot be applied to disallow the amount of such freight amounting to ₹ 2,01,81,428. Following the aforesaid discussion, we set aside the order of the CIT(A) and direct the AO to delete the impugned addition. The assessee accordingly, succeeds on this ground. We asked learned counsel for the Revenue as to whether any appeal has been filed against the judgment rendered by this Court in the case of Food Corporation of India (supra), no satisfactory answer has been given by her. Therefore, we feel bound by the aforesaid judgment and accordingly, the issue is covered against the Revenue and in favour of the assessee-respondent. Accordingly, no substantive question of law would arise for determination by this Court. As a sequel to the above discussion, this appeal fails and the same is accordingly dismissed. 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assam Roadways Corporation Ltd. The company carried the goods and the advance received from the customer was handed over to the driver of the company. In the final bill, the advance and the commission of the assessee were deducted from the bill amount of ₹ 70,000 and the assessee had to receive commission of ₹ 2,100 from the company. According to us, it cannot be said that assessee really entered into the contract of transportation of goods. He merely acted as an intermediary. Thus, the facts seem to be similar to the facts in the case of Grewal Brothers (supra) although the provisions of Partnership Act make the position of law somewhat messy. In the case of Cargo Linkers, the assessee acted as an intermediary between the exports and the airlines. It received the amount from the exporter and handed over the same to the airline, who paid commission. These facts are also nearer to the facts of the case at hand. Accordingly, following this decision, it is held that the assessee was not liable to deduct tax at source. In view thereof, no addition could have been made under s. 40(ia). Thus, ground No. 1 is allowed.' 6. Before us, the learned counsel for the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods. The principal contract was between the exporter and the airline. This Court, in Cargo Linkers (supra), agreed with the view of the Tribunal which had mainly decided an issue of fact, namely, the nature of the contract between the parties concerned. The Court also observed that it had also been found as a matter of fact that the contract was actually between the exporter and the airline and the assessee was only an intermediary and, therefore, it was not the 'person responsible' for deduction of tax at source in terms of s. 194C of the said Act. 9. We feel that the decision in Cargo Linkers (supra) completely covers the case in favour of the assessee and against the respondent. The Tribunal has already found as a matter of fact that the contract was between the assessee|s clients and the transporters and that the assessee had mainly acted as a facilitator or as an intermediary. 8.6 Since in the instant case it has been categorically observed that the price fixed for sugarcane is negotiated on ex-factory gate basis and the responsibility to harvest and transport the sugarcane is on the cane growing farmers and since such transportation and harvesting charges ..... X X X X Extracts X X X X X X X X Extracts X X X X
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