TMI Blog2017 (7) TMI 1241X X X X Extracts X X X X X X X X Extracts X X X X ..... t of processing, also includes the protection from market fluctuations as also protection from adverse process loss. - Decided in favor of assessee. - ITA No. 1291/Chd/2016, ITA No. 1293/Chd/2016, ITA No. 1292/Chd/2016, ITA No. 1295/Chd/2016, ITA No. 67/Chd/2016, ITA No. 68/Chd/2016, ITA No. 1294/Chd/2016 - - - Dated:- 13-7-2017 - SHRI SANJAY GARG, JUDICIAL MEMBER DR. B.R.R. KUMAR, ACCOUNTANT MEMBER For the Appellant : Sh. Ravi Sarangal For the Respondent : Sh. Atul Goyal, Sh. Bhupinder Singh, Sh. Vibhor Garg, S/Sh. Rakesh Jain Gur jeet Singh ORDER Per Sanjay Garg, Judicial Member: The present appeals have been preferred by the Revenue against the separate orders of Commissioner of Income Tax (A), [hereinafter referred to as CIT(A)], Patiala dated 30.09.2016 (in ITA Nos. 1291, 1292, 1293 1294/Chd/2016), dated 27.09.2016 (in ITA No. 1295/Chd/2016) and dated 26.11.2015 (in ITA Nos. 67 68/Chd/2016) . 2. Since the grounds raised and issues involved in all the appeals are identical, the same were heard together and are being disposed of by this common order for the sake of convenience. We shall be taking ITA No. 1291/Chd/2016 as the lead case for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was into the business of trading of wheat , at ta and other food grains and the Assessing officer had found that they used to purchase wheat from open market and deliverit to M/s Aahar International Ltd (AIL) for making by-product such as atta, dalia etc., the assessee was required to provide the raw material (wheat ) and packaging material and in return M/s Aahar International Pvt . Ltd. would give 85% Dalia or 88% At ta by weight of the wheat supplied by the assessee. The waste or the remaining quantity of wheat / residuals, if any, shall be kept by AIL as a consideration for the services rendered. The Delhi Bench of the Tribunal while relying upon various case laws held that no TDS was liable to be deducted in respect of the value of the by-products retained by the miller. For the sake of convenience, the relevant part of the order of the Tribunal is as under: - - 8. There is no dispute that the parties, apart from entering into agreement have also acted upon the agreement and the transact ions appear to be strictly falling within the agreement that is entered into by the parties. That is to say, this agreement, although between the two related concerns, is entered in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities are reiterated before us including the case laws. 11. Ld. DR, on the other hand, strongly supported the findings of the AO and to the extent the addition is sustained by the CIT(A) to the findings contained therein. The provisions of Section 194C which obliges the deduction of tax at source relevant to the AY 2006-07 are reproduced below: - [Payments to contractors and sub-contractors. 194C. [ (1) Any person responsible for paying any sum to any resident (hereinafter in this section refer red to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and- (a) the Central Government or any State Government; or (b) any local authority; or (c) any corporation established by or under a Central, State or Provincial Act ; or (d) any company; or (e) any co-operative society; or (f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or g) any society register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the sub-contractor, shall be liable to deduct income-tax under this subsection.] [Explanation I.-For the purposes of sub-section (2), the expression contractor shall also include a contractor who is carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Government of a foreign State or a foreign enterprise or any association or body established outside India. ] [Explanation II.-For the purposes of this section, where any sum refer red to in sub-section (1) or sub-section (2) 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. ] [Explanation III.-For the purposes of this section, the expression work shall also include- (a) advertising; (b) broadcasting and telecasting including production of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t source on the so-called constructive payment as construed by the AO in terms of the agreement. The assessee, in this case, supplies 100 kg of wheat and takes back 88 Kgs of Atta or 85 Kgs of Dalia after its processing done by the AIL and AIL is required to deliver the end product in this proport ion to the assessee who has supplied the raw material. Does the provision of Section 194C of the Act create an obligation on the part of assessee to deduct tax at source in respect of any of the transact ions it has entered into with the AIL? Section 194C of the Act was brought into statute by the Finance Act, 1972. Circular No. 86 dated May 29, 1972 was issued inter alia stating that the provisions of section 194C would apply only in relation to labour contacts and would not cover contracts for sale of goods. I f a manufacturer purchases material on his own and manufactures a product as per the requirement of a specific customer, it was a case of sale and not a contract for carrying out any work. The fact that the goods manufactured were according to the requirement of the customer did not mean or imply that any work was carried out on behalf of that customer. In case of any issue where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no payment of any sum by the assessee to AIL. Even if one were to say that there is a constructive payment, it is difficult to quantify the same and say that the assessee was under an obligation to deduct tax at source at such construed payments. The assessee has not even credited such const rued consideration for supply of labour in the books of accounts of the assessee. In fact, it has not even claimed any expenditure as deduct ion. To say that such expenditure has resulted in an out f low without deduct ion of tax at source is too much and is not borne out from the transact ion entered into between the parties. The quest ion of disallowance by applying the provisions of Section 40(a) (ia) , in our opinion, is not in accordance with law as the assessee is under no obligation to deduct the tax at source in terms of a contract where it does not require any payment of any sum even if the sum here means that the payment could be of some kind but it is difficult to say that the assessee has made these payments to the extent of short fall in getting the wheat supplied back and construe it as the payment to the other for processing the wheat into At ta or Daliya. The department must ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to invoke said provision of Section 40(a) (ia), first of all, the case should be made out by the department that the assessee is contemplating deduct ion u/s 32 to 38 on which tax is deductible and the assessee has not deducted tax at source. In our opinion, tax is not deductible and the assessee has not claimed any deduct ion u/s 32 to section 38. This loss, if any, is in the net prof it in the trading account which is a computation u/s 28 and 29 and not claims u/s 32 to 38 of the Income Tax Act. Even taking this view of the matter, in our opinion, the assessee is entitled to succeed and there is no quest ion of deduct ion of tax at source and consequently no quest ion of making any disallowance by invoking the provisions of Section 40(a) (ia) of the Act. 14. We must also view the whole transact ion under the agreement from a different angle. The assessee gives the wheat and accepts 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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