TMI Blog2018 (12) TMI 398X X X X Extracts X X X X X X X X Extracts X X X X ..... than US$ 6,00,000 and at the same time it was entitled to retain the sale value of the 15% catch, even though, the sale value of the remaining 85% of the purchase would fetch less than US$ 6,00,000. It was the sale value of the catch which was the determining factor and till the catch was not sold or its value was not determined, the property in the catch fish would remain under the ownership of the assessee 'Kanchanganga Sea Foods Ltd.' (supra). In this case, the property in the by-products comes into ownership of the millers from the very point of coming of it into existence, hence, in this case the assessee were not the owners of the by-products. Another factor for consideration is that the property passed 'in kind' should have some ascertainable and determinable value, which can be taken as part of the consideration paid for the work done. Further, it is the nature of the contract, term of the agreement, the intention of the parties and overall facts and circumstances of the case which are required to be analyzed and considered for determining whether the provisions of section 194C or other similar provisions of the Chapter would be attracted or not in a particular case. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ahaar Consumer Products Pvt. Ltd. with the facts of the present case as in the case of M/s Ahaar Consumer Products Pvt. Ltd. there had not involved any payment of consideration for the services rendered whereas in the present case execution of work upon supplied material is in lieu of payments on which TDS has also been deducted by the assessee. (iv) The appellant craves leave to amend, add, alter or delete any of the aforesaid grounds till the disposal. 3. The brief facts relating to the issue for consideration are that the assessee is a Procurement Agency of Punjab Government which procures paddy on behalf of the Food Corporation of India/Government, get it milled and supply rice to Food Corporation of India (FCI). The entire cost in this respect is borne by the FCI / Government of India. The paddy is given to the millers for milling at the rates as fixed by FCI / Government of India. The Millers were provided with paddy and they after milling have to supply rice in the ratio of 67% of the paddy milled to the Procurement Agencies as per the specification. As per the agreement between the millers and the Procurement Agencies, the millers get ₹ 15/-per quintal as &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing officer the assessee preferred appeal before the ld. CIT(A). 5. The ld. CIT(A) while relying upon the decision of the Delhi Bench of the Tribunal in the case ITO Vs. Aahar Consumer Products Pvt Ltd., ITA No. 2910-1939-1654 1705/Delhi/2010 for assessment year 2007-08 dated 28.2.2011 and further relying upon the decision of the Amritsar Bench of the Tribunal in the case of D.M. Punjab Civil Supply Corporation Ltd. v. ITO (TDS) [IT Appeal No. 158 (Asr.) of 2016 for assessment year 2012-13 vide order dated 4.8.2016 held that neither the assessee was obliged to make any payment more than the milling charges agreed to in the agreement nor any amount was credited in the accounts of the millers as payable which required the assessee to deduct tax thereupon. He, therefore, held that the assessee was not liable to deduct tax u/s 194C of the Act in respect of the value of the by-products. He, accordingly allowed the appeal of the assessee and quashed the demand raised by the Assessing officer on account of short deduction of tax. 6. Being aggrieved by the above order of the CIT(A), the Department has come in appeal before us. 7. The ld., DR before us, has submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnexure to this letter, whereby, the aforesaid support price of the custom milled rice has been fixed by the Government of India and by the Food Corporation of India payable to the State Government Agencies like assessee, who procure the paddy on behalf of the Government of India/Food Corporation of India and then get it custom milled from the millers and thereafter deliver the rice to the Central pool. In the annexure, the details have been given as to how the price of the Custom Milled Rice is fixed. While fixing the per quintal price of the rice, the minimum support price of the paddy has been taken into consideration and thereafter various statuary charges, fees and levies, milling charges of ₹ 15/- per quintal are added. He, thereafter has stressed that out-turn ratio as per which, 67% of the rice is supposed to be the finished product (rice) coming out of the raw product (paddy). Accordingly, a price of one quintal of common rice is fixed at ₹ 2004.95 and ₹ 2056.10 of Grade 'A' raw rice and so on. The Ld. DR thereafter has relied on a press release issued by the Ministry of Consumer Affairs, Food Public Distribution letter dated 8.12.2015, whereby, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nducted taking into consideration the performance Audit covered from 2009-10 to 2013-14, wherein, it has been recommended that the Government of India may take up with the State Governments to impress upon the millers to provide the data about milling and other costs to Tariff Commission for timely completion of study for re-fixation of milling charges and out-turn ratio of rice from paddy. The ld. DR has riled upon the page 2 of the said report, whereby, a Flow Chart depicting various stages, from the procurement of paddy to delivery of rice to FCI / State Governments /SGAs are shown. It has been mentioned that by-products cost recovery at the rate ₹ 33.96 / 37.38 per quintal adjusted while fixing milling charges of ₹ 15.32 / 25.48 per quintal of Raw rice and Par-boiled rice respectively. The ld. DR, thereafter, referred to pages 7 8 of the said report, wherein, it has been mentioned that the milling charges were fixed by government long back in 2005 on the basis of recommendation of the Tariff Commission of India and that since then milling charges have not been revised. However, the rice millers are still carrying outing the work at the same milling charges without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vation in the Audit report vehemently stressed that the millers got much more amount for milling purpose in kind, in the shape of value of by-products retained by them and that the value of these being part of the consideration of milling charges was required to be considered for the purpose of deduction of tax at source. 8. The ld. DR has further relied upon the decision of the Hon'ble High Court of Andhra Pradesh in the case of ' Kanchanganga Sea Foods Ltd. v. CIT [2004] 265 ITR 644, which has been further confirmed by the Hon'ble Supreme Court in of ' Kanchanganga Sea Foods Ltd. v. CIT [2010] 1325 ITR 540 and submitted that in the aforesaid case the consideration for hiring vessels was passed on by the assessee in kind i.e by way of 85% catched fish and it was held that the payment contemplated u/s 195 not only includes cash payment or payment by cheques or draft but also a payment even by any other mode and, therefore, the payment of hire charges made by the assessee by giving 85 per cent of the fish catch to the non-resident amounts to 'payment' as contemplated under section 195 of the Act. The Ld. DR, therefore, has submitted that the proposition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. It has been submitted that the issue in the case before the Hon'ble Supreme Court in the case of 'Kanchanganga Sea Foods Ltd.' (supra) was as to whether the payment of charter fee to the non-resident was chargeable to tax in India or not. Further, that in the case of 'Kanchanganga Sea Foods Ltd.' (supra), the percentage of receipt of sale was fixed in monetary terms and that the mode of payment was also specified. It was under such circumstances that it was held that the receipt value of 85% catch fish was in India and further that the sale value of the catch fish was already determined and the amount was debited as an expenditure by the assessee-company in its account; whereas, in the case of present cases, no such amount has been debited as an expenditure by the assessees nor any payment made thereof has been credited to the account of the millers. That in the case of 'Kanchanganga Sea Foods Ltd.' (supra), it was never the question before the Hon'ble Supreme Court that TDS was deductible on anything paid in kind. Further, that the said case has already been considered by the Banglore Bench of the Tribunal in the case of 'Chief Account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral words follow the enumeration of particular classes of things, the general words will be construed as applying only to things of the same general class as those enumerated. The Tribunal held that the general word in Sec.194LA of the Act is payment of such sum and the mode of payment qualified is cash, issue of cheque or draft or by any other mode. The expression 'any other mode' has therefore to be confined only to payment of any sum in a mode other than cash, cheque or draft and not to a case where CDRs are issued. 11. The ld. representatives of the assessee referring to the above decision have submitted that the provisions of section 194C being identically worded, the same proposition of law will apply and, hence, even otherwise, the assessees were not liable to deduct TDS even though it is assumed that the payment in kind in the shape of by-products of the paddy were paid to the millers. It has been further submitted that the above said decision of the Banglore Bench (supra) of the Tribunal has been upheld by the Hon'ble Karnataka High Court vide order dated 29.9.2015 (supra). Further, the said decision of the Hon'ble Karnataka High Court (supra) has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of any sum by the assessee to the miller. It was further held that even if one has to say that there was a constructive payment, it was difficult to quantify the same and to say that assessee was under an obligation to deduct tax at source at such construed payment. It was also observed that even the assessee had not claimed such a payment as expenditure and it had not claimed any deduction thereupon. Further, It was concluded as under:- 14. We must also view the whole transaction 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 the end products are totally different and fluctuate in different directions. All these fluctuations are warded off by the present agreement, which is just exchange of goods for goods and does not involve any cash outflow. Although services were taken, it is difficult to say that the residuals and the losses left by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the consideration paid by the assessees to the millers for paddy milling contract. 15. We have considered the rival contentions, gone through the record and the case laws referred to above. The main contention of the Department is that by-product retained by the millers have considerable market value and further that a sum of ₹ 15/- paid as 'milling charges' is a nominal cost which is insufficient to meet even the actual cost of services rendered by the millers including milling and drying of the paddy, 'katai' of the paddy before de-husking, de-husking of the paddy, filling up bags of the rice, transportation, weight check etc., apart from the milling of the paddy. That the real consideration lies in the value of the by-product retained by the miller, therefore, the assessees i.e. Procurement Agencies were required to deduct 'TDS' on the value of the by-products paid 'in kind' as consideration for the milling charges. 16. On the other hand, the stand of the assessees before us is that the by-product did not constitute as a payment of consideration for the work contract of milling of the paddy. That the assessees have not debited even th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the invoice value, if the value of material is not mentioned separately in the invoice. (4) No individual or Hindu undivided family shall be liable to deduct income tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. (5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed thirty thousand rupees : Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds 50[one lakh] rupees, the person responsible for paying such sums referred to in sub-section (1) shall be liable to deduct income tax under this section. (6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, where such contractor owns ten or less goods carriages at any time during the previous year a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the yield of manufactured rice was less and that he was liable to return what he actually got after milling or to say that his work was only of the milling of the paddy and that he was not liable for the yield coming out of the paddy, unless and until some deficiency either in service or otherwise is attributable on his part. No such choice is available to the millers. Another important factor in this case is that neither the Government of India / FCI is interested to receive back / return of the by-product of the paddy nor the Procuring Agencies who gets the rice shelling on behalf of the Government of India. As noted above, it has been mentioned in the specific term 'that the by-product is the property of the miller' which means that the property in the by-product passes immediately to the miller on the very coming of it into existence. Though, before the milling of the paddy, the Government / procurement agencies remain the owner of the paddy, however, the moment the paddy is milled, the Government / procurement agencies lose their ownership and control over the paddy and the by-product but have right only on the 'milled rice' for which they pay a stipulated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame to the others. The property in the by-product from the very inception remains with the miller and, hence, the same cannot be said to be as consideration received by the miller. In the peculiar facts and circumstances of this milling contract, though the consideration is fixed taking into consideration other factors, the likely benefit that the miller will get out of milling process in the form of by-products, however, such benefits cannot be said to be consideration for the contract. As observed above, though such benefit may be of worth value to the miller, but it may prove to be a liability to the Procurement agencies, hence, taking into consideration the peculiar circumstances and in the interest of business, a decision has been arrived at by the Government of India not to take responsibility of the by-product, thereby, also losing any rights in the said by-product. As observed above, if the contention of the Revenue is to be accepted, then under the circumstances, the miller can insist upon to say to the other party that he is not interested in retaining the by-product or to negotiate on the milling charges or to claim higher milling charges, irrespective of the value of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... els, as approved by Government of India, for all inclusive charter fee of US $ 600,000.00 per vessel per annum. The charter fee is inclusive of fuel cost, maintenance repairs, wages, food for the crew and any other expenses incurred in connection with the operation of the vessel. They will provide training to the Indian crew in all aspects of fishing techniques, maintenance and running of the engine. In addition: a) The Deponent Owners should pay the charterers ₹ 75,000/- or 15% of the gross value of the catch whichever is more; b) Annual charter fee shall be maximum of US $ 600,000 per vessel per annum payable by way of 85% of gross earning from the fish sales subject to the condition that this will not exceed 85% of the sales value of the catch per vessel per annum on voyage to voyage basis. Minimum 15% of the earning by way of sales value of catch of fish should accrue to the charterer. Payment to the Deponent Owners should not exceed the above charter fee. c) Export value of catch from the chartered vessels should not be lower than the prevailing international market price at the time of export. Thus, according to the terms of the agreement the Eastw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he remaining 85% of the catch would exceed US$ 6,00,000. In these circumstances, the consideration was settled in monetary terms and subject to aforesaid exceptions. It was not the case that the consideration in kind was passed on the non-resident owner irrespective of the sale value of the catch. The sale value in monetary terms of the catch was the determining factor for the consideration to be passed. Hence, under the circumstances it cannot be said that the consideration was passed in kind, rather, it was passed in terms of the monetary value of the sale price received from the catch, subject to the condition that it would not be more than US$ 6,00,000. In the aforesaid case of 'Kanchanganga Sea Foods Ltd.' (supra), the assessee, Kanchanganga Sea Foods Ltd., remained the owner of the catch until its sale value was realized and had right to retain the realized value that was more than US$ 6,00,000 and at the same time it was entitled to retain the sale value of the 15% catch, even though, the sale value of the remaining 85% of the purchase would fetch less than US$ 6,00,000. It was the sale value of the catch which was the determining factor and till the catch was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his case, the property in the by-products comes into ownership of the millers from the very point of coming of it into existence, hence, in this case the assessees were not the owners of the by-products. Another factor for consideration is that the property passed 'in kind' should have some ascertainable and determinable value, which can be taken as part of the consideration paid for the work done. Further, it is the nature of the contract, term of the agreement, the intention of the parties and overall facts and circumstances of the case which are required to be analyzed and considered for determining whether the provisions of section 194C of the Act or other similar provisions of the Chapter would be attracted or not in a particular case. As discussed above in detail, since we have held that the property in the by-product was not passed on by the assessee / Procurement Agencies as milling charges, hence, it is held that TDS provisions of section 194C are not attracted in this case. This issue is decided in favour of the assessees / Procurement Agencies. 23. Even otherwise, while relying upon the decision of the Hon'ble Delhi Bench of the Tribunal in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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