TMI Blog2020 (6) TMI 152X X X X Extracts X X X X X X X X Extracts X X X X ..... 11) TMI 595 - ITAT BANGALORE ] we hold that the assessee is not liable to deduct tax at source from the harvesting charges paid by it on behalf of the farmers in both the years. Accordingly, we set aside the orders passed by Ld CIT(A) in both the years and direct the AO to delete the impugned additions in both the years. - Decided in favour of assessee. - ITA Nos.2814/Bang/2018 And 782/Bang/2019 - - - Dated:- 29-5-2020 - Shri B.R. Baskaran, Accountant Member And Shri Pavan Kumar Gadale, Judicial Member For the Assessee : Shri Vikram Raghavan, Advocate For the Revenue : Shri Vilas V Shinde, CIT (D.R) ORDER PER SHRI B.R. BASKARAN, Hon ble AM : Both the appeals filed by the assessee are directed against the orders passed by Ld CIT(A)-5, Bengaluru and they relate to the assessment years 2014-15 and 2015-16. Since the issues urged in these appeals are identical in nature, they were heard together and are being disposed of by this common order, for the sake of convenience. 2. The main ground urged by the assessee relate to the disallowance made u/s 40(a)(ia) of the Act for non-deduction of tax at source from the payment made towards Harvesting charges. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase price of sugarcane. 5. The AO, however, took support of the decision rendered by Hon ble Karnataka High Court in the case of Ryatar Sahakari Sakkare Kharkhane Niyamit vs. ACIT (67 taxmann.com 283)(Kar) and held that the assessee is liable to deduct tax at source u/s 194C of the Act from the harvesting charges paid by it. Accordingly he disallowed harvesting charges of ₹ 9.46 crores and ₹ 11.74 crores paid respectively in the years relevant to AY 2014-15 and 2015-16. The Ld CIT(A) confirmed the addition in both the years and hence the assessee has filed these appeals. 6. Before us, the Ld A.R reiterated the submissions made by the assessee before the tax authorities. He submitted that the assessee has paid harvesting charges only on behalf of the farmers as their agent and hence the same constitute expenditure in the hands of the farmers. Hence, the assessee has not claimed the harvesting charges as its own expenditure. The payments made by it to the gang leaders have been adjusted against the sugarcane purchase price while making payment to farmers. Hence the harvesting charges paid by the assessee shall constitute part payment towards purchase price of sug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge, the translated copy is placed at pages 44 to 46 of the paper book. The clause 8 of the agreement (translated copy) reads as under:- 8. Harvesting and supplying of cane to the factory is my responsibility, however for any reason if it is not possible, on my request the factory can arrange both harvesting and transportation on my behalf and I do not have any objection to the deduction of costs of such harvesting and transportation from my cane bill. Further, I agree to make appropriate inner roads to the plots to facilitate smooth transportation of cane from the field to the factory and extend all such help that may be required in this respect. In case the factory has to incur expenses to lay such roads, I agree to deduction of such cost(s) from my cane bill. The above said clause of Sugarcane purchase agreement makes it clear that the responsibility of harvesting sugarcane and transporting them to the factory of the assessee is placed upon the farmers. It is further stated that the assessee can also arrange harvesting and transportation on behalf of the farmers on the request of the farmers and in such case, the costs incurred in that connection shall be adjusted against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. 194C of the Act on the aforesaid payment and since assessee failed to do so, the aforesaid sum which was claimed as deduction in computing income cannot be allowed as a deduction in view of the provisions of section 40(a)(ia) of the Act, which provides that where tax is liable to be deducted on a payment and is not so deducted, the same cannot be claimed as an expenditure in computing income from business. 20. Before the CIT(Appeals), the assessee submitted that the harvesting charges are nothing but payment for purchase of sugarcane from the farmers and that payment by any stretch of imagination cannot be considered as a payment to a contractor for carrying out any work as contemplated u/s. 194C of the Act. In this regard, the assessee pointed out that the payment made to the farmers are ex-factory gate purchase price in instalments following the well established policy of Central Govt. in determining the Statutory Minimum Price (SMP) of sugarcane. The assessee pointed out that it is the obligation and responsibility of the farmers for cutting and harvesting sugarcane and to transport the same from the field to the sugarcane factory. The farmers are paid consolidated price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the harvesting charges are part and parcel of the sugar cane purchase cost as the said charges were duly deducted from the sugar payments made to the farmers. The appellant through its representative has furnished the sugar cane purchase bills before me, which show that the farmers who supplied the sugarcane and harvested themselves were paid full amount of sugarcane price, and for those who could not pay the harvesting charges and transportation charges was paid by the appellant as sugarcane price in three heads as sugar cane purchase cost, harvesting charges, transportation cost. As the harvesting charges and transportation charges need to be paid in short time before the sugarcane payment such bifurcation was made to have the control over the payments. He further pleaded that since the payments were made to farmers as sugarcane purchase cost, the provisions of section 194C r.w.s 40(a)(ia) are not applicable. He further relied on the judgment of the Ahmedabad Tribunal in the case of M/s. Shree Mahuva Pradesh Sahakari Khand Udyog Mandal Ltd vs. ITO, wherein it was held that on the Fact and circumstances of the case the assessee is not liable to deduct the tax at source fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. We have heard the rival submissions. The ld. counsel for the assessee reiterated submissions that were made before the CIT(Appeals) and relied on the order of CIT(Appeals) for AY 2011-12. The ld. DR relied on the order of AO. 25. We have considered the rival submissions. In the order of assessment for both AYs 2011-12 2012-13, there has been no discussion whatsoever by the AO as to why the harvesting and transportation payments made by the assessee to the farmers were regarded as payments falling within the ambit of section 194C of the act. In the appellate order for AY 2012-13, the CIT(A) has not discussed this aspect at all and has gone only by the legal proposition as to whether section 40(a)(ia) would be applicable to sums which have already been ITA No. 37/B/2016, 1228/B/17 CO No.66/B/2016 paid or only to sums which remains payable as on the last date of the previous year. Therefore, the reasons given by the CIT(Appeals) in AY 2011-12 regarding payment on account of harvesting and transportation charges not being in the nature of payment falling within the ambit of section 194C of the Act is only the available material. 26. We have perused the paper book filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IOL-2269-HC-AHM-IT)(76 taxmann.com 117). In this case, the assessee paid transportation charges for transporting the sugar cane to its factory. On facts, it was found that the same formed part of Sale transaction and hence the assessee was not liable to deduct tax at source. In this regard, the Hon ble Gujarat High Court followed its earlier decision rendered in the case of CIT (TDS) vs. Krishak Bharti Coperative Ltd.(Tax Appeal No.211 of 2006 dated 01-12-2014). (b) The CIT vs. Dwarkadheesh Sakhar Karkhana Ltd (2018-TIOL-118-HC-Mum-IT). In this case, the Hon ble Bombay High Court has upheld the decision rendered by the Tribunal holding that there is no requirement of deducting TDS on payments made towards transportation and harvesting charges when these payments formed part of sugarcane purchase price payable to farmers. The Hon ble Bombay High Court followed the decision rendered by the Hon ble Gujarat High Court in the case of Khedut Sahakari Khand Udyog Mandli Ltd (supra). Following observations made by Hon ble Bombay High Court are relevant:- (e) Further, on an identical facts, the Gujarat High Court in CIT (TDS) v/s. Khedut Sahakari Khand Udyog Mandli Ltd., 76 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... file of the TDS officer directing him to restrict the demand to the portion relating to the harvesting charges which remained payable as at the year end. In this regard, the Tribunal followed the decision rendered by Hon ble Allahabad High Court in the case of Vector Shipping Services (P) Ltd (2013)(38 taxmann.com 77). Aggrieved by the order passed by the Tribunal, both the assessee revenue filed appeals before Hon ble Karnataka High Court. The questions raised by both the parties before the High Court are extracted below, for the sake of convenience:- 4. Assessee has raised following questions of law in its appeals: i . Whether the Tribunal was justified to rest its decision upon the case of Vector Shipping Services (P.) Ltd. in the facts and circumstances of Appellant's case as against the CBDT Circular No. 6/2007 dated 11/10/2007? ii . Whether the Bond Agreement/s (produced in this Appeal as Annexure 'B' and 'C') for appointing Harvesters / Transporters 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 relatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from the payments made out invalid contract. This argument of the assessee was rejected by the Hon ble High Court. The relevant observations made by the Hon ble Karnataka High Court are extracted below:- 27. We have carefully gone through the judgment in the case of Vector Shipping Services (P.) Ltd . ( supra ). In the said case, Hon'ble High Court of Allahabad was considering an issue with regard to noncompliance of provisions of Section 194C by the assessee therein. The said company had advanced a contention that work was carried out by one M/s. Mercator Lines Ltd., on behalf of Vector Shipping Services (P.) Ltd . ( supra ) and M/s. Mercator Lines Ltd., had deducted TDS in the salary of its employees and fully complied with the provisions relating to deduction of tax at source. It was also contended that no amount had remained payable at the year end. Thus, it was in the facts and circumstance of that case, the Hon'ble High Court of Allahabad 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parately, since it is not the expenditure of the assessee. The payment made on behalf of the farmers, in effect, constitute purchase price of sugarcane only, since the said payment has been adjusted against the purchase price. (f) The assessee has only acted as agent of the farmers in connection with harvesting transportation and hence the responsibility to deduct tax at source shall lie on the shoulders of the farmers only. None of these kinds of arguments were placed before Hon ble Karnataka High Court in the above said case. In our view, the above said facts prevailing in this case, would distinguish the present case from that decided by Hon ble Karnataka High Court. 14. Accordingly, following the decision rendered by the co-ordinate bench in the case of M/s NSL Sugars Ltd (supra), we hold that the assessee is not liable to deduct tax at source from the harvesting charges paid by it on behalf of the farmers in both the years. Accordingly, we set aside the orders passed by Ld CIT(A) in both the years and direct the AO to delete the impugned additions in both the years. 15. The assessee has also raised certain other legal grounds. Since we have allowed the appeals ..... 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