Payments made by assessee, a co-operative society running sugar mills, to Zone Samitis formed by the cane growers, for spending the same on harvesting, cutting and transporting sugarcane to assessee’s factories on behalf of cane growers, which were debite

    A.Ys. : 2003-04 & 2004-05 Dated : 30.05.2008

    Payments made by assessee, a co-operative society running sugar mills, to Zone Samitis formed by the cane growers, for spending the same on harvesting, cutting and transporting sugarcane to assessee’s factories on behalf of cane growers, which were debited to cane growers’ advance account and ultimately adjusted against the cost of cane — Whether provisions of Section 194C applicable ? Held : No.

    The assessee is a co-operative society running sugar mills. Farmers, who are members of the assessee society, form committees every season known as Zone Samitis for the purpose of undertaking the collective work of harvesting, cutting and transportation of sugarcane to the factory sites. The assessee made advance payments at a fixed rate to the Samitis for spending the same on harvesting, cutting and transporting sugarcane to its factories which was the liability of the cane growers. The Assessing Officer held that the assessee was liable to deduct tax at source u/s. 194C from these payments and accordingly he raised demands u/s. 201 against the assessee with interest. These orders were also upheld by the CIT(A).

    On second appeal to the ITAT, the Tribunal observed that there were conflicting judgments in case of Shree Chalthan Vibhag Khand Udyog Sahakari Mandli Ltd. vs. ITO, 104 TTJ 654 (AHD) and Shree Mahuva Pradesh Sahakari Khand Udyog Mandli Ltd. Because of these two orders, the President constituted a Special Bench to decide the controversy.

    The Special Bench held as follows :

    1. Section 194C applies when payments are made for carrying out any work including supply of labour for carrying out any such work in pursuance of a contract between the contractor and the persons stated therein. By sub-Section (1) of S.194C a liability to deduct tax at source is cast upon the person responsible for paying any such sum. Here, the responsibility of paying the sum for harvesting, cutting and transporting is of the cane growers. This is clearly established by the fact that the payments, though made in instalments, were debited to the individual accounts of the cane growers, maintained by the assessee and adjusted ultimately against the cost of the cane.

    2. The payments are, no doubt, made to the labour hired for this purpose but these payments were made by the Samiti or by the assessee as alleged by the Revenue, not on its own account; they were for and on behalf of the cane growers.

    3. The assessee was required to pay the fixed price and make the payment to the cane growers for the cost of the cane; The payments, though in instalments, were debited to the cane growers’ advance account and adjusted ultimately as cost of the cane.

    4. The assessee had given and Samitis have taken the amount from the assessee for and on behalf of the cane growers and on their behalf; Samitis have also paid that amount to the labourers on account of the cane growers.

    5. Surplus and deficit is ultimately adjusted in the cane growers’ account through the Samitis who have paid and received that amount from the assessee-company.

    Thus assessee is not liable to deduct tax at source under S.194C from these payments.

    Cases Relied upon :

    · Associated Cement Company Ltd. vs. CIT, (1993) 201 ITR 435 (SC)

    · CIT vs. Dabur India Ltd., (2006) 283 ITR 197 (Del)