By JAGDISH D. SHAH / JAGDISH T. PUNJABI
Chartered Accountants
6. ITO (TDS) vs. Punjab State
Warehousing Corporation (Chandigarh)
Members: Sanjay Garg, JM and Annapurna Gupta, AMITA Nos.: 1309 /CHD/2016 A.Y.: 2012-13 Dated: 30th October, 2018 Counsel for Revenue / Assessee: Atul Goyal, B. M. Monga, Rohit Kaura and
Vibhor Garg / Manjit Singh
Section 194C – Value of by-products arising
during the process of milling paddy into rice, which remained with the millers,
not considered as part of the consideration for the purpose of TDS
Facts
The assessee is a procurement agency of
Punjab Government which procures paddy on behalf of Food Corporation of India
(FCI), get it milled and supply rice to FCI. The paddy was given to the millers
for milling at the rates as fixed by FCI. As per the terms of the agreement,
the millers were required to supply rice in the ratio of 67% of the paddy given
to them by the assessee in return the millers would get Rs. 15 per quintal as
milling charges. As per agreement, the by-products, if any, arising from the
process would remain with the millers and the assessee had no right in respect
thereof. The assessee deducted the tax at source u/s. 194C on the milling
charges of Rs. 15 per quintal so paid to the millers.
According to the AO, since as per the
agreement, the by-products i.e. remaining 33% part, out of the milled paddy,
was retained by the millers and the same had a marketable value, it was part of
the consideration paid by the assessee to the millers, whereon the assessee was
required to deduct tax at source u/s. 194C. Since the assessee failed to do so,
he held the assessee as assessee in default u/s. 201 (1) and 201 (1A) of the
Act.
The assessee appealed before the CIT(A) who
relying on the decisions 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) and of the Amritsar Bench of the Tribunal in the case of D.M.
Punjab Civil Supply Corporation Ltd, (ITA No. 158/Asr/2016) allowed the
appeal of the assessee and quashed the demand raised by the AO on account of
short deduction of tax.
Being aggrieved by the order of the CIT(A),
the revenue appealed before the Tribunal and made following submissions in
support of its contention that the tax at source should have been deducted
after taking into account the value of the by-products:
-
While fixing the milling
charges by FCI, the value of by-product in the shape of broken rice, rice kani,
rice bran and phuk and which had a reasonable market value, was duly taken into
consideration and thereafter net milling charges of Rs. 15 was arrived at;
-
Reliance was placed on the
correspondence / clarification from the Secretary, Food and Civil Supplies
Department that milling charges were fixed taking into consideration the value
of the by-product which was a part of the consideration paid by the assessee to
the millers for paddy milling contract;
-
As per the press release
issued by the Ministry of Consumer Affairs, Food & Public Distribution, the
Union Food Ministry had clarified that the milling charges for paddy paid by
the Central Government to the State Agencies were fixed, on the basis of the
rates recommended by the Tariff Commission, who had taken into account value of
the by-products derived from the paddy, while suggesting net rate of the
milling price payable to the rice millers;
-
As per the report of the
Comptroller and Auditor General of India (C&AG) on Procurement and Milling
of Paddy for Central Pool, the milling charges were fixed after adjusting for
by-products cost recovery;
- It also relied on the
decisions of the Andhra Pradesh High Court in the case of Kanchanganga Sea
Foods Ltd. vs. CIT (2004) 265 ITR 644, which was confirmed by the Supreme
Court reported in (2010) 325 ITR 549.
Held
The Tribunal noted that the milling charges
were fixed by the Government and neither the assessee nor the millers had any
say on the milling charges fixed. Even the out-turn ratio was also fixed and
the miller had to return 67% of the manufactured rice, irrespective of the fact
whether the yield of rice manufactured was low or high from the paddy entrusted
to him.
Thus, the nature of the contact, according
to the Tribunal, was not purely a work contract, but it was something more than
that. Under the contract, the miller had no choice to return rice and
by-products as per the actual outcome and claim only the milling charges.
Further, it was noted that the agreement
contained specific term that ‘the by-product is the property of the miller’,
which meant that the property in the by-product passed immediately to the
miller on the very coming of it, into existence. Thus, moment the paddy was
milled, the assessee lost its ownership and control over the paddy and the
by-product, and acquired the right only on the ‘milled rice’.
Thus, as per the agreement, the by-product
never became the property of the procurement agencies. Therefore, according to
the Tribunal, it cannot be said that the said by-product had been handed over
as consideration in kind by the assessee to the millers. When one is not the
owner of the product and the property in the product had never passed on to
other person, he, under the circumstances, cannot pass the same to the others.
The property in the by-product from the very
inception remained with the miller and, hence, the Tribunal held that the same
cannot be said to be the consideration received by the miller. According to the
Tribunal, even though the consideration was fixed taking into consideration the
likely benefit that the miller will get out of milling process in the form of
by-products, such benefits cannot be said to be consideration for the
contract.
As
regards the reliance placed by the revenue on the decision in the case of Kanchanganga
Sea Foods Ltd., the same was distinguished by the Tribunal and held that
the same was not applicable to the assessee’s case. In the result, the Tribunal
dismissed the appeals filed by the revenue and upheld the order of the CIT(A).
