DCIT Vs Sudalagunta Sugars Ltd. (ITAT Visakhapatnam)
Summary: The Visakhapatnam Bench of the Income Tax Appellate Tribunal dismissed three appeals filed by the Revenue concerning assessment years 2009-10, 2010-11 and 2011-12. The central dispute was whether a sugar manufacturer was obliged to deduct tax at source under Section 194C on amounts paid to harvesting gang labourers and transport contractors when the payments were made on behalf of sugarcane farmers and adjusted against the purchase price payable to those farmers. The assessee manufactured sugar and allied products and purchased sugarcane from farmers in its command area. Under the supply arrangements, farmers were responsible for delivering sugarcane at the factory gate at the price fixed by the State Government. To facilitate timely harvesting and avoid deterioration of the crop, the company arranged harvesting labour and transport services on the farmers’ behalf. The corresponding payments were recorded against individual farmers’ accounts and deducted from the sugarcane purchase consideration.
Following a survey under Section 133A on 23 December 2010, the Assessing Officer examined these arrangements and concluded that the company had entered into contracts for work covered by Section 194C. The officer reasoned that the obligation to deduct tax attached to the person making contractual payments, even if the expenditure was ultimately borne by someone else. Since the company had not deducted tax, it was treated as an assessee in default under Section 201(1).Before t he Commissioner of Income Tax (Appeals), the assessee argued that harvesting and transportation were obligations of the farmers, not independent expenses incurred by the company. Payments to labourers and transporters were treated as advances against the farmers’ sugarcane accounts, and no separate deduction was claimed in the company’s accounts. The assessee also raised alternative arguments concerning the statutory payment thresholds and the agricultural character of the farmers’ income.
The CIT(A), Vijayawada, accepted the factual explanation and held that the payments formed part of the cane purchase price and were made for the farmers’ account. By order dated 6 December 2012, the appellate authority concluded that Section 194C was not attracted. The Revenue appealed, maintaining that the direct payment arrangements and agreements with contractors were sufficient to trigger withholding obligations. The Tribunal reviewed farmers’ ledger accounts, harvesting labour settlement bills and the general ledger accounts of the transporters. It found that the payments had been assigned to the relevant farmers by account code and adjusted against amounts payable for cane purchases. Importantly, the company had not treated the harvesting and transport charges as its own separate expenditure, and the Assessing Officer did not dispute this accounting treatment.
On these facts, the Tribunal held that the company had facilitated payments on behalf of farmers rather than incurred independent contractual expenditure of its own. It accepted the alternative submission regarding the farmers’ agricultural income in the context of its reasoning. The Tribunal followed the Ahmedabad Special Bench ruling in Shri Kamrej Vibhag Sahakari Khand Udyog Mandli Ltd. Vs ITO and the Pune Bench decision in DCIT Vs Dwarkadheesh Sakhar Karkhana Ltd., both addressing harvesting and transportation charges adjusted against sugarcane consideration. The Tribunal distinguished the Bombay High Court ruling concerning Dedicated Health Care Services TPA (India) Pvt. Ltd., explaining that the third-party administrator in that matter provided contractual services to insurance companies for remuneration, unlike the facilitation arrangement established here. It therefore upheld the CIT(A)’s order, rejected the Revenue’s position under Section 194C and dismissed ITA Nos. 127 to 129/Vizag/2013. The ruling turns on the actual contracts, the responsibility borne by farmers and the accounting treatment of the payments; it does not establish a blanket exemption for every harvesting or transportation contract.
Cases Discussed
- Shri Kamrej Vibhag Sahakari Khand Udyog Mandli Ltd. Vs ITO, (2008) 116 TTJ (Ahd.) (SB) 425 — Followed: payments on behalf of cane growers adjusted against cane price did not attract Section 194C.
- DCIT Vs Dwarkadheesh Sakhar Karkhana Ltd., [2015] 55 taxmann.com 471 (ITAT Pune) — Followed: harvesting and transport payments adjusted against farmers’ cane bills were not independent deductible expenditure.
- Dedicated Health Care Services TPA (India) Pvt. Ltd. (Bombay High Court) — Distinguished: the TPA contractual service arrangement differed from payments facilitated for cane growers; the citation in the supplied source needs verification.
FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM
These are three appeals filed by the Revenue are directed against common order of the Commissioner of Income-Tax (Appeals), Vijayawada dated 06-12-2012 and it pertains to the A.Y. 2009-10, 2010-11 and 2011-12. Since, the facts are identical and issue is common, they are head together and disposed off, by this common order for the sake of convenience.
2. The brief facts of the case are that the assessee is a company engaged in the business of manufacture of sugar and allied products. A survey under sec. 133A was conducted in the business premises of the assessee on 23-12-2010. During survey operation, it was come to the light of the A.O. that the assessee has been engaged contractors for the purpose of harvesting and transporting sugar cane from farmers’ fields to its factory and making payments to such contractors. To ascertain the nature of payments to contractors and also to examine the applicability of TDS provisions of sec. 194C, the A.O. issued a detailed notice and asked explain the nature of contract and compliance with related TDS provisions. In response to notice, the assessee submitted that it is engaged in the business of manufacture of sugar. It was further submitted that to get raw material being sugar cane to its factory it enters into agreement with farmers growing sugar cane in command area for supply of sugar cane as per the Sugarcane Control order issued by the Govt. The assessee further submitted that as per the agreement entered with the farmers, the farmers shall supply sugarcane at factory gate for a agreed price fixed by the State Govt. However, as per the request of farmers and also to facilitate smooth supply of sugar cane, it has employed harvesting gang labours for cutting sugarcane and transporters for transporting sugarcane to the factory gate on behalf of the farmers and paid amount to such contractors out of amount payable to farmers towards sugarcane purchase price. The assessee further submitted that the whole idea behind this arrangement is to help farmers to harvest sugarcane at right season, otherwise sugarcane would dried up and farmers would lose money in terms of weight. The company entered in to agreement with Harvest Gang Labours and transporters on behalf of farmers and paid money on behalf of farmers and finally adjusted against sugarcane price payable to the farmers, therefore payments made to Harvest Gang labours and transporters are not coming within the ambit of section 194C of the Act. In support of its arguments relied upon the decision of ITAT, Ahmedabad reported in 394 ITR 1.
3. The Assessing Officer after considering submissions of assessee and also analysis of the provisions of section 194C, held that the transaction between the assessee and Harvest Gang Labours and transporters is in the nature of work as defined under section 194C of the Act. The A.O. further observed that their existed a valid contract between the Assessee Company and the HGLs and transporters for carrying out work of harvesting and transportation of sugar cane.
The A.O., after analyzing the provisions of section 194C, come to the conclusion that arrangement between the assessee and Harvesting Gang Labours and transporters is undoubtedly coming within the ambit of work as defined under sec. 194C and accordingly, payments to HGLs and transporters is liable for TDS u/s 194C of the Act. The A.O. has elaborately discussed the provisions of sec. 194C, Clause (3) of sugar control order and case law relied upon by the assessee. According to the A.O., as per the provisions of sec. 194C, the liability to deduct tax at source arises to the person responsible for making payment whether or not said person making payment for itself or on behalf of third party. The moment payments are covered u/s 194C, any person making payments shall deduct TDS as per the rates prescribed thereunder. The A.O. drawn support from the CBDT circular No. 8/2009 dated 24-112009 and also applied the ratio of the decision of Bombay High Court, in the case of Dedicated Heath Care Services TPA (India) Pvt Ltd. Reported in 232 ITR 41(Bom), and observed that third party administrators acting on behalf of insurance companies and entering into contracts with hospitals for settlement insurance claims are responsible for deducting TDS on payments made to hospitals on behalf of insurance companies. The A.O. also distinguished case law relied upon by the assessee in the case of Shri Kamraj Vibagh Sahakari Khandi Udyog Mandli Ltd, reported in 394 ITR 1 (Ahd) and observed that facts are entirely different from the present case. The A.O. further observed that in the case before ITAT, Ahmedabd, in addition to Sugar factory and the farmers there was another entity known as “Zone Samithi” which made payments to the farmers, but not the Sugar Factory. With these observations, held that since, the assessee company made payments in pursuance of a agreement with HGLs and transporters, whether or not said payments or made on behalf of farmers, the payments are clearly covered under the provisions of sec. 194C. Since, the assessee failed to deduct TDS on such payments, held assessee as an assessee in default u/s 201(1) for the A.Y. 2009-10 to 2011-12.
4. Aggrieved by the order, the assessee preferred an appeal before the CIT(A). Before, the CIT(A), the assessee filed elaborate written submission. The assessee further submitted that responsibility of harvesting and transporting sugar cane to the factory is primarily on the farmers. The assessee Company buys sugarcane from farmers at ex factory gate and farmers are paid a price fixed by the State Govt. The Company arranges Harvesting Gang Labours and transporters to facilitate smooth harvesting and transportation of sugar cane to the factory. All the HGLs are engaged by the company on behalf of farmers and the payment to HGLs and transporters are debited to individual farmers account and finally get adjusted against purchase price payable to the farmers. It was further submitted that all amounts paid to HGLs and transporters is accounted as advance given to farmers and the company did not claim it as its expenditure. It was further submitted that even assuming for a moment, the payments are covered under sec. 194C, in any case individual payment or aggregate of such payment in a financial year to any labour does not exceed the limit specified u/s 194C, therefore question of TDS does not arise. The assessee also made a alternative plea in as much the provissons of sec. 194C applicable to any person making payment for carrying out any work in pursuance of a contract. In this case the person making payments are farmers out of agricultural income and any expenditure incurred against agricultural income is also not farming part of income and as such the payments are not coming within the definition of work u/s 194C of the Act.
5.The CIT(A), after considering submissions of the assessee, held that payments to harvesting gang labours and transporters are on account of agricultural cane growing farmers, forms part of purchase price of sugarcane, incurred by the farmers and paid by the assessee on behalf of farmers to be finally adjusted against purchase price are not coming within the ambit of the provisions of section 194C of the Act. The CIT(A) further held that from the records it transpires that it is the responsibility of the farmers to bring sugarcane to the factory on their own cost. The assessee purchases sugar cane for price fixed by the State Govt. It is also an admitted fact that amounts paid to HGLs and transporters is debited to farmers account as advance and finally adjusted against purchase price payable to the farmers, therefore payments to HGLs and transporters is not coming within the ambit of section 194C of the Act. The CIT(A) further held that alternatively, there is a merit in the arguments of the assessee that the end receiver is farmer whose income is agricultural income exempt from tax, as such any expenditures against such income is not coming within the definition of work u/s 194C of the Act. Thus, there is no TDS liability on the assessee on the payments to harvesting gang labours and transporters. Aggrieved by the CIT(A) order, the revenue is in appeal before us.
6. The ld. D. R. submitted that the ld. CIT(A) erred in holding that there is no TDS liability on the assessee on the payments made to HGL and transporters. The ld. CIT(A) erred in accepting that when sugarcane is considered as cash crop and part of sugarcane income is farms part of total income liable for tax, then also no farmer comes under tax net. The D.R. further submitted that the A.O. clearly brought out the facts that the arrangement between the assessee and HGL and transporters is coming within the definition of work as defined u/s 194C and the ITA Nos.127, 128 & 129/Vizag/2013 Sudalagunta Sugars Ltd., Chittor Dist. resultant payments are liable for TDS, failed to appreciate the facts, simply held that the payments are not liable for TDS u/s 194C without narrating how the impugned payments are not attracted TDS provisions. Since, the assessee company made the payments in pursuance of a agreement with HGLs and transporters, whether or not said payments are made on behalf of farmers, the payments are clearly covered under the provisions of sec. 194C. Since, the assessee failed to deduct TDS on such payments, the A.O. held assessee as an assessee in default u/s 201(1) and his order should be upheld.
7. The Ld. A.R. for the assessee strongly supported order of the CIT(A). The A.R. submitted that the A.O. without appreciating facts in proper perspective, held assessee as an assessee in default, despite submitting all relevant facts to the A.O. and explain how the payments are not hit by the provisions of sec. 194C of the Act. The A.R. further submitted that the assessee has paid amount to HGL and transporters on behalf of farmers out of advance/arrears payable to the farmers towards sugarcane purchase cost as per the authorization/instructions of the farmers. The assessee only arranged the HGL and transporters for the benefit of farmers to facilitate smooth harvesting and transportation of sugarcane. The whole idea behind this exercise is to help farmers for smooth harvesting sugarcane and also timely transportation of sugarcane without any delay so as to avoid loss to the farmers because perishable nature of crop. The A.R. referring to the individual farmers ledger account, further submitted that All the HGLs are engaged by the company on behalf of farmers and payment to HGLs and transporters are debited to individual farmers account and finally get adjusted against purchase price payable to the farmers. It was further submitted that all amounts paid to HGLs and transporters is accounted as advance given to farmers and the company did not claim it as its expenditure. In support of his arguments relied upon the decision of ITAT, Ahmedabad in the case of Shri Kamraj Vibagh Sahakari Khandi Udyog Mandli Ltd, reported in 394 ITR 1 (Ahd) and submitted that when harvesting gang labour charges and transportation charges paid by the assessee company on behalf of farmers and debited to farmers account and finally adjusted against purchase cost of sugarcane, the payments to HGL and transporters are not hit by the provisions of sec. 194C of the Act.
8. We have heard both the parties, perused materials available on record and gone through the authorities below. The factual matrix of the case is that the assessee a sugar manufacturing company purchased sugarcane from the farmers of command area. The assessee entered into a agreement with command area farmers for purchase of sugarcane for a purchase price fixed by the Govt. The assessee company engaged the services of harvesting gang labours and transporters for harvesting and transporting sugarcane from farmers field to assessee company factory. The assessee had paid HGL and transporters as per the rates fixed in consultation with farmers and HGL and also transporters association. The amount paid to HGL and transporters have been debited to individual farmer account and finally adjusted against purchase cost of sugarcane payable to the farmers. The A.O. held assessee as an assessee in default u/s 201(1) of the Act, for the reason that the payments to HGL and transporters are coming within the definition of work as defined u/s 194C of the Act. The A.O. further observed that the assessee ought to have deducted TDS u/s 194C on payments to HGL and transporters, but failed to deduct such TDS. The A.O. was of the opinion that the arrangement between Assessee Company, HGL and transporters is nothing but a work contract as deified u/s 194C of the Act.
9. The A.O. has made elaborate discussion on the provisions of sec. 194C, Clause (3) of sugar control order and case law relied upon by the assessee. According to the A.O., as per the provisions of sec. 194C, the liability to deduct tax at source arises to the person responsible for making payment whether or not said person making payment for itself or on behalf of third party. The moment payments are covered u/s 194C, any person making payments shall deduct TDS as per the rates prescribed there under. The A.O. drawn support from the CBDT circular No. 8/2009 dated 24-11-2009 and also applied the ratio of the decision of Bombay High Court, in the case of Dedicated Heath Care Services TPA (India) Pvt Ltd. Reported in 232 ITR 41(Bom), and observed that third party administrators acting on behalf of insurance companies and entering into contracts with hospitals for settlement insurance claims are responsible for deducting TDS on payments made to hospitals on behalf of insurance companies and finally concluded that the facts of the case squarely applies to the facts and circumstances of assessee case.
10. The assessee claims that the impugned payments to HGL and transporters have been paid as per the authorization/instructions and also on behalf of the farmers, to be payable towards cost of sugarcane price which was finally adjusted against farmers accounts. The assessee has filed paper book which contains ledger account copies of farmers, HGL labours settlement bills, general ledger accounts of HGL labours and transporters. On perusal of ryots accounts, we find that the assessee has debited to farmer account payments towards HGL and transportation and finally adjusted against total amount payable to the ryots towards purchase price of sugarcane. We further observed from the HGL settlement account and general ledger accounts copies of transporters, the amount paid to individual HGL and transporters have been considered as advance payments to ryots and assigned to concerned farmers account based on the code number of the farmers. We further noticed from the general ledger account copies of HGL labour and transportation, the narration given to individual payment explains to which farmers account the payment is made. The assessee also proved with necessary evidence that the amount paid to HGL and transporters has not been considered as its expenditure. In fact, this fact was not disputed by the Assessing Officer. Therefore, from these undisputed facts, we are of the view that the impugned payments to HGL and transporters have been made on behalf of the farmers out of advance/arrears payable to farmers towards purchase price of sugarcane.
11. Having said, let us examine the applicability of the provisions of section 194C of the Act. There is no dispute with regard to payments to HGL and transporters. The A.O. himself admitted that the assessee has paid amount on behalf of farmers out of amount payable towards purchase price to be payable to the farmers. But, the A.O. was of the opinion that as per the provisions of section 194C, any person responsible for making any payment to a contractor in pursuance of a work contract is under obligation to deduct TDS, whether or not said payments are made on behalf of third parties. No doubt, the provisions of section 194C applies where any person responsible for making payments to any resident for carrying out any work in pursuance of a contract between the contractor and the specified person. The person has been defined in sec. 2(31), which include an individual, HUF ….etc. Similarly, the word assessee has been defined in section 2(7) to mean a person by whom any tax or any other sum of money is payable under this Act and includes every person in respect of whom any proceedings under this Act has been taken for the assessment of his income. If you read the definition of assessee and person together, it is abundantly clear that any person means an assessee by whom any tax or any other sum of money is payable under this Act. Therefore, we are of the considered view that for the purpose of section 194C, any person means an assessee by whom any tax or any other sum of money is payable under this Act, who makes any payment to a contractor in pursuance of a work contract.
12. Coming to the facts of the present case. In this case undoubtedly, the assessee in not the person who makes the payment directly to HGL and Transporters. The assessee categorically proved with necessary proof that it had made payments on behalf of the farmers out of amount payable to the farmers towards cost of sugarcane. The assessee also proved with evidence that the impugned payments to HGL and transporters is not its expenditure, but only advance payment to farmers which was finally adjusted against cost of sugarcane payable to the assessee. We, therefore, of the opinion that where assessee a sugar manufacturer made payment of harvesting and transportation charges to harvesting and transport contractors on behalf of farmers which formed part of purchase price of sugar cane for assessee, and same had not been claimed as separate deduction, provisions of sections 194C of the Act is not applicable, consequently the assessee is not liable to deduct TDS on such payments.
13. In so far as alternative plea of the assessee, the asessee made a alternative plea in as much the payer of the impugned payment being a farmer and the impugned payments are expenditure incurred against agricultural income, such payments against exempt income is outside the purview of the provisions of section 194C of the Act. we find force in the arguments of the assessee for the reason that, on carefully analyses of the definition of the assessee as defined u/s 2(7), the person as defined u/s 2(31) and the provisions of section 194C, it is abundantly clear that the provisions of section 194C is applicable to a person by whom any tax or other sum of money is payable under this Act. In this case, it is undoubtedly clear that though the assessee paid amounts to HGL and transporters, for the purpose of section 194C, the payer is farmers. The income of the farmer being agricultural income exempt from income tax, the impugned payments are not hit by the provisions of section 194C of the Act.
14. Coming to the case laws relied upon by the assessee. The assessee relied upon the decision of ITAT, Ahmedabad Special Bench, in the case of Shri Kamrej Vibhag Sahakari Khand Udyog Mandli Ltd. v. ITO (2008) 116 TTJ (Ahd.) (SB) 425, wherein under similar circumstances, it is held that the sugar factory is not liable to make TDS, where payments towards harvesting gang labour and transport charges are made as a part of the sugarcane price. The relevant portion of order is reproduced below.
Sec. 194C applies when the 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-s. (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. 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. This is clearly established by the fact that—(1) The assessee was required to pay the fixed price and make the payment to the cane growers for the cost of the cane; (2) The payments, though in instalments, were debited to the cane growers’ advance account and adjusted ultimately to as cost of the cane; (3) 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; (4) Samitis have also paid that amount to the labourers on account of canegrowers; (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. These facts are clearly a pointer of the fact that it was their responsibility as per the Government order and the board’s resolution of the society to make payment to the cane growers and it were they who actually made the payments for harvesting, cutting and transporting the cane to the gate of the assessee’s factory, though through the medium of the assessee and the Samitis. Every officer of the two factories and the two Samitis almost unanimously has averred that Samitis were working independently and it was the Samiti who was harvesting, cutting and transporting sugarcane to the gates of the two factories. They were taking money from the factory as advance being Rs. 190/195 out of the cost agreed to be paid for the purchase of sugarcane by the factories for and on behalf of the cane growers who were supplying the sugarcane to the assessee. The supply of sugarcane at the gate of the two factories as per agreements, rules and notifications of the Government, was the responsibility of the cane growers. Surplus or deficit was accounted for in the accounts of the cane suppliers and in all these matters the two factory staff including the accounts clerks and the chief accountants were helping them either free of cost or for cost recovered. The Samitis are maintaining separate records and they were audited. The assessee society also maintains the individual farmers account by debiting and crediting individual farmer account on the basis of advance payments made in instalments. The above details of each instalment paid for purchase of sugarcane were posted in respective accounts in the audited books of accounts of assessee society. Whether the Samitis were valid or not or whether they were not legally formed or registered with any State or Central Government, authority or that they were being looked after for everything by the assessee, would also not make much of difference, so long as they are making the payments for and on behalf of the cane growers and at their directions and ultimately adjusting the liability of the cane growers. It were they who were responsible for making the payments and not the assessees, who only paid the amount to the cane growers for the cost of the sugarcane at ex-factory gate price fixed as the sugarcane minimum price as per the notifications issued by the Government. There is a reason for extending the help in administering the Samitis by the assessee, and that is, that the cane growers are illiterate people and might not be capable of independently handling the work of harvesting, cutting and transporting the cane to the assessee’s factory so effectively as without the intervention of the assessee who are better placed in their managerial skills. One of the other reasons was also that the company is interested in regular and timely supply of cane. They are also interested in good quality of cane which is ensured by deputing the technical boys to see that good crop is grown and supplied as raw material to the assessee which ultimately enhances its productivity and profits. That assistance is expected, the same being in mutual interest. In the beginning of the season of cutting, harvesting and transporting of sugarcane the assessee society passed a resolution in the meeting of board of directors for payment of advance for harvesting and transporting and to decide the 1st instalment followed by subsequent resolution for payment of 2nd instalment of the price of sugarcane and lastly to decide the sugarcane price to be paid to the farmer members. When it was resolved to pay advance of Rs. 190/195 per MT of sugarcane to farmer members towards cutting, harvesting and transporting advance the same is debited in Sabasad Sherdi Advance No. II account and the amount was credited in sugarcane management account. Simultaneously, the 1st instalment is also paid which is debited in Sabasad Sherdi Advance No. I account and the amount is paid to farmers in cash by crediting the cash account. Similarly, the 2nd instalment of Rs. 325 is debited in Sabasad Sherdi Advance No. II and credited in cash account by making payment to the farmer members. Zone Samiti received the funds from the assessee society as and when it required out of the advance amount lying credited in sugarcane management account. At that point of time the sugarcane management account is debited by making payments to Zone Samiti to make payments for cutting, harvesting and transporting on behalf of the farmer members. At the end of the season the balance in the sugarcane management account is transferred to Sugarcane Advance Account No. II by debiting or crediting the same and the sugarcane management account is squared up. The balances in both the advance accounts are thereafter transferred to sugarcane purchase account. In view of the above on the facts and in the circumstances of the case the assessees are not liable to deduct the tax at source under s. 194C from the payment made to Mukamdams and transporters by Zone Samiti; that the assessees are not liable for deduction of tax under s. 194C from the payments made as advances to its member farmers for purchase of sugarcane because as per the agreement it is for the cane grower to bring the sugarcane to assessee’s factory and that the ingredients of s. 194C are not attracted to make the assessees liable to deduct the tax at source from the payments made to Mukamdams and transporters who are member farmers of the Zone Samiti and who have no contract with the assessee.
15. The assessee relied upon the decision of ITAT, Pune Bench, in the case of DCIT vs. Dwarkadheesh Sakhar Karkhana Ltd, [2015] 55 taxmann.com 471 (Pune – Trib.). The ITAT, Pune Bench under similar circumstances held as under.
8.2 From the details furnished by the learned counsel for the assessee in me paper book (p. 149) we find from the details of cane purchase price that these purchases include transportation and harvesting charges. Similarly, we find from the paper book pp. 186 and 187, which shows the chart giving the details of the gross amounts of purchase price payable to each farmer for the sugarcane and deductions therefrom on account of harvesting and transportation charges, etc., that the farmers have been paid the net amount only. All these indicate that the harvesting and transportation charges form the part of the purchase cost of the sugarcane for the assessee. Since the responsibility of making the payments to the harvesting contractors and truck operators is basically of the farmers and it is only for the sake of convenience the assessee company has made the payments to them which has subsequently been deducted from the amounts payable to the farmers, therefore, the question of the assessee deducting the TDS on such payment, in our opinion, does not arise. The finding given by the learned CIT(A) that the documents on record, i.e., the notification issued by the Central Govt. prescribing the minimum cane price, the circular letter of Sakhar Sangh (a State level body of co-operative sugar factories) and the terms of agreement with the cane grower farmers show that the price fixed for sugarcane is negotiated on ex-factory gate basis and the responsibility of harvesting and transporting the sugarcane is on the farmer could not be controverted by the Revenue.
8.6 Since in the instant case it has been categorically observed that the price fixed for sugarcane is negotiated on ex-factory gate basis and the responsibility to harvest and transport the sugarcane is on the cane growing farmers and since such transportation and harvesting charges and commission paid by the assessee have not been claimed as separate deduction by the assessee and the same have been deducted from the purchase price of cane paid to the farmer and the assessee only has made the payment on behalf of the farmer to the harvesting and transport contractors, therefore, the provisions of ss. 194C and 194H, in our opinion, are not applicable to the facts of the present case. We find from the assessment order for the asst. yr. 2005-06 passed under s. 143(3) on 15th Dec, 2008 that no such disallowance was made in the said scrutiny assessment order. Further, the submission of the learned counsel for the assessee that in the past years also there was no such disallowance under s. 40(a)(ia) could not be controverted by the learned Departmental Representative. The various decisions relied on by the learned Departmental Representative are distinguishable and not applicable to the facts of the present case. In this view of the matter and in the light of our reasoning’s given in the preceding paras and in view of the detailed reasoning given by the learned CIT(A), we find no infirmity in the same. Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed
16. Coming to the case law relied upon by the revenue. The A.O. relied upon the decision of High Court of Bombay, in the case of Dedicated Heath Care Services TPA (India) Pvt Ltd. Reported in 232 ITR 41(Bom), and observed that third party administrators acting on behalf of insurance companies and entering into contracts with hospitals for settlement insurance claims are responsible for deducting TDS on payments made to hospitals on behalf of insurance companies. We have gone through the facts of the case law relied upon by the A.O. in the light of the facts of the present case and find that the case law relied upon by the A.O. is rendered under different facts. In the case before the Hon’ble Bombay High court, it is the business of the third party administrators to enter into agreement with Insurance companies for which the TPAs are paid charges for their services. Under those circumstances, the court held that, the payments are covered under sec. 194C of the Act. In the present case, the assessee categorically proved that the impugned payments are made on behalf of the farmers to facilitate smooth harvesting and transportation of sugar cane without any charges. Therefore, we are of the view that the case law relied upon by the A.O. is not applicable to the facts of the case.
17. In this view of the matter, we are of the view that the impugned payments to HGLs and transporters paid by the assessee company on behalf of farmers are not hit by the provisions of sec. 194C of the Act. The CIT(A) after considering relevant facts, rightly deleted additions made by the A.O. u/s 201(1) of the Act. We do not see any errors or infirmity in the order of CIT(A). Hence, we inclined to uphold CIT(A) order and reject appeal filed by the revenue for the A.Y. 2009-10 to A.Y. 2011-12.
18. In the result, the appeal filed by the Revenue is ITA. No. 127 to 129/Vizag/2013 are dismissed.
The above order was pronounced in the open court on 9th Dec’16.
