Introduction: The deduction of TDS U/S 194Q by purchasers from Kachha Arahitias involved in selling crops on behalf of farmers has raised questions regarding its applicability. While buyers treat Kachha Arahitias as sellers for TDS purposes, the transaction is not part of their turnover or business receipts. Objections from the CPC and the disallowance of TDS have led to the need for clarification and guidelines in these cases. This article delves into the analysis of the situation and explores relevant circulars and guidelines issued by CBDT.
TDS U/S 194Q is deducted by the purchasers from Kachha Arahitias who is selling the crops on behalf of their principals i.e. Farmers. The buyer in such cases is treating the kachha Arahitias as a seller therefore covering the transaction U/S 194Q for the purposes of TDS. The transaction of sale by the Kachha Arahitia is not part of his turnover/ business receipts. In fact in such kind of transaction the seller is the farmer who is availing the services of a Kachha Arahitia and the Kachha Arahitia receives only certain commission from the buyer. In our considered view provision of section 194Q is not applicable to such transactions.
That CPC while processing the returns of Kachha Arahitia raises the objection that the turnover of sales is not declared in the gross receipts. The Kachha Arahitia simply receives the commission as an agent in such transactions and the gross receipts/ sale proceeds of the crop are received on behalf of his principal i.e the Farmer to whom the sale proceeds of the crop are paid and the Kachha Arahitia as no interest in such sales except the commission. CPC in such cases issues a notice U/S 139(9) on the ground that the gross receipts are not declared in the return. Sometimes the TDS U/S 194Q is disallowed proportionately.
CBDT in its circular: No 452 [F.No. 201/3/85-IT(A-II)], Dt. 17/03/1986 had clarified in Para 4 of circular that so far as Kachha Arahitias are concerned the turnover does not include the sales effected on behalf of principals and only the gross commission has to be considered for the purpose of section 44AB. It has been further clarified that Kachha Arahitias acts only as an agent of his constituent and never acts as principal.
Further following observations of the circular are also relevant:-
A Kachha Arahitias brings a privity contract between his constituents and the third party so that each becomes liable to the other.
Though the Kachha Arahitia does not communicate the name of his constituent to the third party, he does communicate the name of the third party to the constituent. In other words, he is an agent for an unnamed principal.
The remuneration of the Kachha Arahitia consists solely of commission and he is not interested in the profits and losses made by his constituent.
The Kachha Arahitia does not have any dominion over the goods.
The Kachha Arahitia has no personal interest of his own when he enters into transaction and his interest is limited to the commission agent’s charges.
The CBDT has issued guidelines U/S 194Q of the IT Act vide circular No. 13 of 2021 Dt. 30/06/2021 to remove the practical difficulties in implementing the provisions of TDS contained in section 194Q of the Act. Similar guidelines may be issued in respect of the transactions of a Kachha Arahitia under section 194Q (3).
In the alternative a provision may be made in the dropdown box of TDS schedule that the turnover of sales is on account of Kachha Arahitias.
It is high time that the Finance Ministry/CBDT may come to the rescue of the assesses.
Conclusion: It is crucial for the Finance Ministry and CBDT to provide clarity and support to taxpayers facing challenges with TDS U/S 194Q and the objections raised regarding turnover declaration by Kachha Arahitias. By considering the unique nature of their role as agents and issuing appropriate guidelines or provisions, the assesses can be relieved of unnecessary complications. Understanding the provisions, circulars, and the need for specific guidance is essential for both taxpayers and tax authorities to ensure smooth implementation and compliance.