Kamrej Vibhag Sahakari Khand Udyog Mandli Ltd. vs ITO
113 ITD 539
304 ITR 1
116 TTJ 425
Liability for TDS - Liability of payer
The assessee was manufacturing sugar. It made certain payments to farmers samitis. The Samitis made payments to cane growers, labourer and transporters for bringing sugar cane to assessees factory. The samitis were independent bodies. Therefore, the samitis were liable for making TDS on payments made for labour and transport and not the assessee. The assessee was not liable for deducting tax at source.
ITAT, Ahmedabad
Kamrej Vibhag Sahakari Khand Udyog Mandli Ltd. vs ITO
ITA No. 3553/Ahd/2004 and ITA No. 2951/Ahd/2006, Assessment Year : 2003-04 and 2004-05
And
Sayan Vibhag Sahakari Khand Udyog Mandli Ltd. vs ITO
ITA No. 3554/Ahd/2004 and ITA No. 2950/Ahd/2006, Assessment Years : 2003-04 and 2004-05
R.P. Garg, Vice President, AZ; R.P. Tolani, J.M and N.S. Saini, A.M
30 May 2008
K. C. Patel for the Assessee
N.S. Dayam for the Revenue
ORDER
R.P. Garg :
On a reference by the President, Income Tax Appellate Tribunal the following questions are referred to the Special Bench for it decision and to disposed of the entire appeal:
(A) Whether, on the facts and in the circumstances of the case the applicants are liable to deduct the tax at source under section 194C of the Income-tax Act from the payment made to Mukamdams and Transporters by Zone Samiti?
(B) Whether, the applicants are liable for deduction of tax under section 194C of the Income-tax Act, 1961 from the payments made as advances to its member farmers for purchase of sugarcane when no expenditure towards cutting, harvesting and transportation is debited in the books of the applicants?
(C) Whether on the facts and in the circumstances of the case the ingredients of section 194 of the Income-tax Act 1961 are attracted to make the applicants 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 contact with the applicant?
2. These appeals, as is apparent from the questions referred, are against the orders of the CIT(A) upholding the liability of the two assessees to deduct tax at source u/s 194C and interest u/s 201 of the Act. Since they all contain almost similar and identical facts they are being disposed of by this common order for the sake of convenience. We are, discussing the facts as they appear in the case of first assessee in the appeal for AY 2003-04 they are stated to be almost identical in all cases, except the amounts and certain names etc.
3. There was a survey action in this case. The Assessing Officer during the course of survey recorded statements of various persons under section 131 of the Act and came to the conclusion that the payments were made by Samiti which were formed to escape the liability of deducting the tax. He accordingly held the assessee responsible for making the payments and passed order dated 08.04.2004 under section 201 of the Act for the A.Y. 2003-04.
4. The Assessing Officer after considering the matter in paragraphs 6 to 30 of the order has given the finding in paragraphs 31 to 34 of his order as under:
"31. Considering these evidences namely (A) replies of member of Khedut Zone Samiti, (B) the entries in the books of sugar mill and khedut zone samiti and (C) deposition of all three principal officers are establishing the facts that there is direct role of sugar mill in payments to mukadams and transporters. Accordingly the contention of member of khedut zone samiti regarding no direct nexus of sugar mill with activity and payment to mukadams and transporters is ruled out, even while taking into consideration the contention of letter of the member of khedut zone samiti. The common cost effective arrangement in the name of khedut zone samiti as stated in the submission of Authorized Representative is recognized but fact remains that because of certain reasons as below all the payments made by khedut zone samiti are considered to have made by the sugar mill and hence sugar mill is responsible for TDS on payments made to mukadams and transporters.
Reasons for treating the khedut zone samiti a division of sugar mill.
Not a single evidence is provided to consider khedut zone samiti as a separate distinct entity by-
(i) Shri Gopalbhai C. Patel, the member of khedut zone samiti of working committee as per his deposition u/s 131 dated 25-02-2004.
(ii) Shri Navinbhai V. Patel, the President of sugar mill as per his deposition u/s 131 dated 10-03-2004.
(iii) Shri Kantibhai V. Patel, the Managing Director of sugar mill as per his deposition u/s 131 dated 10-03-2004.
(iv) Nothing is stated/provided even in reply dated 24-03- 2004 in response to show cause notice dated 15-03-2004 though specifically asked to establish the cause existence of khedut zone samiti as a separate distinct entity and not part of sugar mill.
(v) Though the members claim that the object of samity is not profit making the excess of income over expenditure is not explained till date up to the satisfaction.
(vi) The books of accounts claimed to be of khedut zone samiti submitted during the course of survey are not acceptable for the reasons quoted by its auditor.
(vii) Direct nexus of payment of mukudams and transporters with sugar mill established as the main source of fund of khedut zone samiti is retained money (amount) of sugar mill amount of Rs. 195/- per M.T. out of first installment of purchase price of sugarcane to be paid to members.
32. In short even after careful consideration of letter of Authorized Representative of sugar mill received in the office on 24-03-2004 along with annexure, the direct link of sugar mill is established and the contents of submission extracted here above are not contrary to whatever discussed above,
33. From above elaboration all the reasons as listed in the initial part of this order for not deducting tax on payments made to the transporters and mukadam are as below:-
(1) As provided in the bye-laws of sugar factory especially No. 2(A) and 6(2) prime liability to cut and transport the sugarcane from field to factory gate is of farmer/member but in fact no individual member is performing this task as established here above.
(2) As prime liability to cut and transport the sugarcane is of member/individual. Farmer making arrangement to cut and transport the sugarcane is not correct but sugar factory under the facade in the name of khedut zone samiti makes arrangement to cut and transport the sugarcane.
(3) The individual farmer/member makes payments to the mukadams and transporters is not correct but the sugar mill retains portion of money out of receivable by member and out of this retained money through khedut zone samiti sugar mill makes payments to mukadams and transporters.
(4) The factory pays only purchase price to the farmers for the sugarcane supplied by farmer upto the factory gate keeping in view of the minimum price provision of Central government is not correct but Rs. 195/- per M.T. is retained by sugar mill which is paid to transporters and mikudams through khedut zone samiti.
(5) Samiti is formed by farmers on the basis of mutuality having no object of profit. This is also not correct that formation of samiti itself is not permitted by Bye-laws of sugar mill. The separate distinct existence of samiti is not established, though there is no object of profit, Crores of rupees are reflected in the books of samiti as excess of income over expenditure.
(6) Samiti being distinct entity is managing the affairs of cutting and transportation activities. This is also not true because there is no provision of forming such samiti in the bye-laws of sugar mill, its distinct entity is not proved hence all activities are considered to be carried out by sugar mil!.
(7) The zone samiti makes payments to mukadams and transporters hence sugar mill is not responsible for making TDS on the payments made to them. This is also not correct because samiti has not fund to carry these activities of its own. The samiti derives all money from the sugar factory to run financial affairs.
(8) When samiti is making payments to the transporters and mukadams, sugar factory is not a party to constitute contract u/s 194C of the Act. This is also not true because samiti is having its own fund and manpower as well to conduct the activities. All fund and manpower utilized by samiti hence it is responsible for section 194C of the Act.
(9) The samiti has its audited books of accounts, members of the samiti manage affairs of cutting and transportation activities though samiti is an unregistered body. The books of accounts are not acceptable because the existence of samiti is not established. The major defects are pointed by the auditor noticed in books of samiti. The samiti is not preserving the books of accounts for six years as required by the Income Tax Act. The samiti is not filing its return of income though there is huge excess of income over its expenditure in the books of accounts.
34. After careful examination of letters, show cause notice evidences gathered it is noticed that the payments made to mukadams and transporters are liable for TDS u/s 194C of the I.T.Act. The reasons stated by the deductor for non-deduction do not satisfactorily explain and are not accepted. In F.Y. the total amount of Rs. 9,19,02,670/- (as per Annexure) was spent for the payment of transportation and cutting charges to the transporters and mukadams in F.Y. 2002-03 on which the TDS at the rate of 2% was not deducted as required under the I.T. Act for this short deduction the order u/s 201 of the I.T. Act is passed thereby you are required to pay Tax Rs. 18,38,053/- + S.C. Rs. 91,903/- aggregating to Rs. 19,29,956/-."
5. For the A.Y. 2004-05 also similar orders were passed in both the cases. The details of demand raised in the case of both the appellants for the Assessment years 2003-04 and 2004-05 are as under:-
Particulars Kamrej Vibhag Sayan Vibhag
A.Y. 2003-04 A.Y. 2004-05 A.Y. 2003-04 A.Y. 2004-05
TDS 19,29,956 22,54,192 39,53,104 36,40,187
Interest 4,56,492 7,97,890 9,14,382 11,74,567
6. The CIT (Appeals) dismissed the appeals filed by the assessees for both the years. The assessees therefore preferred appeal before the Tribunal.
7. We are informed that a similar matter came up before the Tribunal; first in the case of Shree Chalthan Vibhag Sahakari Khand Udyog Mandli Ltd., Chalthan (104 TO 654) when, by order dated 31.08.2005 the issue of liability of deduction of tax of the assessee was decide by holding that the assessee sugar factory is liable for deduction of tax by -
i) rejecting 55 Affidavits of the assessee by observing that the assessee had no right to file any Affidavit of the farmers of his own, unless required by the Assessing Officer or the CIT (Appeals) under rule 10;
(ii) holding that admittedly all the funds of advanced to the Samiti belonged to the assessee and the surplus remaining with the Samiti came back to the assessee after the season was over;
(iii) holding that thus the Samiti was nothing but a branch office of the assessee or assessee's own organization/outfit; and also
(iv) holding that transportation was not the farmers liability but was assessee's liability.
8. Aggrieved by this order of the Tribunal, an appeal was preferred to the High Court of Gujarat and it was admitted on the following substantial question of law formulated by the court:
"Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was liable under Section 194C to deduct tax from the payments made by the farmers' Samiti in respect of various expenses including labour charges, transport charges, insurance charges, etc, on behalf of farmers?"
9. The matter again came up before the Tribunal in the case of Shree Mahuva Pradesh Sahakari Khand Udyog Mandli Ltd. and this time vide paragraph 6 of the order dated 13-4-2007, the matter was set aside and the whole issue restored back to the file of the Assessing Officer for fresh consideration in accordance with law and after giving opportunity to the assessee to distinguish the facts. It was, but with a caution that if the facts of this case were found to be same and similar as were in the case of 'CHELTHAN' the Assessing Officer will take appropriate step for initiating prosecution proceedings against the assessee for making false claim before the Tribunal.
10. In view of the above two orders passed by the Tribunal in similar matters, the present assessee in these appeals once again tried to distinguish before the Tribunal its case from that of 'CHELTHAN' and the President, Income-tax Appellate Tribunal, on 26.03.2007 constituted this Special Bench to decide the controversy arising in the matter, looking to the gravity of the situation.
11. The ld. counsel of the assessee, Shri K.C. Patel submitted that assessees are registered Co-operative societies under the provisions of Gujarat Co-operative Societies Act, 1961; that they are running sugar mills at Kamrej and Sayan respectively in Surat District; that the sugarcane is raw material for manufacture of sugar which is procured by the assessees from the farmer - agriculturists; that for procurement of sugarcane from the agricultural field, cutting and transportation is done by the farmers collectively by forming their Committee at the beginning of every season which is known as Zone Samiti; that assessees being co-operative societies are governed by Byelaws framed under the Co-operative Societies Act, 1961; that Rule No. 6(2) of the Byelaws of the assessees, provides that only a farmer is eligible to be a member of the society, if he held land as owner within the area of operation of the assessee society, or he were a member of joint family who held land and growing sugarcane and who were prepared to enter into a contract with the assessee society to cultivate, grow and bring the sugarcane at the place of the assessee society and therefore he has to supply the sugarcane at the factory gate of the assessee society at his own risk and cost.
12. He further submitted that in order to see that the sugarcane reaches the factory site by the farmers, Zone Samiti works through its elected body of the member farmers of the assessee society for each season; that the Zone Samiti forms governing body to manage the working and to collect the advance payments made to farmer members by the assessees for harvesting, cultivation and transportation purposes; that at the end of the season the Zone Samiti prepares the accounts which are audited and finds out the deficit or surplus, which is either recovered from the farmer members or repaid to them; that the assessee-factory makes advance payments to farmer members at the beginning and during the season as and when the need arises of the farmer members; that such advance payments instead of being paid to individual farmers are collectively collected by Zone Samiti; that in the books of accounts of the assessees, the account of individual farmer member is debited on payment of advance amount towards advance purchase price of sugarcane; that the Zone Samiti is not earning any profit or incurring any loss from such activity and therefore, the Zone Samiti is not liable to pay any tax, because it is not carrying on any business activity with a view to earn any income; that the said assistance as expected was in mutual interest; that in Kamrej Vibhag 25 Cane Quality Boys and 20 Supervisors, who are employees of the Mill are rendering services to the task of supervising plantation of sugarcane. Services of one or two clerks and a Peon are further offered by the Mill to the Samiti for miscellaneous work; that similarly, for Sayan Vibhag, services of 173 cane quality boys and 22 supervisors with two clerks and one Peon are also supplied to the Samiti by the Mill for doing the aforesaid work; that the AO recorded statements of respective office bearers of both the Mills that the said Committee/Samiti is performing the work of cutting and transportation since more than 10 to 15 years respectively; that in case of KAMREJ the area covered under the Mill is divided into 5 Talukas and 14 Zones within the range of 5 KM to 30 KM comprised of 317 Villages. Similarly, in the case of SAYAN the area covered under the Mill is divided into 5 Talukas comprised of 207 Villages. The transport work is being done in the case of KAMREJ by truck while in the case of SAYAN the same is being carried out by trucks as well as bullock cart.
13. Referring to the case of Shree Chalthan Vibhag Sahakari Khand Udyog Mandli Ltd., Chalthan (supra) order dated 31.08.2005 deciding the issue of liability of deduction of tax at source by similarly situated assessee by holding that sugar factory is liable for deduction of tax at source, the Id. Counsel submitted that the said finding of the Tribunal is not based on correct appreciation of facts and is contrary to the relevant facts and therefore is not valid in law. Being aggrieved by the said order of the Tribunal, an appeal to High Court of Gujarat has been preferred. The factual finding based on alleged admission of the assessee 'CHELTHAN' are disputed before the High Court of Gujarat in appeal on the question admitted for consideration to decide whether the Tribunal was right in law in holding that the assessee was liable under Section 194C to deduct tax from the payments made by the farmers' Samiti in respect of various expenses including labour charges, transport charges, insurance charges, etc. on behalf of farmers.
14. Further in present cases on summoning the statements under Section 131 of the farmer members including office bearers of this Samiti were recorded by the Assessing Officer and these not being in the nature of suo motto affidavits could not be rejected by the Tribunal in the present case.
15. It is also submitted that refund out of advance was paid to the farmer members of the Society and not to the assessee. Cash advance was given for purchase of sugar-cane on behalf of the farmers, who authorized to make payment to Samiti. Details of specimen case of Shantaben is filed to show that receipt for the payment was signed by the farmer members, though the payment was made on their behalf to the Samiti and surplus refunded to the farmers through the assessee. Existence of the Samiti, he submitted, is evidenced by group insurance of the labourers, which was taken by the Samiti on 23-9-2002 and also by the traders and connected people in the market. These are also recognised by hospitals and in this connection, certain correspondences have been referred to.
16. When the other appeal came up before the Tribunal in appeal filed by Shree Mahuva Pradesh Sahakari Khand Udyog Mandli Ltd., these facts were brought to the notice of the Tribunal and he submitted that this time the Tribunal set aside the matter and restored back the matter to the file of Assessing Officer for fresh consideration in accordance with the law after giving opportunity to the assessee to enable the assessee distinguish the facts.
17. It is explained that -
(1) The assessee pays cost of sugarcane to farmer members at Ex-factory gate price as decided by the Sugarcane minimum price by the Government of India, Ministry of Consumer Affairs, Food and Public Distribution Department;
(2) In the beginning of the season of cutting, harvesting and transporting of sugarcane the assessee society passes a Resolution in the meeting of Board of Directors for payment of advance for harvesting and transporting and to decide the first installment followed by subsequent Resolution for payment of second installment of the price of sugarcane and lastly to decide the sugarcane price to be paid to the farmer members;
(3) when it is resolved to pay advance of Rs.195/- per M.T. 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 first installment is also paid which is debited in Sabasad Sherdi Advance No. I account and the amount is paid farmers in cash by crediting the cash account;
(4) Similarly, the second installment of Rs.325/- is debited in Sabasad Sherdi Advance No. II and credited in cash account by making payment to the farmer members;
(5) The farmer members' Zone Samiti receives the funds from the assessee society as and when it required out of the advance amount lying credited in Sugarcane Management Account from the assessee society. At that point of time the sugar cane management account is debited by making payments to Zone Samiti to make payments for cutting, harvesting and transporting on behalf of the farmer members;
(6) At the end of the season the balance in the sugarcane management account transferred to Sugarcane Advance Account No. II by debiting or crediting the same and the Sugarcane Management Account is squared up;
(7) The balances in both the advance account are thereafter transferred to Sugarcane purchase account;
(8) The assessee society also maintains the individual farmer account by debiting and crediting individual farmer account also on the basis of advance payments made in three installments;
(9) The above details of each installment paid for purchase of Sugarcane were posted in respective accounts in the audited books of accounts of assessee society. In case of 'SAYAN' except minor changes in nomenclature of accounts the same system is followed;
(10) Thus, in the books of assessee society only the cost of purchase of sugarcane is debited and the society facilitates the farmer members by maintaining Sugarcane Management Account (Samiti Account);
(11) that the Sugar factory had paid only the purchase price for the sugarcane purchased at statutory minimum price fixed by the Government from year to year and consequently the provisions of section 194C would not apply. Reliance is placed on the decision of Bombay High Court in BDA Ltd. 281 ITR 99(Bom) and the four decisions of the Tribunal in the cases of Balsara Home Products Ltd 94 TTJ 970, Wadilal Dairy International Ltd. 81 ITD 238 (Pune), Cello Plastic Products in ITA No. 1087/Ahd/2005 dated 27-7-2005; Baroda Dist. Co-op. Milk Producers Union Ltd in ITA No. 1445/Ahd/2006 dated 8-9-2006.
18. It is further submitted that payment for harvesting and transportation were expenses of agriculture nature, and therefore, no tax was deductible at source. The assessee is neither a payee nor the payer, and therefore, provisions of section 194C do not apply. Further that these payments were less than Rs.20,000/-, if considered transaction-wise, though it would be more than Rs.20,000/-, if they taken together and consequently not hit by the provisions of section 194C even otherwise.
19. The learned CIT-DR Shri N.S. Dayam, relied on the finding of the Tribunal order aforesaid to support the order of the Assessing Officer, and brought to our notice certain more facts in the case of the assessee, namely;
i) the so called Zone Samiti is nothing but. the outfit/branch of the assessee society. It may have been created for making cash payments mainly exceeding Rs.20,000/- just to escape from the provisions of sec. 40A(3) of the Act and also for the cash payments without deducting tax at source;
(ii) the so called Zone Samiti is funded by the assessee society. The amount of Rs.l95/~ is retained by the assessee society from the first installment of the sugarcane purchase price paid to the member farmers. The amount so deducted by the assessee society is given to the Zone Samiti as and when required by the so called Zone Samiti for cash payments which the assessee society cannot make in cash due to certain restrictions of the provisions of the Act or may be certain other reasons. Reference was made to the details of amount deducted from the first installment payable, refundable amount and expenses amount in the books of the assessee; Voucher No. 1815 dated 03.02.2004 for the amount deducted from the first instalment payable and retained for payment to mukadams and transporters and for the amount actually paid for the first instalment;
iii) certain examples showing as to how the so called Zone Samiti is used as a outfit/conduit by the assessee society inviting our attention to some of the documents available, in the shape of certain bills in the name of Zone Samiti Kamrej Sugar Factory; delivery of goods to Zone Samiti Kamrej Sugar Factory; Verification by Chief Accountant and others of the assessee society; bills for sarees, pant pieces and chhint apparently not required by the Khedut Zone Samiti; cash payment, adjustment entries, receipt, of cash payment of Rs. 4,52,200/- total of three bills the receipt of which is in the name of Kamrej Sugar Factory Khedut Sabhasad Zone Samiti.
iv) supply of montex brand HDPE tents, finding no explanation as to how these items are required by a samiti of poor villagers if assessee's stand of member samiti is stated to be true; receipt issued by Jashree Ambica Handloom for Rs. 2,19,118 with a submission as to how the shirting for male and boys were required by a samiti of poor villagers; weighment of jawar by assessee society, bills in the name of Kamrej Vighag Sugar Factory Sabhasad Zone Samiti with a query as to why Jawar is required by the Khedut Zone Samiti; the letter of hospital in the name of Zone Samiti; statement of bill in the name of Kamrej Sugar; bills of hospital in the name of assessee society;
(v) the difference in the name of the Samiti by submitting that though the so called Zone Samiti is stated to be constituted by the member farmers and known as Khedut Zone Samiti but in various documents, it is having so many names, such as Sabhasad Sherdi Vyavstha Samiti, Navi Pardi, Zone Samiti Kamrej Sugar Factory, Navi Pardi or Kamrej Sugar Factory Zone Samiti, Navi Pardi; Zone Samiti; Kamrej Sugar Factory Khedut Sabhasad Zone Samiti; Kamrej Vibhag Sahakari Khand Udyog Mandli Ltd. (Zone Samiti) or Zone Samiti; Khedut Zone Samiti,
(v) the english version of statements of certain persons related to the assessee were referred to as of :
i) Shri Gopalbhai C. Patel, Member, Farmer Zone Samiti, Statement dated 25,02.04;
ii) Navinbhai N. Patel, President of Assessee Society, Statement dated 10.03.04;
iii) Kantibhai V. Patel, Managing Director of Assessee Society, Statement dated 10.03.04;
iv) P.N. Dobaria, Chief Accountant of Assessee Society, Statement dated 10.03.04;
v) Dharamsibhai P. Savalia, Member Farmer of Assessee Society, Self statement dated 12.03.03;
vi) Kiranbhai S. Patel, Accounts Clerk of assessee Society, Statement dated 12.03.03; and
vi) the absence of any provision for constituting such society in the bye-laws of the assessee society to deduct Rs. 195/-or Rs. 190/- from the amount payable to the member farmers. The members are bound by the bye-laws of the society and being comparatively illiterate/semi-literate, they cannot dare to constitute a Zone Samiti on their own against the bye-laws of the society.
20. He submitted that the finding of the Assessing Officer was confirmed by the CIT(A) and that similar issues were decided by the Division Bench of the Tribunal in the case of Shri Chalthan Vibhag Khand Udyog Sahakari Mandli Ltd. Considering the facts of the case, there is no reason to divert from the finding of the Division Bench given in the above referred case. Even otherwise, the various substantial questions of law arisen from this case were rejected by the Gujarat High Court and thus finding of the Tribunal to that extent has been approved by the High Court. Those issues cannot be re-decided by the Special Bench. As regards the substantial question admitted by the High Court, the issue is sub-judice and the Special Bench can decide the issue afresh only if there is change in facts of the case which is not the case here.
21. We have heard the parties and considered the rival submissions. The relevant facts are that the assessees are Co-operative Societies registered under the provisions of Gujarat Co-Operative Societies Act, 1961. They are engaged in the production of sugar having sugar mills at Kamrej and Sayan respectively in Surat District. The main raw material is the sugarcane, which it has to buy from the cane growers at the rates fixed by the Government of India for every season. This year season rates were fixed Ex-factory vide Notification dated 9th January, 2003 at Rs.94.92 per Qtl. FOB. (Rs.1298 per MT). for Kamrej and at Rs.92,46 per Qtl. for Sayan.
22. The assessees are governed by Byelaws framed under the Cooperative Societies Act, 1961. Clause 6(2) of its Byelaws provides -
(i) A farmer is eligible to be a member of the assessee society if he holds land as owner within the area of operation of the assessee society;
(ii) A farmer is eligible to be a member if he is a member of joint family who holds land and growing sugarcane;
(iii) A farmer should be prepared to enter into a contract with the assessee society to cultivate, grow and bring the sugarcane at the place of the assessee society.
Thus a member farmer has to supply the sugarcane at the factory gate of the assessee society.
23. Subject to the fixation of the price by the Board of Directors, the assessee agreed in advance with the cane growers for the terms and conditions for the supply and passed resolutions in every season fixing the payments to be made in order to cover the expenditure for harvesting, cutting and transporting the sugarcane (Rs.195/190). This was with twin objects -
(1) to fix the cane growers to supply the cane to the assessee and
(2) to ensure the regular supply by helping and financing them to harvest, cut and transport the sugarcane to assessee's factory gate.
24. The payments for the cost of purchases were made in installments looking to the needs of the cane growers who are its members. By another resolution dated 8/10/2002 the first payment was made to the cane growers to enable them to meet the expenditure of own harvesting, cutting and transporting (Rs.195/190 per MT) to enable them to bring the sugarcane to the factory gate as envisaged in the rules and the price fixation. By the same resolution an installment of Rs.300 per MT to the cane growers at that time itself but not contemplated to have any relation to any expenditure to be incurred by the cane growers. By yet another resolution dated 29th March, 2003 the third payment of Rs.325/200 again was made to the cane growers sometime after 15th May 2003. All these payments were before the Govt. notified the cane price. The final payment of Rs.868 per MT for the supply between October 2002 to January 2003, Rs,868 for February, 2003, Rs.881 for March, 2003 and Rs.900 for April, 2003 was- settled keeping in view the fixation of the price by the Central Government. Similar was the position of the other year in case of Sayan and for both the years of Kamrej.
25. An these payments are debited, at the first instance, to the advance accounts of the cane growers and adjusted ultimately towards the cost of the cane on the fixation of the price by the Central Government and the Board of Directors of the assessee-society. Therefore, as far as the society is concerned, it had paid these amounts as the cost of sugarcane and not for its own harvesting, cutting and transporting the sugarcane though it was utilized by the cane growers for or on their behalf for such purposes.
26. In order to ensure that the sugarcane reaches the factory site, the farmers Zone Samiti works through its elected body from the member farmers who happened to be members of the assessee society as well. A governing body is formed of farmer members to manage the working of the Zone Samiti to collect the advance payments received by farmer members for harvesting, cultivating and transporting purposes and to look after these activities.
27. It may be noticed that a part of the amount is either retained initially and/or given to the Samiti formed by the cane growers for spending the same for harvesting, cutting and transporting the sugarcane to the assessee's factory gate, but the fact remains that Samiti was by, for and on behalf of the cane growers. At the end of every season the Zone Samiti prepares the accounts and finds out the deficit or surplus which is either to be recovered from the farmer members or to be repaid to them. Their accounts are audited at the end of each season. Samiti is to apply that money for their requirements by taking and routing the money through the assessee. That, however, does not mean that it was a payment made by the assessee to which provisions of section 194C could be applicable or that the Samiti was a branch or out-office of the assessee society.
28. Section 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-section (1) of section 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 installments, were debited to the cane growers advance account and adjusted ultimately to as cost of the cane;
(3) The assessee had given and Samitees have taken the amount from the assessee for and on behalf of the cane growers and on their behalf;
(4) Samitees have also paid that amount to the labourers on account of cane growers;
(5) Surplus and deficit is ultimately adjusted in the cane growers' account through the Samitees who have paid and received that amount from the assessee-company.
29. These facts, in our opinion, 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 grower 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 Samitees.
30. In BDA Ltd. v. Income-tax Officer (TDS) (supra), it is observed by the Bombay High Court that Section 194C of the Act was brought into existence by the Finance Act, 1972, and with effect from April 1, 1972. Circular dated May 29, 1972 (see [1972] 84 ITR (St.) 99), was issued, inter alia, stating that the provisions of section 194C would apply only in relation to "work contracts", and labour contracts and will not cover contracts for sale of goods. By subsequent circular dated September 26, 1972 (see [1972] 86 ITR (St.) 30), it was clarified that, the said section will not apply to transport contracts. Explanation III was inserted by the Finance Act, 1995, and with effect from July 1, 1995, so as to include in the expression "work" carrying of goods, and passengers by any mode of transport other than by railways. Based on the decision of the Supreme Court in the case of Associated Cement Co. Ltd. [1993] 201 ITR 435, three circulars, referred to hereinabove, and relied upon by the Works [2001] 248 ITR 216 (SC), it was made clear that, the earlier decision in Associated Cement Co. Ltd.'s case [1993] 201 ITR 435 (SC) was concerned with a work carried out through a contractor under a contract which further included obtaining supply of labour under a contract with a contractor for carrying out its work which would have fallen outside "work" but for its specific inclusion in the sub-section, and from July 1, 1995, section 194C became applicable to transport contracts, and section 194C was not applicable to the transport contracts before the insertion of Explanation III. The court ultimately held:
"It is not disputed that, M/s. Mudranika is an independent establishment engaged in the business of supplying printed packaging material to various establishments, and it is not a captive unit of the assessee. The assessee had issued a purchase order in favour of M/s. Mudranika for supply of printed labels as per the specifications provided by it, and the raw materials required for the same were not supplied by the assessee. M/s. Mudranika has been supplying such printed labels to other establishments as per their respective specifications. The printing work was not being carried out in the premises of the assessee. This supply of printed labels cannot be compared and equated with the supply of printed question papers to universities and educational institutions. M/s. Mudranika would not print such labels with the specifications of the assessee beyond the quantity specified in the purchase order, and therefore, it was wrong on the part of the Tribunal to hold that, the labels printed by M/s. Mudranika to supply to the assessee could not be sold to any other establishments in the market. This finding regarding no marketability is based on a fallacious premise that, M/s. Mudranika was printing an unlimited number of labels. When the printing work was being carried in the premises of M/s. Mudranika, though as per the specifications of the assessee, the supply was limited to the quantity specified in the purchase order and it would not do such printing beyond the numbers specified in the same. There is nothing on record to show that, all other ancillary costs like the labels, ink, papers, screen-printing, screens, etc, were being supplied by the assessee to M/s. Mudranika. In the facts of this case, the supply of printed labels by M/s. Mudranika to the assessee was a "contract of sale" and it could not be termed as a "works contract". The Tribunal has rightly held in the case of Wadilal Dairy International Limited [2002] 81 ITD 238 (Pune) that, the supply of printed packing labels amounted to a "sale contract" and not a "works contract", and the same ratio is applicable in the instant case, as well. The single Bench of the Tribunal thus fell in gross error in holding that, the subject transaction was a "works contract", and therefore TDS was required to be deducted by the assessee under section 194C of the Act."
31. Similarly in CIT vs. Dabur India Ltd. [2006] 283 ITR 197, Delhi High Court noted that the supply of corrugated boxes were to be made with some labels printed on the same; that the question that was raised before the Tribunal, therefore, was whether the supply of the such boxes was a contract for sale of chattel and as such outside the purview of section 194C of the Income-tax Act, 1961; that the Tribunal relying upon the decision of the Supreme Court in Associated Hotels of India Ltd.'s case [1972] 29 STC 474 and the order passed by the Pune Bench of the Tribunal in Wadilal Dairy [2001] 118 Taxman-Mag 141, held that the dominant object underlying the contract in the instant case was the supply of goods in the form of corrugated boxes; that it has accordingly, set aside the order passed by the Commissioner of Income-tax (Appeals) and the consequent demand raised against the assessee under sections 201(1) and 201(1A); that Ms. Bansal counsel for the Revenue finding fault with the view taken by the Tribunal and relying upon the decision of the Supreme Court in the case of State of Tamil Nadu v. Anandam Viswanathan [1989] 73 STC 1, submitted that the very fact that some labour was added which requires skill was sufficient to take the contract out from the category of a simple contract for supply of goods. It held:
"We have carefully gone through the decision relied upon by counsel but find it difficult to accept the submission made by her. In the case of Anan-dam Viswanathan [1989] 73 STC 1 (SC) the work entrusted to the assessee was printing of question papers for universities. The question was whether such printing work could be treated to be a simple case of contract for sale of goods. Answering the question in the negative, the court held that printing of question papers at the behest of a university or educational institution is a delicate and confidential type of work and the price paid for supplying such printed question papers or printed matter entails primarily the confidence and secondly the skill and to a very small extent the material. Hence, such work undertaken by the concerned agency could not be categorised as entailing sale of goods. It was instead a contract for works done. There is no similarity between the facts with which the Supreme Court was dealing in Viswanathan's case [1989] 73 STC 1 (SC) and those in the present case. It is nobody's case before us that the printing of the labels on the corrugated boxes required any special skill or involve any confidence or secrecy. In the circumstances, the Tribunal was justified in holding that the predominant object underlying the contract was one for sale of goods which took the contract out of the purview of section 194C of the Act. Finding no substantial question of law arises for consideration the appeal was dismissed."
32. Recently Punjab and Haryana High court in C.I.T. vs. Dy. Chief Accounts Officer, Markfed 5 DTR (P and H) 326 following these two decisions also took the same view and held in paragraph 5 and 6 of its order as under:
"5. We have considered the submissions made by the learned counsel for the Revenue. There is no dispute that the main purpose of the assessee to buy packing material is to obtain goods for the purpose of packing of its finished products. The factum of such packing material carrying some printed work can only be regarded as the work executed by the supplier incidental to the sale to the assessee. This fact of some printing being done as a part of supply is of no consequence to the contract being essential of a sale of chattel. The predominant object underlying the contracts was sale/purchase of goods and only intention of the respondent was to buy packing materials. Admittedly, the raw material for the manufacturing of such packing material was not supplied by the respondent. Thus, it was a case of sale and not a contract for carrying out any work. In the case of CIT vs. Dabur India Ltd. (2005) 198 CTR (Del) 375 : (2006) 283 ITR 197 (Del), the Hon'ble Delhi High Court held that printing labels on corrugated boxes did not require any special skill or involve any confidence or secrecy and the Tribunal was justified in holding that the predominant object underlying the contract was one for sale of goods which took the contract out of the purview of s. 194C of the IT Act 1961. In BDA Ltd. vs. ITO (2006) 201 CTR (Bom) 413 : (2006) 281 ITR 99 (Bom), (the Hon'ble Bombay High Court) held that if a manufacturer purchases material on his own and manufactures a product as per the requirement of a specific customer, it is a case of sale and not a contract for carrying out any work. The fact that the goods manufactured were according to the requirement of the customer does not mean or imply that any work was carried out on behalf of that customer.
6. We are in respectful agreement of the above cited judgments and hold that the purchase of particular printed packing material by the respondent was a contract for sale and outside the purview of s. 194C of the Act. No substantial question of law as proposed arises for determination of the Court. Thus, we find no infirmity in the order of the Tribunal, the appeal is without any merit and the same is dismissed."
33. Similar position is with regard to four decisions of the Tribunal in cases of Balsara Home Products Ltd. (supra), Vadilal Dairy International Ltd. (supra), Cello Plastic Products (supra); Baroda Dist. Co-op. Milk Producers Union Ltd. (supra). As the assessee's contract was to purchase sugarcane which is the raw material for produce of sugar and it was the responsibility of the cane growers as per the Government Order and the Board's resolution of the Society and also the agreements with the assessee and the society's rules and that it was the cane grower on whose behalf and who actually made the payment for harvesting, cutting and transporting the cane to the gate of the assessee's factory, though through the medium of the assessee and the Samiti, the provisions of section 194C would not be applicable to require the assessee to deduct tax.
34. It may be stated that a survey action was taken by the Income-tax Department at the assessee factory premises on 25.02.2004 wherein an alleged breach of not deducting the tax at source from the payments made to Mukadams and transporters bringing the sugarcane to the factory gate on behalf of farmers, was suspected. The Assessing Officer during the course of survey recorded statements of various persons under section 131 of the Act of various persons including the depositions of respective office bearers of both the Mills stating all these facts including the fact that the said Samiti was managing the work of cutting and transportation since more than 10 to 15 years respectively. The assessee in these cases before the Special Bench distinguished the case of Chelthan by referring to the statements of various officers of the assessee of the Samiti of the two factories, farmers, statements of accounts of assessees as well as the Samiti, entries in the books of the assessee, notifications, resolutions, vouchers and other documents. We have perused the statements various persons recorded u/s 131 by the Assessing Officer at the time of survey and in assessment proceedings.
35. With regard to Kamrej, statements were recorded on 12.03.2003. These are discussed hereunder:
i. Shri Dharamshibhai Parshottambhai Savalia, a member of the assessee society stated that in the current year he planted Sugarcane Seed in 4 Acres of land; that he has supplied 10-11 tones of Sugarcane to the Sugar factory; that the arrangement of truck was made by the sugar factory; that the freight amount of this truck was paid by the sugar factory to the truck owner; that out of total three payments, only one payment was received by him @ Rs.200, and balance two payments were to be received at a later stage, after completion of season.
ii. Shri Kiranbhai Shantilal Patel, an Accounts Clerk of assessee society handling payment in the Sugar factory of sugarcane seeds, cutting labourers and for the trucks, he stated that payment for cutting of the sugarcane was made to the administrator of labourers or main person of the group of labourers and freight charges are being paid to the concerned owners of the trucks; that payment were being made by him in his capacity as a Clerk of the Sugar factory; that he did not have any relationship with the management of the Sugarcane Management. As to the receipt of an advance amount of Rs. 1,00,000/- he stated that said monies were given to him by Shri Kamlesh M. Parmar (Cashier) and he signed the said voucher upon the suggestion of my Chief Accountant Shri P.N Dobaria and that amount was paid by him to the representatives of the labourers; that he did not maintain any separate account for the aforesaid transactions except in the Books of Account of assessee Society.
iii. Shri Gopalbhai Chhaganbhai Patel, a member of Zone Committee in his statement recorded on 25.02.2004 stated that his appointment as a member has been made in the meeting of the farmer members; that he was member for last one year; that they got sugarcane of the farmers, which was cut from their farms and filled up in vehicles and sent to the door of the factory; that the meeting of the farmer members is generally kept in the month of June-July and he was selected as a member in such meeting, on a proposal as a member by a farmer member, supported by another farmer member but no written evidence was kept in this regard; that there was no constitution pertaining to the method as to how a member of the farmer zone committee should be appointed and Zone Committee was also not having any such constitution; that no resolution book or minute book was written or maintained for the decisions taken by the zone committee; that meetings were held from time to time for making proceedings and for taking decisions accordingly; that they have not obtained any recognition of any nature whatsoever from any institution or government; that he did not have information as to when the Farmer Zone Committee came into existence, that daily Cash Book, Ledger, income vouchers, expenditure vouchers were maintained not on financial year wise but on season basis by the farmer zone committee and that these accounts were got audited regularly; that he did not know as to from which year the books of accounts are maintained, because he was its member for last one year only; that the farmer zone committee did not have any intention of profit in the aforesaid work and the work was being done on the basis of "No profit-No loss"; that returns of income tax of the farmer zone committee are not being filed. (Reply to the question, why they were not filing was left to be given by Income Tax Consultant.); that no employee was appointed in farmer zone committee and they were taking honorary services of the employees of the society; that the farmer zone committee takes honorary services of 3 clerks and 1 peon, that as their salaries were being paid by Society he did not know, how much of salary was paid to them; that the amount of salary is not debited in the books of account of the farmer zone committee; that for the work of cutting and transportation, services of about 125 Sleep Boys [Cane Quality Boys] and approximately 20 Supervisors of Society were taken whose salary was paid by Society and not by the farmer's zone committee; that the source of income of the farmer zone committee was that the sugarcane which is supplied by the farmer members to the Co-operative Sugar Society, for which payment, a separate voucher was prepared @ Rs.195.00 per metric ton under the signature of the farmer and in this manner that amount was credited in the books of accounts of Society and the Farmer Zone Committee used to take the money, in accordance with its needs; that the farmer was only signing the voucher and the sugar factory is directly depositing the said amount in the books of accounts of the zone committee;
iv. Shri Navinbhai Naranbhai Patel, President of Society for the last 6 years in his statement recorded on 12.03.2003, stated that the Co-operative society make no arrangement for cutting and transportation of the sugarcane and as per the terms of the constitution, the farmer member is required to cut the sugarcane himself, such farmer-member is only responsible to send such sugarcane to the society; that for this purpose the Zone Committee was formed by the farmers themselves for 1 year, with five members, one of whom is appointed as a President who makes arrangements for cutting and transportation of sugarcane; that arrangements for cutting of the sugarcane and its transportation arrangements was made by the Zone Committee; that monies are being paid to the society members on the quantum of sugarcane received from them, in the current year, 1st installment of Rs.195 per ton was paid towards cutting and transportation advance, Rs.300 per ton being the 1st installment as the financial conditions of the farmers was very weak and therefore, if the payment was not made in this manner, then the question of obtaining sugarcane by the society would have become difficult; that the amount of Rs.195 per ton was given to the concerned Administrative Clerk under the instruction of the President of the Zone Committee; that signature of the farmer member is obtained on the cutting/ transportation advance voucher; that funds so received were given to the member of the Zone Committee under the instructions of the President of the Zone Committee; that Zone Committee is not registered anywhere and this is one kind of committee formed by the members themselves, as Honorary Members, and the period is limited for 1 year and therefore the question of getting it registered did not arise; that Zone Committee was being formed since last 10 years and the same was formed by the different members right from the first year of the factory; that as to 'What is maintained in the Account Books of the Zone Committee, and where they are kept; he expressed his ignorance; that there is no employee in the Zone Committee and honorary services is provided by the employees of the society for they were not being paid any separate salary; that for the purpose of maintaining quality of the sugarcane, 125 Quality Boys (Supervisors) are working, whose salaries and allowances were paid by Sugar Co-operative itself due to this sugarcane of high quality was achieved; that since the payment of cutting and transportation is made by the ZONE Committee he was not aware as to how and when the payment is made; that the Zone Committee gets estimate of the total expenditure and gives estimate for cutting and transportation expenditure, the same is preliminary, its entry is made in the account of a member after completion of the season, therefore this amount is called an advance amount that after arrival of sugarcane in the factory payment of Rs.300 per ton is made to the member within a period of 5 to 30 days time, whereas the amount of Rs.195 per ton is being paid to the Zone Committee, whenever needed by the Zone Committee; that 2 vouchers were made one of Rs.300 per ton paid to the member, and the other of Rs.195 per ton paid to the Zone Committee for cutting and transportation, therefore separate vouchers were made for one member; that as the amount so paid is a part of the total amount to be paid to the member for the sugarcane supplied by the member and Rs.195 was being paid by the Zone Committee, therefore signature of the member was obtained as his consent; that the amount was deducted under the instructions of a member itself, the amount was to be given to the Zone Committee under his instructions transpires that society had no intention of creating any false evidence; as to Voucher No: 2377 of the 1st installment, as well as the voucher for cutting and transportation expenditure and one bearing denomination of notes and the other without such details of the payment for payment, he stated that in accordance with the instructions of a member, the amount of Rs.195 per ton is to be paid to the Zone Committee and therefore details of amount paid is not shown; that as the responsibility of cutting and transportation of sugarcane is of the member as per by-laws of the society, it was with a view that supply would be received for continuous 24 hours and administration is made in a proper manner; that the Zone Committee has been formed out of the crowd of the labourers, one efficient person is retained by the society and with whose help payment was made to the labourers by the Zone Committee; that the sugar factory is paying about Rs.6 to 7 crores by way of tax to the government, they would not even think about stealing such small amount of tax; that in last he stated that effort had been made by Institution with the view that the farmers should get best compensation for the crops grown by them, the Institution is being administered in a frugal manner in the interest of its members, total effort have been made by the Institution to see that, maximum rate is obtained by the members for the sugarcane supplied by them; that, it was consisting of boundary farmer of the financially weaker section of tribal caste.
v. Shri Kantibhai Virendrabhai Patel, Managing Director of Society in his statement recorded on 10.03.2004 stated that the farmer is responsible to cut his sugarcane and make arrangements for sending the same to the sugar factory; that the members do not make arrangements for cutting and transportation of their sugarcane in their individual capacity and this work is being done by a Committee formed by them; that out of the total farmers, 4-5 farmers are appointed for the purpose of making arrangements for cutting and transportation; that in accordance with the constitution of the institution, it is the responsibility of a farmer to send the sugarcane up to the factory door; that for every season, the farmers select certain farmers amongst them and form a Zone Committee, which is functioning in an independent manner; that such kind of special work is not the responsibility of the sugar factory employees, but considering the bulkness of work, some of the employees are extending their help after their working hours, in accordance with the request made by the Zone Committee, (our employees Shri Rajubhai T.Patel and Shri Kiranbhai Patel have extended help at the needy hour), but naturally, the salary is being paid by the sugar factory; that Committee is not a registered one, it does not have any professional background; that the payment of sugarcane received from the farmer members is made in three installments and in April/May 2003, 1st Installment of Rs.490 per ton, 2nd Installment of Rs.250 per ton, and the last installment fixed by the Board in proportion to its produce, accordingly totalling Rs.925 per ton is paid to the farmer members; that in the aforesaid payment an amount of Rs.195 per ton is paid as an advance towards cutting and transportation expenditure which is paid to the Zone Committee in proportion to the quantum of sugarcane received from the farmer members; that this payment is made in form of part payment against the total amount to be paid against the raw material i.e sugarcane which is debited to purchase account [towards purchase of sugarcane] and thereafter this amount is being paid to the Zone Committee; that the aforesaid amount is paid to the Zone Committee under the instructions of and consent of the farmers sending their sugarcane; that Zone Committee get estimate of the total expenditure for the particular season for cutting and transportation; that entry is debited to the account of a member only after completion of the season and for this purpose this amount is called advance amount; that the amount of Rs.195 per ton is given to the Zone Committee, after receiving of the sugarcane in the factory, as and when needed by the Zone Committee, whereas the member is paid Rs.300 per ton, within 5 to 30 days; that the voucher for Rs.195 per ton is prepared separately because it was paid in accordance with the necessity of the Zone Committee, whereas the amount of Rs.300 per ton is paid to the member towards the cost sugarcane supplied by him, therefore two vouchers are prepared; that since the payment of Rs.195 was a part of the amount payable for the sugarcane supplied by the member, therefore, his consent in form of his signature was obtained and payment made to the Zone Committee; that Zone Committee is not part of the sugar factory; that his institution was paying taxes to the government in crores of rupees, therefore they do not have any intention to evade this small amount of tax; that in accordance with their information, the payment which is Rs.20,000 or more was made by cheque/draft only and not in cash. The cash payment of the sugarcane [agricultural produce] can be made in more amount as per legal provisions.
vi. Shri Popatbhai Nanjibhai Dobaria, Chief Accountant of the assessee Society in his statement recorded on 10.03.2004 stated that the final price of the sugarcane is fixed after completion of the year and season generally during the month of September / October by the Managing Committee, that all the income and expenditure, financial transactions and factual position of the institution is placed in the meeting of the Managing Committee, which fixes the final price of the sugarcane that the first installment of the sugarcane received in the factory is made within 30 days from the date of its receipt, the 2nd installment is paid after closing of the crushing season as fixed by the Managing Committee and the 3rd installment is paid after completion of sugarcane season, i.e during the month of September; that during the year 2002-2003 Season 1st installment was of Rs. 300 + 190 = Rs,490 per ton; the 2nd was of Rs.250 per ton and the 3rd installment was of Rs.187 per ton all aggregating to Rs.927 per ton paid for factory gate delivery. He then produced voucher of the 1st installment of Rs.300 paid to one of the cane grower that on 19.02.2004 and the amount of Rs.195 per metric ton paid as per demand of the member or made with his consent, as per need of the Committee of the member; that it was with consent and instructions of the farmer member towards installment of sugarcane, after debiting the account of the farmer member and paid towards cutting and transportation advance; that it was done with the view that the sugarcane reached the factory in a regular manner in accordance with their crushing, which arrangement was made by farmer's Managing Committee formed by the farmer members; that an entry has been made in the Cash Book on 19.02.2004 for Rs.300 per MT of sugarcane, being the payment of the first installment, whereas advance voucher has been prepared for Rs.195 per MT and signature thereon has been obtained from the farmer member; that the amount of Rs.195 per MT has been fixed by the farmer society with the consent of the farmer members towards cutting and transportation advance; that signature of the farmer member is obtained thereon and after that the same was given to the Sugarcane Managing Committee as and when needed by it; that the Farmer's Managing Committee maintains their books of accounts separately; that whenever there was need in the work of Farmer Managing Committee, help is extended by the employees of the Sugar factory with a feeling of co-operation; that when the payment of 1st installment is made to a farmer member in cash, at that time denomination is indicated on the voucher, whereas in case of cutting and transportation voucher denomination is not being written, because, the farmer managing committee withdrawing this amount as and when needed by it; that at the time of advance payment of 1st installment, advance voucher for cutting and transportation is prepared and kept aside with the signature of the farmer member obtained thereon and therefore denomination of cash is not written on the cutting and transportation voucher; that an amount of Rs,9,19,02,670 was paid during the financial year of 2002-2003 towards cutting and transportation expenses.
36. Statements relating to Sayan Factory recorded u/s. 131 of the Income Tax Act during the course of survey proceedings carried u/s. 133 A of the I.T. Act, 1961 on 27.04.2004, these are:
i) Shri. Mansinh Lakhabhai Rathod, Managing Director of Sayam Factory stated that sugarcane cutting and bringing the same to the factory gate is by a committee formed by the farmers before commencement of season by selecting 4 or 5 members amongst themselves; that after the formation of Samiti its Chairman etc. are looking after the work; that the constitution of Zone Samiti is changing every year, the Chairman, Secretary and directors of the factory are giving honourary service to this Samiti, that there is no any written information about the work of Samit, that this samiti had not taken approval from state or central government; that the sugarcane payment to the members are given in first two instalments as advance and at the year ending after fixation of final cane price the last instalment is given to the members, the first instalment was of Rs.490 (Rs.190 + 300) per MT, second instalment of Rs.200 per MT and the third and final instalment of Rs.146 per MT were paid all aggregating to Rs.836 per MT; that from the first instalment of above payment Rs.190 per MT was given as an advance on account of cutting and transportation for which a Voucher is prepared and that was withdrawn by them as per their requirement by Khedut Zone Samiti on behalf of farmers; that it is true that the voucher prepared for Rs.190 per MT is not paid in cash to the members, but paid on behalf of Samiti as per the requirement of Zone-Samiti formed by the members as and when required; that because this amount of Rs.190 was paid before fixation of final cane price, after 25 days of receiving sugarcane at the factory, it is known as advance payment; that the sugar factory has not formed this Khedut Zone Samiti, it was formed by farmer members themselves; that Sugarcane cutting and transportation work is not done by individual members as this work is done through their Khedut Zone Samiti which is not a part of the sugar factory.
(ii) Shri Ashwinbhai Bhaidas Patel, Vice President, stated that the farmer member is cutting sugarcane himself and bringing to the factory gate through Zone Samiti by trucks and bullock carts; that Zone Samiti is formed by farmer members which is managed by the Chairman of Zone Samiti; that the work of Sugarcane cutting and transportation is done by Zone-Samiti; that there is no written evidence regarding the formation of Zone Samiti, that there is no record that the Zone Samiti is doing the work of sugarcane transportation and cutting, that Sugarcane is brought to the factory gate by farmers through Zone Samiti, that there is no relation between Zone Samiti and the assessee-factory; that when society is paying first installment of sugarcane to the farmers, Rs.190 per MT is deducted and the remaining amount of Rs.300 paid to farmers, that the amount of Rs.190 recovered on account of transportation and sugarcane cutting from the farmers is credited in the books of account of Sayan sugar factory and paid by preparing voucher to the Zone Samiti as per requirement and on demand; that the formation of Zone Samiti is not with the approval by central or state government or any institutions and the same is not registered Society; that he did not know since when this Zone Samity has been formed, nor whether earlier it was formed or not; that he did not know as to who is the person responsible for sugarcane cutting and transportation work in the Zone Samiti because Chairman of the Zone Samiti. is managing this work; that the voucher for transportation and cutting of sugarcane is prepared @ Rs.190 per MT, the signature of the farmer is obtained on such vouchers, and its payment is made to the Zone Samiti and not to the farmers; that no employees are appointed in the farmer's Zone Samiti, and honourary service is provided by the employees of the Factory and their salary is paid by Zone Samiti, which is debited in the books of Zone Samiti (the evidences for payment were enclosed); that in the work of cutting and transportation about 173 Slip boys and 22 Zone Supervisors are helping and their salary are paid by the assessee itself; that about after 30 days of receiving sugarcane (from members) Rs.300 per MT is paid to the members in cash; that on getting signature, this amount of Rs.190 is not given to farmers, but to Zone Samiti as and when required by them mentioning date and amount given to them, (A zerox account voucher copy of Shri Chhaganbhai Karshanbhai Patel of village Mindhi, Dist. Surat was produced for payment on 26.02.2004 @ Rs. 300 per MT paid for 38.920 MT, aggregating to Rs.11,676 fully given in cash and voucher bearing the signature of the member @ Rs.190 per MT amounting to Rs.7,394 showing that on the both slip No. 3549 is written, but the date is not mentioned. The reason for not mentioning date on the voucher of Rs.190 stated was that whenever money required by the Zone Samiti, it was paid to the samati after putting stamp of date, the payment to mukadams and transportations were made by the Zone Samiti from the amount received in such way.
iii) Shri Pravinsinh Umedsinh Kunvardia, Chief Accountant of the factory stated that the farmers themselves were cutting sugarcane and transporting through Zone Samiti by truck and bullock carts at the factory gate; that Khedut Zone Samiti is formed by farmer members and it was managed by it's Chairman; that there is no any written evidence regarding the formation of Khedut Zone Samiti; that there is no relation with Zone Samiti and the assessee; that at the time of first instalment of sugarcane payment Rs.190 per MT is deducted and remaining amount of Rs.300 is paid to farmers, and Rs.190 per MT is for cutting and transportation and this amount of Rs.190 is credited to the books of the factory and, given as per the requirement of Zone Samiti; that the formation of Zone Samiti is not approved or registered by any state or central government or other institutions; that Zone Samiti is created by farmer members, and as every year its Chairman and Directors are changing (he showed ignorance about the details of formation of Zone Samiti); that employees are not appointed in Khedut Zone Samiti, and the employees of factory were providing honourary service; that the honourary service of five clerks and one peon was taken for Khedut Zone Samiti and their salary is given by the factory which is debited to the books of Zone Samiti; that in cutting and transportation, the factory is helping by providing about 170 cane control boys and 25 supervisors and their salary and allowances are paid by the factory; that the voucher slip No. 3549 is of a farmer member Shri Chhaganbhai Karshanbhai Patel, village Mindhi in which the farmer member has given advance payment of Rs.300 per MT as first instalment on 26.02.2004 and the another voucher is of the same farmer member on account of sugarcane cutting and transportation @ Rs.190 per MT on which no date is mentioned and the signature of farmer member was taken, and the amount was paid whenever the Zone Samiti require money by affixing on that particular date's stamp; that in the voucher of first instalment advance payment Rs. 300 per MT details of notes (denomination) are shown, because case payment has been made to farmer member but in the other voucher of Rs.190 per MT was for the sugarcane cutting and transportation payment, the release of which payment has been done as per the Society's accounting method; that this payment is for the sugarcane of farmer member, and therefore, the question of TDS deduction did not arise; (the details of expenditure for F.Y. 2002-03 and 2003-04 sugarcane cutting and transportation were given.).
iv) Shri. Takhatsinh Nathusinh Rathod, Vice President of Zone Samiti in his statement recorded on 27.04.2004 stated that in the meeting of farmer members they are selecting President and Vice President and like this, since last two years he was the Vice President of this Zone Samiti; that Zone Samiti is to make arrangements for cutting and bringing the sugarcane of farmer members from their field to factory gate; that normally the meeting of farmer members are held in the month of July/August and since last two years he was selected as Vice-President, but there is no any written notes in this regards; that his name was proposed through farmer members as Vice President and another farmer members supported this and he was selected as Vice President of Zone Samiti; that there is not any conditions or constitution for the appointment of President and Vice President of Zone Samiti; that for the smooth working of Zone Samiti, meetings are arranged as per the necessity and decisions are taken, though in this regards there is no any written resolution or minutes books; that the Zone Samiti is not approved by Central or State Government or any co-operative institutions, that the Zone Samiti is existing since last 15 years and maintaining petty cash book, ledgers, voucher of income and expenditure, these accounts are not audited; that in the Zone Samiti books of accounts are not maintained as per financial year, but, as being seasonal work it is starting from 1st June and ending on 31st May; that Zone Samiti is maintaining books of accounts from 01st June 2002 to till date i.e, petty cash book, ledgers, voucher of income and expenditure are maintained; that every year the Directors of Zone Samiti is changing, hence he was not aware about earlier years books of accounts; that the Zone Samiti functions on no profit and no loss basis; that an amount of Rs.73 Lacs has been recovered from farmer members and this is the amount which is excess over the expenditure; that Khedut Zone Samiti has not obtained PAN and not paid any income tax; that no employees are appointed in the farmer's Zone Samiti, but they are taking honourary services of five clerks and one peon, and their salary is paid by the factory; that he was not aware about how much salary is paid and that the salary amount is not debited in the books of Khedut Zone Samiti; that in cutting and transportation work they are taking the help of 173 Slip boys and 22 Zone Supervisors of the factory whose salaries have been paid by the factory; that the financial sources of income to Zone Samiti is the first instalment of Rs.190 received on account of sugarcane cutting and transportation for which a separate voucher is made and on this voucher farmer member's signature are taken. Like this it is credited in the books of the factory and as per the requirement of Zone Samiti money is taken; that the said Rs.190 per MT basis voucher is signed and the amount credited in the books of Zone Samiti.
37. On a perusal of these statements we find that, except one farmer and an accounts clerk of Kamraj Factory who were not in knowledge of full facts, every officer of the two factories and the two Samitis almost unanimously have averred that Smiti 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 assesses. The supply of sugarcane at gate of the two factories as per agreements, rules and notifications of the Govt. 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 as in the case of Kamrej. The Samitis are maintaining separate records and they were audited. The assessee society also maintains the individual farmer account by debiting and crediting individual farmer account on the basis of advance payments made in installments. The above details of each installment paid for purchase of Sugarcane were posted in respective accounts in the audited books of accounts of assessee society. In case of 'SAYAN' except minor changes in nomenclature of accounts the same system is followed. Thus, in the books of assessee society only the cost of purchase of sugarcane is debited and the society facilitates the farmer members by maintaining Sugarcane Management Account (Samiti Account).
38. These were very things stated by way of affidavits in the proceedings for assessment in the case which came up before the Division Bench of the Tribunal in the case of Shree Chalthan Vibhag Sahakari Khand Udyog Mandli Ltd., Chalthan (104 TTJ 654) but were not taken into consideration by stating that that the assessee has no right to file any Affidavit of any farmer of its own, unless required by the Assessing Officer or the CIT (Appeals) under rule 10. In other words these were neither called for by any authority nor filed in accordance with the well settled rules for filing the same. In another set of appeals, however, instead of suo moto affidavits, the depositions like in this case were brought on record and seeing the difference, the matter was set aside by the Tribunal for fresh consideration to take appropriate view in the matter. That case is in Shree Mahuva Pradesh Sahakari Khand Udyog Mandli Ltd. and the order is dated 13.04.2007. It, instead of considering the impact of the relevant material itself, left the matter to be considered by the Assessing Officer. In the present case the revenue authorities have considered the material in deciding the issue and therefore we have considered that material in the present appeals and reached a conclusion that position in these cases is different. The statements which are subject matter of consideration in these cases were recorded by the Assessing Officer himself by summoning the parties as witnesses, as against the suo moto filing of the affidavits which were found be of no evidentiary value by the Division Bench in Shree Chalthan Vibhag Sahakari Khand Udyog Mandli Ltd., case (supra).
39. Be that as it may, we may state that the fact, whether the Samitis were valid or not or whether they were not legally formed or registered with any State or Central Govt. 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 of India, Ministry of Consumer Affairs, Food and Public Distribution Department.
40. Much has been said that Samitis were used as conduit and actually it was the assessee who was doing every thing and every possible action was monitored and looked after by the assessee itself or with its help. There is a reason for extending that 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.
41. That assistance is expected, the same being in mutual interest. The assessee society owning and running the Sugar Mill is preparing and giving complete cultivating programme. In KAMREJ Vibhag 25 Cane Quality Boys and 20 Supervisors, who of course, were employees of the Mill were rendering the services of supervising plantation of sugarcane. The cutting and transportation are being carried out through the Samiti. Services of one or two clerks and a Peon were further offered by the Mill to the Samiti for miscellaneous work. Similarly, in SAYAN Vibhag, services of 173 cane quality boys and 22 supervisors with two clerks and one peon were also made available to the Samiti by the Mill for doing the aforesaid work. Verification of bills by the Chief accountant of the assessee was also in that co-operative movement and to help the cane growers to ensure that no unnecessary payments were made by them.
42. We are not considering whether the view taken by the Division Bench on the facts and circumstance appearing at that time is right or wrong and therefore the contention of the ld. CIT-DR that the earlier matter is sub-judice before the High Court should be adjudicated upon by us has no force. Again the High Court has not rejected other questions but a consolidated question is formulated covering all aspects raised in those questions.
43. As stated above 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 first installment followed by subsequent Resolution for payment of second installment 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 M.T. 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 first installment 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 second installment 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 sugar cane 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 transferred to Sugarcane Advance Account No. II by debiting or credit the same and the Sugarcane Management Account is squared up. The balances in both the advance account are thereafter transferred to Sugarcane purchase account.
44. In view of the above we hold that on the facts and in the circumstances of the case the assessees are not liable to deduct the tax at source under section 194C of the Income-tax Act from the payment made to Mukamdams and Transporters by Zone Samiti; that the assessees are not liable for deduction of tax under section 194C of the Income-tax Act, 1961 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 sugar; cane to assessee's factory and that the ingredients of section 194C of the Income-tax Act 1961 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 contact with the applicant.
45. In the result ail the appeals are allowed.
Pronounced in the open Court on 30-5-2008.
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