NEUTRAL CITATION
C/TAXAP/333/2023 ORDER DATED: 25/09/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 333 of 2023
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PRINCIPAL COMMISSIONER OF INCOME TAX-1
Versus
M/S. MAAHI MILK PRODUCER CO. LTD.
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Appearance:
MR.KARAN SANGHANI, LD. SENIOR STANDING COUNSEL for MRS
KALPANA K RAVAL(1046) for the Appellant(s) No. 1
for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 25/09/2023
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BIREN VAISHNAV)
1. The relevant facts of the case are that the assessee, engaged in the business of selling milk and milk products, had made payment 29,63,90,780/- to Mother Dairy and Milk Pvt. Ltd. of Rs. M/s. Giriraj for conversion of raw milk into processed milk and milk products. On these payments, the assessee had made TDS u/s. 194C of the Income- tax Act, 1961 @ 2% treating these payments to be contract payments. The Page 1 of 6 Downloaded on : Wed Sep 27 20:39:41 IST 2023 NEUTRAL CITATION C/TAXAP/333/2023 ORDER DATED: 25/09/2023 undefined Assessing Officer, on the other hand, has held that these payments are in the nature of payments for technical services and therefore, the same should have been subjected to TDS @ 10% u/s. 194J of the Income-tax Act, 1961, Accordingly, the Assessing Officer has made disallowance u/s. 40(a) (ia) of the Income-tax Act, 1961 on the proportionate amount of Rs.23,71,12,624/- for short deduction of TDS @ 8%.
2. The assessee challenged this addition contending that the CIT (Appeals)-1 Rajkot, vide his order dated 10-03-2017 against order under section 201(1)/201(1A) in respect of the same issue, has allowed the appeal of the assessee and has held that the assessee has correctly applied section 194C of the Income Tax Act, 1961 to payments made to dairies. On the strength of the order of Page 2 of 6 Downloaded on : Wed Sep 27 20:39:41 IST 2023 NEUTRAL CITATION C/TAXAP/333/2023 ORDER DATED: 25/09/2023 undefined the CIT (Appeals)-1, Rajkot, the assessee contends that that disallowance under section 40(a)(ia) becomes unjustified.
3. The assessee has also made an alternative plea that section 40(a)(ia) can be invoked only in the event of on-deduction of tax at source and not for short deduction of tax at source.
4. The CIT(A) in its decision held as under:
"6. Having considered facts and circumstances of the case and rival contention, I find merit in the contention of the assessee that when the CIT (Appeals)-1, Rajkot has held that TDS was to be made u/s. 194C, the impugned disallowance u/s. 40(a)(ia) for short deduction of tax is not sustainable. I also find merit in the alternative plea of the assessee that in cited judgments, it has been held that section 40(a)(ia) can be invoked only in event of non-deduction of tax at source and not for short deduction of tax at source.
7. In view of the above discussion, the disallowance made by the Assessing Officer Page 3 of 6 Downloaded on : Wed Sep 27 20:39:41 IST 2023 NEUTRAL CITATION C/TAXAP/333/2023 ORDER DATED: 25/09/2023 undefined is deleted. The ground of appeal is allowed."
5. On an appeal by the Revenue, the Tribunal dismissed the appeal. Perusal of the order of the Tribunal would indicate that in the assessee's own case in ITA No.161/Rjt/2017 the coordinate bench of the Tribunal had held that the assessee provided raw milk and necessary materials to the dairies for processing as per specification of assessee. The dairies custom pack it on job work basis. Assessee deducted tax under section 194C on conversion charges Rs.19.77 crores paid to such dairies since the job work falls within definition of 'work' under section 194C. CBDT circular No.13/2006 dated 13th Dec, 2006 was relied. Further stated the services rendered by the dairies are not technical services since the dairies are not expert on any technology which they could provide to the assessee, nor they provide any managerial services/consultancy Page 4 of 6 Downloaded on : Wed Sep 27 20:39:41 IST 2023 NEUTRAL CITATION C/TAXAP/333/2023 ORDER DATED: 25/09/2023 undefined services since there is no advice given by dairies to the assessee. The dairies are not assigned any exclusive work relating to quality check but are assigned work relating to conversion/processing of milk and milk products, wherein one of the requirements is to ensure quality parameters. The main and basic nature of transaction viz. conversion/processing of mild on job work basis does not lose its true characteristic.
6. Thus the Tribunal relying on assessee's own precedent which was not challenged, held that processing of milk falls under Section 194C of the Act and there is no question of short deduction by the assessee. The Tribunal therefore rightly deleted the addition made by the Assessing Officer under Section 40(a)(ia) of the Act.
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NEUTRAL CITATION C/TAXAP/333/2023 ORDER DATED: 25/09/2023 undefined
7. In view thereof, no substantial question of law much less a substantial question of law is involved. Appeal is thus dismissed.
(BIREN VAISHNAV, J) (BHARGAV D. KARIA, J) ANKIT SHAH Page 6 of 6 Downloaded on : Wed Sep 27 20:39:41 IST 2023