Principal Commissioner Of Income ... vs M/S. Maahi Milk Producer Co. Ltd
2023 Latest Caselaw 7043 Guj

                                                                                      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

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C/TAXAP/333/2023 ORDER DATED: 25/09/2023

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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

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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

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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

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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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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