TDS Provisions won’t attract when Consideration is paid in Kind: ITAT [Read Order]

Bank Guarantee - Principal - Agent - TDS - Taxscan

The Chandigarh bench of the Income Tax Appellate Tribunal (ITAT) has held that the provisions of tax deduction at source ( TDS ) under Section 194C of the Income Tax Act would not applicable in a case where the consideration is paid in kind, not in money.

In the instant case, the assessee is a Procurement Agency of Punjab Government which procures paddy on behalf of the Food Corporation of India / Government, get it milled and supply rice to Food Corporation of India (FCI). The entire cost in this respect is borne by the FCI / Government of India. The paddy is given to the millers for milling at the rates as fixed by FCI / Government of India. The Millers were provided with paddy and they after milling have to supply rice in the ratio of 67% of the paddy milled to the Procurement Agencies as per the specification. As per the policy of the Government and as per agreement between the Procurement agencies and the millers, the by-products, if any, arising from the process is the property of the millers. The Assessing Officer held that TDS should be deducted on the by-products i.e. remaining 33% part out of the milled / shelled paddy is retained by the millers by taking the marketable value for determining the consideration.

While considering a bunch of appeals, the Tribunal held that “if the consideration in the contract is settled at a certain price and instead of paying the said price in cash or through banking channel, such as, by way of cheque / draft / RTGS etc., the availer of the services / assessee pays / transfer valuable goods of the equal monetary value to the contractor such as gold or any other precious metal or anything else having almost equal monetary value at which the price was settled, to say that the provisions of section 194 will not be attracted in that case, will be against the spirit, intent and purpose of section 194C of the Act and such an interpretation will defeat the real intent and purpose of the provisions. Another important factor to be taken into consideration is that the assessee must be the owner / should have the authority to pass on the consideration ‘in kind’ to the contractor.”

“As discussed above, in this case, the property in the byproducts comes into ownership of the millers from the very point of coming of it into existence, hence, in this case the assessees were not the owners of the by-products. Another factor for consideration is that the property passed ‘in kind’ should have some ascertainable and determinable value, which can be taken as part of the consideration paid for the work done. Further, it is the nature of the contract, term of the agreement, the intention of the parties and overall facts and circumstances of the case which are required to be analyzed and considered for determining whether the provisions of section 194C of the Act or other similar provisions of the Chapter would be attracted or not in a particular case. As discussed above in detail, since we have held that the property in the by-product was not passed on by the assessee / Procurement Agencies as milling charges, hence, it is held that TDS provisions of section 194C are not attracted in this case. This issue is decided in favour of the assessees / Procurement Agencies,” the Tribunal said.

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