By-product retained by miller couldn’t be considered as payment for milling of paddy- No TDS apply.


By-product retained by miller couldn’t be considered as payment for milling of paddy


a) Assessee was a procurement agency paddy on behalf of Government who, got it milled and supplied rice to Government. 

b) Assessee entered into an agreement with miller for milling of paddy for certain consideration fixed by Government who after milling had to supply rice to assessee. 

c) As per policy of Government and as per agreement entered into between assessee and miller, by-products, if any, arising from milling process was property of miller and Government or procurement agency would have no right or responsibility in this respect. 

d) Assessee deducted tax at source under section 194C on cash amount given to miller on account of milling charges. Assessing Officer (AO) was of view that by-product retained by miller had a marketable value and, thus, it constituted a part of consideration in kind paid by assessee to miller and assessee had failed to deduct any TDS qua same. 

e) CIT(A) reversed the order of AO. Aggrieved-revenue filed the instant appeal before the ITAT. 

The ITAT held in favour of assessee as under: 

1) It was noted that when as per terms of agreement, by-product was never considered to be property of assessee. It could not be said that said by-product was handed over as consideration in kind by assessee to miller. 

2) Another factor for consideration was that property passed ‘in kind’ should have some ascertainable and determinable value, which could be taken as part of consideration paid for work done. 

3) Assessee procurement agency had neither any inclination to know price of by-product nor it had right to claim any amount out of value of by-product on ground that its sale value had exceeded milling charges. 

4) Therefore, no tax at source was to be deducted under section 194C by assessee on by-product kept by miller. – [2018] 100 28 (Chandigarh – Trib.)