Pr. Commissioner Of Income Tax, Jaipur-3, Statute Circle, C-Scheme,Jaipur v. Sikar & Jhunjhunu Zila Dugdh Utpadak Sahakari Sangh Ltd.,N.h. 11, P.o. Palsana, Sikar Ay 2011-12

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR. DB INCOME TAX APPEAL NO.32/2016 Pr. Commissioner of Income Tax, Jaipur-3, Statute Circle, C-Scheme,Jaipur. Versus Sikar & Jhunjhunu Zila Dugdh Utpadak Sahakari Sangh Ltd.,N.H. 11, P.O. Palsana, Sikar AY 2011-12. DATE OF ORDER ::: 16.11.2016. HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE MAHENDRA MAHESHWARI Mr. Sameer Jain, for the appellant. 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasallowed the appeal of the assessee and dismissed the appeal ofthe department. 2.Counsel for the appellant has framed following substantialquestions of law for consideration: “1. Whether on the facts and in thecircumstances of the case the ITAT isjustified in law in holding that payment ofRs.42,41,575/- made to RCDF is not liable forTDS u/s 194H or u/s 194J of the IT Act,1961?” “2.Whether on the facts and in thecircumstances of the case the ITAT isjustified in law in holding that payment ofRs.54,73,480/- made to various mil societieson account of milk price difference, is notliable for TDS u/s 194H, ignoring thesubstance of the matter that such milksocieties provide service of facilitatingpurchase of milk by the assessee from cattleowners, and are liable for TDS?” “3.Whether on the facts and in thecircumstances of the case the ITAT isjustified in law in holding that payment ofRs.4,52,833/-, debited to Profit and Lossaccountundertheheadsalespromotion/advertisement made to RCDF andothers is not liable for TDS?” 3.Counsel for the appellant has taken us to the reasoninggiven by the CIT (Appeals) and contended that the issue whichreads as under: “In lieu of the Services Charges the RCDFwould be providing the following services tothe Unions: (i)marketing Support as per requirement.(ii)Coordination with the state/centralgovernment and financial institutions forvarious schemes. (iii)Finalising rate contracts for purchase ofraw material for cattlefeed plants, packingmaterial for milk and milk products andcattlefeed etc. (iv)Assistinplantmanagement,engineering and quality assurance projects.(v)Preparation and monitoring ofIntegrated Business Planning and relatedfinancial analysis. (vi)Use of “SARAS” brand.(vii)Development and launching of newproducts. (viii) MIS/system support.” “It is evident from the perusal of aforesaiddocuments that the amount was paid by theappellant to RCDF for various servicesrendred by RCDF to appellant. The serviceswas partly in the nature of managerialservices and partly for promotion andmarketing of the products of the appellant.RCDF itself treated the receipts as “ServiceCharges”. The payment made by theappellant was not in the nature ofreimbursement of expenses incurred byRCDF. It is clearly mention in the aforesaidletter dated 04.11.1997 that RCDF will createa reserve of maximum of 10% of its receiptsfor incurring specific expenditure for the (vi)Use of “SARAS” brand.(vii)Development and launching of newproducts. (viii) MIS/system support.” “It is evident from the perusal of aforesaiddocuments that the amount was paid by theappellant to RCDF for various servicesrendred by RCDF to appellant. The serviceswas partly in the nature of managerialservices and partly for promotion andmarketing of the products of the appellant.RCDF itself treated the receipts as “ServiceCharges”. The payment made by theappellant was not in the nature ofreimbursement of expenses incurred byRCDF. It is clearly mention in the aforesaidletter dated 04.11.1997 that RCDF will createa reserve of maximum of 10% of its receiptsfor incurring specific expenditure for the member societies. The excess amount spentwould be recovered from the membersocieties. It is not known that how muchamount was spent by RCDF on behalf of theappellant in this year. The payment is madeby the appellant at a fix percentage of itsturnover, irrespective of the expenditureincurred by RCDF. It is also evident frompara 7 of the assessment order thatRs.3,62,111/- was further paid to RCDF as“sales promotion expenses”. Hence, theamount debited under the head “cess” wasnot paid for any sales promotion or marketingactivities undertook by RCDF. Consideringall this facts and circumstances of the case, Iam of the view that the amount paid by theappellant to RCDF is in the nature of “fees forprofessional or technical services” on whichprovisions of section 194J is applicable.Since the appellant has not deducted the taxat source from such payment, theexpenditure is not allowable u/s 40(a)(ia) ofthe Act.” “However, I agree with the contention of theld. AR that provisions of sectioin 40(a)(ia) arenot applicable on the payments made beforethe end of the previous year, as held by theHon'ble ITAT, Jaipur in the case of JVVNL(supra). A.O. is directed to verify the actualpayments made by the appellant to RCDFduring the year and allow the expenditure tothat extent.” 4.The Tribunal reads order dated 21.07.2015, in para 3.13, has observed as under: “I have heard the rival contentions andperused the materials available on record.Apropos the payment to RCDF cess, it hasnot been demonstrated by the Departmentthat any managerial services in thisconnection have been rendered to assesseeby RCDF qua this amount. RCDF is an apexcooperative body and cess is paid to it byvirtue of federal structure in Rajasthancooperative set up. Thus as far asassessee's business is concerned, there is norendering of any managerial services byRCDF as alleged by the AO u/s 194H and upheld ld. CIT(A) u/s194J. Since there is norendering of any services and the payment isnot made for any managerial services toRCDF, therefore, payment can neither beheld as liable for TDS u/s 194H of the Act ascommission/brokerage as held by the AO noru/s 194J for rendering any managerialservices as held by the ld. CIT(A). In viewthereof, we hold that assessee's impugnedpayment to RCDF are not liable for TDS.This ground of the assessee is allowed.” 5.It is true that the counsel for the appellant contended that the the payment which has been made till 16.12.2013(Annexure-4) on completion of financial year will be applied ornot. 6.Therefore, we are not confirming the reasoning adoptedby the Tribunal but confirming only the conclusion drawn by theTribunal. However, question regarding Section 194J & H of theIncome Tax Act. It is payment made on the basis of Federationand Membership. It is on the ground of mutuality payment ismade. 7.The appeal stands disposed of accordingly. (MAHENDRA MAHESHWARI), J. (K.S. JHAVERI), J. Asheesh Kr. Yadav 07