1. In this appeal, the assessee has objected to the order of the CIT(A)-V, Surat dt. 6th Oct., 2004 passed for asst. yr. 2003-04 wherein the assessee has listed 10 grounds of appeal. But at the time of hearing, the learned Counsel for the assessee, was fair enough to admit that these grounds are argumentative and, therefore, his arguments will be only with respect to the issue involved in this appeal and the issue, as was admitted by both the parties, was justification of raising of demand against the assessee by virtue of order under Sections 201 and 201(1A) of the Act, 1961 (hereinafter referred to as "Act").
3. The brief facts, as have been revealed from the records and are relevant for disposal of this appeal are as under: 3.1 The appellant is a co-operative society and carried out the business of manufacturing sugar from crushing sugarcane purchased from its member farmers.
3.2 After the scrutiny of TDS return as filed by the appellant, the AO noticed that the society was not deducting tax from the payment made to mukadams and transporters for cutting and transporting sugarcane from the sugarcane fields of the member farmers to the gate of the factory.
In order to verify the abovereferred facts, a survey under Section 133A of the IT Act was carried out by the AO on 6th Jan., 2003 and during the survey proceedings it was found that the appellant was not deducting the tax according to the provision of Section 194C of the IT Act, 1961 from the aforesaid payment made to mukadams and transporters.
The AO had found that during the year under consideration, total payment of Rs. 13,73,67,269 was made to mukadams and transporters for cutting, harvesting and transporting the sugarcane from the fields to the factory gate without deducting the tax under Section 194C of the IT Act and in view of these facts he had asked the appellant to explain as to why deduction of tax under Section 194C of the Act was not made from the abovereferred payment. During the proceedings before the AO, the appellant made various submissions and after the perusal of the same, it is found that the appellant gave various reasons as to why it had not deducted TDS (from) payments made by it and these are summarized as below: [a] The books of account do not contain any debit entry for the purpose of making payment to mukadams and transporters for harvesting and transportation of sugarcane.
[b] It has been claimed by the appellant that as per the bye-law of the society, the prime liability to cut and transport the sugarcane from the fields to the factory is of farmer/member.
[c] As prime liability to cut and transport the sugarcane is of farmer member, individual farmer member makes arrangement to cut and transport the sugarcane to the mill gate.
[d] The individual farmer member makes payments to the mukadams and transporters for the services rendered by them for cutting and transporting the sugarcane, respectively.
[e] The farmer having their own vehicle to transport the sugarcane, transportation charges are received by them under the concept of mutuality and hence TDS provision is not applicable.
[f] The appellant pays only purchase price to the farmer for the sugarcane supplied by them upto the factory gate keeping in view the minimum price fixed by the Central Government.
[g] A Samiti is formed by the farmers on the basis of mutuality to look after the works of harvesting and transporting the sugarcane from the fields to the factory gate on behalf of the member farmers having no object of profit or gain.
[h] The Samiti, being distinct entity is managing the affairs of cutting and transportation independently on behalf of member farmer and the appellant has no role in cutting and transportation activities.
[i] The Samiti makes payments to the mukadams and transporters hence the appellant is not responsible for making TDS on the payments made to them.
[j] As the Samiti is making the payment to mukadams and transporters, the appellant is not the one party to constitute the contract with the mukadams and transporters under Section 194C of the IT Act.
[k] The Samiti has its audited books of account and members of the Samiti manage affairs of cutting and transportation activity on behalf of the member farmers though it is an unregistered body.
[l] The truck owners are the farmers and their incomes are exempt under Section 2 of the IT Act.
[m] The mukadams receiving the cutting charges for the labourers engaged by them are having very low income and out of that no TDS is required to be deducted by the appellant.
3.3 The above stand taken by the appellant for non-deduction of tax in accordance with the provisions of Section 194C of the IT Act was not accepted by the AO and for that he has had elaborate discussion in the order passed under Sections 201 and 201(1A) of the IT Act from pp. 5 to 35. As referred above, it was submitted by the Authorised Representative of the appellant before the AO that a Samiti of some member farmers was formed and these persons volunteered to look after the work of cutting and transportation of sugarcane from the fields to the mill gate on behalf of the other member farmers. According to the AO, this Samiti which was known as Sabhasad/Zonal Samiti used to receive money in the form of advances from the appellant to incur the same on behalf of the member farmers in the form of making payments against the harvesting and transportation of sugarcane from the fields of farmers to the mill gate and used to maintain all the account for that particular season and finally got its accounts audited and submitted the same to the appellant showing the expenses incurred for each and every member farmer, who supplied the sugarcane to the appellant. Again, as per the Authorised Representative, while making the payment to the farmers against supply of sugarcane by them to the appellant, such expenses were debited to the respective account and the balance was paid to them. In this regard, before the AO, the Authorized Representative of the appellant had made the following submission to explain that as per the Bye-law No. 7(A) of the Co-op. Society, what was the responsibility of the member farmer and how the cutting and transportation activities were regulated and how the price of the sugarcane was to be fixed, keeping in view the statutory minimum price declared by the Central Government every year: More specifically, as per the Bye-law No. 7(A), as prime liability, the members are required to cut the sugarcane grown by them and dispatch the same at the factory of the society. However, the managing committee may arrange on collective basis, for cutting of sugarcane and dispatch it to the factory on behalf of the members on allocation of average expenses for the same. As a normal practice, in every season, the society used to fix first the gate delivery price of sugarcane each year payable to members in pursuance of Bye-law No. 32 of the society. It is very pertinent to note that the statutory minimum price declared by the Central Government every year for the relevant crushing season is always gate delivery price which goes to establish that the sugarcane price given by the society to its members is the consideration of the sugarcane supplied by them and therefore, there is no question of any work contract as provided under Section 194C of the Act between the society and its members.
3.4 Besides the abovereferred reply, on 13th Jan., 2003, the Authorized Representative of the appellant had made further submission regarding the payment of instalments to members against sale of sugarcane made by them, fixation of cutting charges of sugarcane and its transportation charges and the maintenance of accounts of farmer members in the books of the appellant and the same is quoted as below: Further, I would like to submit that the system prevailing in sugar industry is such that the gate delivery price payable to sugarcane grower members is used to be fixed in every crushing season. For example, in season 2001-02 (i.e. from September, 2001 to October, 2002), the sugarcane price determined in the month of October, 2002, i.e., at the end of the season. However, for the very reason that the sugarcane grower, members are always in need of money, the society used to pay in instalments determined on the basis of crushing and recovery of sugarcane, sale proceeds, etc., following the instructions of sugar federation of Gujarat as also policy framed by the Government. Accordingly, at the time of payment of instalments towards purchase price payable to members for their supply of sugarcane to the society, the instalment towards harvesting and transport expenses, etc. is also paid to them. It is, therefore, the payments towards the sugarcane supplied by the members and not for any contract with outsiders. In support of this, the true copy of resolution Nos. 8 and 10, dt. 12th Nov., 2001 and 7th Dec., 2002, respectively are attached herewith as an instance for your kind consideration. On perusal of the same, you will certainly find that the society has resolved to pay on ad hoc basis in advance for sugarcane transportation expenses to be borne by the members as their prime responsibility as stated above @ 165 per MT. Moreover, on perusal of the resolution No. 10 dt. 7th Oct., 2002, you will again find that the gate delivery price for sugarcane supplied by members are determined considering the sale proceeds of sugar and conversion cost incurred by the society and accordingly the price is to be paid to the members according to their supply of sugarcane in particular month during crushing season 2001-02.
Accordingly, the accounts of the members are credited by the purchase price (gate delivery price) and debited by the instalments paid to them inclusive that of advance for transports and harvesting expenses. Thus, it is proved beyond doubt that the Sabhasad Sherdi Kapani Vahetule advance is nothing but the part and partial of the price payable to members for sugarcane taken by the society.
3.5 During the proceedings before the AO, the Authorized Representative of the appellant filed 55 affidavits made by the farmer members duly notarized with the forwarding letter from 'Shree Chalthan Sugar Factory Na Khedut Sabhasado Ni Samiti' called zone Samiti. In the affidavit, it has been stated by the farmers that they undertook the responsibility of cutting and transportation activity through Samiti and they were getting price of sugarcane on ex-factory basis. Regarding payment made to truck owners for transportation of sugarcane, it was submitted by the Authorized Representative before the AO that there was no such contract with any transport agency and the vehicles owned by the members were used for lifting of sugarcane from the fields and transporting the same to the mill gate in their own respective cases as well as for the other members also. According to the Authorized Representative, as per bye-laws member did (sic-not) enter into any agreement with another member at any time and there was no question of any sub-contract under Section 194C(1) of the IT Act between the sugar mill and such transporters. It was further mentioned by him that being low earning in transport business, the transporters, who were no one else than the member farmers, did not have taxable income and again they were eligible to claim deduction under Section 44AE of the Act, i.e., by showing income of Rs. 3,500 per month and in that situation also they were not liable to pay tax and hence there was no question of deduction of tax on such payments.
3.6 Regarding the payments received by mukadams for cutting charges on behalf of the labourers engaged by him, it was argued that their income was very low and hence no TDS was required to be made. The AO had quoted the reply as made by the appellant before him vide letter dt.
11th Nov., 2003 in this regard and the same is given hereunder: I may add that the labour charges for any crushing season to a single labour is always maximum upto Rs. 7,500 because the other bare necessities such as food, residence, medical treatment are also provided by the farmers out of this instalment through their samiti and therefore, there is no question of tax deduction for payments of harvesting charges under Section 194C of the Act. The view of jurisdiction officer is that the payments made to contractors/mukadams are liable to deduction of tax at source. In that eventuality also presenting that the particular contractor/mukadam earns at the maximum of Rs. 2,00,000 during the year and that too on behalf of the other labourers, as provided under Section 44AD of the Act the net income at the rate of 8 per cent of gross receipts would be below the maximum income chargeable to tax, there is no question of tax liability in the case of particular contractor/mukadam and hence the deduction of tax under Section 194C could not be made.
3.7 After considering the abovereferred replies as made by the Authorized Representative of the appellant on various dates, it is seen that the AO was not satisfied with their contents. According to him, the zone samiti which was stated to be a loose BOI had no constitution of its own. The appellant failed to give the basis for forming the samiti and the powers given to it for carrying out the work of cutting and transportation of sugarcane from the fields to the mill gate. At the time of survey, after examining the details as found on the spot, it was seen that mill's paid employees were looking after the zone samiti. The AO further came to know that the third party, i.e., the samiti did not have its own existence. According to him, Samiti did not have any fund of its own. All the money required for the purpose of making payments to mukadams and transporters were made available by the appellant only. It is further seen by the AO that the money was debited in the books of the appellant under the head 'Sabhasad Sherdi Advance' and the same money was credited in the books of samiti on different dates and out of this money final payments to mukadams and transporters were made. According to the AO, the appellant had made the payment to the transporters and mukadams of which separate notings/entries were made in the books of the samiti. Besides above, as per AO, the samiti had no manpower of its own and five clerks, 200 cane quality boys and 21 supervisors, all being the employees of the appellant, were performing the job of supervision of transportation and cutting activities. The expenditure like mobile phones for the use of supervisors were debited in the books of the samiti but facts remained that their pay and allowances were debited and paid from the sugar factory only. According to him (the AO), the samiti had no entity and recognition under any statute and in this way the existence and entity of the samiti could not be proved by the appellant and therefore, there was no question of samiti to be considered as third party. Thus, in view of the AO, there were only two parties, i.e., the appellant on the one hand and the mukadams and transporters on the other hand and the payment for the cutting and transportation charges were made by the appellant to the mukadams and transporters in lieu of harvesting and transporting of sugarcane from the fields to the mill gate. In this way, as per the AO, there were two parties to constitute the contracts under Section 194C of the IT Act.
3.8 Regarding books of account as maintained by the samiti, it was pointed out by the AO that its books of account were maintained as per the sugarcane crushing season of the factory, i.e., written from October to May of the respective year. These books were not written financial year wise, i.e., for the period from April to March and it was also important to note that the books of account of the samiti was not kept for the period of more than one financial year. The AO had collected certain material and information from the accountant of the samiti. Shri Thakorbhai Mistry by recording his statement on 31st Dec., 2003 wherein it was stated by him that the samiti was not keeping the books of account for six years as required under the Act and in this way he came to the conclusion that such temporary noting and preparation of accounts could not be said to be that the books of account were maintained by the samiti and relying upon the same it cannot be considered as a separate distinct entity. In the opinion of the AO, the claim of the appellant regarding its being distinct on the basis of maintenance of books of account, is found totally baseless because it was not maintaining the books of account at least for six years as required as per IT Act and as a result of this, it (the appellant) could not supply the requisite information as called for by him for the last 10 years. Again, as per the AO, the audit of these books of samiti could not lead to any other conclusion except the intention to maintain it on accurate basis to avoid any kind of embezzlement or misappropriation of funds by the so-called samiti members as the transactions controlled by it were running in crores of rupees. Thus, in his view, these audited books of the samiti could not change any of the inferences to be drawn in respect of applicability of TDS provision under Section 194C of the IT Act. According to the AO, it was also important to note that the appellant admitted that this samiti was not a registered body anywhere under any of the statute and in this way, non-recognition of the samiti was vital parameter to consider that the samiti was a part of sugar factory and not a separate entity.
Further the samiti could not be said to be a collective entity as claimed by the appellant because no such definition was contained in any of the law. According to the AO, there was no question of trying to establish the account of the samiti were not reliable but in view of various findings as stated above, he tried to consider the books of the samiti as pertaining to a section of sugar factory and not of a distinct separate entity. The portion of the money which had gone to the farmers was invariably agricultural income in the hands of the farmers but the amount of expenses for the purpose of cutting and transportation and other ancillary charges paid by the appellant through its books of account were income not in the hands of farmers but income of the transporters and mukadams.
3.9 Regarding the affidavits submitted by the appellant on behalf of the farmers, it has been commented by him (the AO) that they were all of same nature as far as the contents of these affidavits were concerned and only signatures of the farmers and the details of agricultural land owned by them were different. According to the AO, in these affidavits, the place, date, introducer and notary before whom the farmers signed were the same. According to him (the AO), the contents of the affidavit was pertaining to agricultural land holding of farmers, the tradition of sugar factory and discussion about the prime liability of the individual member regarding cutting and transportation of sugarcane upto the factory gate and it was narrated as per the bye-laws of the society. He (the AO) had further stated that the fact remained that the activities as narrated in affidavits were not conducted by the individual farmer member as written over there in the affidavits but these were performed as has been discussed earlier in this order by the samiti. According to the AO, in respect of payment to transporters and mukadams, every member farmer through the affidavit said that he had given powers to the samiti to procure money from the appellant and make payment to transporters and mukadams. After analyzing the above-referred contents of the affidavits, the AO came to the conclusion that the contents of the affidavits were contrary to each other because in the initial part of the affidavit the farmer members claimed that as per the bye-laws they were individually required to harvest and transport the sugarcane upto the factory gate and in the latter part of the affidavits they delegated the powers to the samiti to procure money and to make payment out of its. Thus, in view of the AO, the affidavits were nothing but an admission on the part of individual farmer that the samiti procured money from the sugar factory and managed the affairs and made payments to the transporters and mukadams out of the funds of appellant and nowhere the individual farmers were involved as clarified in the affidavits. On the basis of abovereferred facts, the AO had stated that the contents of the affidavits could not influence his conclusion on the issue in question.
After discussing the above facts in his order, the AO had rejected the submission as made by the Authorized Representative of the appellant and came to a finding that the TDS provisions under Section 194C were applicable. The relevant portion of the finding of the AO is given below: Out of this contention, the Authorized Representative puts main reliance on the contention that Rs. 165 per MT claimed to have been paid to the members vide resolution No. 8 of sugar factory dt. 12th Nov., 2001 as advance for the purpose of cutting and harvesting activity. The copy of this resolution is part of record at the page No. 98 in volume No. 1. While going through the details of it, it is revealed that the working committee of the sugar factory on 12th Nov., 2001 resolved that after the sugarcane of farmer reached to the factory premises for crushing the payment may be made after 30 days from the date of receipt of the sugarcane upto the factory gate. Rs. 300 per MT be paid as advance. In the subsequent paragraph, it is resolved that members are supposed to bear the expenditure of cutting and transportation charges, Rs. 165 are to be paid to the members as advance. In support of this, the Authorised Representative has filed the copy of sherdi advance payment voucher which is at the page No. 95 in volume No. 1 of record. This voucher envisaged that Rs. 165 per MT is paid to the members on 9th July, 2002 of a member whose sugarcane is reached to the factory on 18th March, 2002. This is very important that the sugarcane of member Shri Pramod Kumar Rambhai Patel is reached on 18th March, 2002 and the voucher of advance payment at the rate of Rs. 165 per MT is prepared/made and payment is shown on (sic) July, 2002, i.e., after gap of four months period. If Rs. 165 per MT is an advance paid to the farmer to meet the expenditure of cutting and transportation charges, then it should have been paid to the farmers before his sugarcane was cut and transported to the factory on 18th March, 2002. When the amount of Rs. 165 per MT is claimed to have been paid after gap of four months period, it can never be termed as advance.
Looking to these aspects, this sherdi advance payment voucher which is enclosed in support of resolution No. 8 is not proof of actual payment made to farmer to meet the expenditure of cutting and transportation charges. This is nothing but fabricated evidence to mislead the Revenue authority to defraud the provisions of TDS under the Act. Thus, samiti is a facade raised between the mill and contractors just to avoid deduction of tax and mislead the Revenue authorities. This is not only a default, there is all along a conscious attempt to create evidence in such way that Revenue authorities get confused by some plausible explanations for doing by the mill its statutory duty. In fact, the amount of Rs. 165 per MT decided vide resolution No. 8 is portion of payment allocated from total amount payable to members for purchase price of sugarcane. The amount of Rs. 165 per MT is an amount allocated and credited in the books of samiti and the samiti has made payment out of this amount to the transporters and mukadams ultimately. If at all the advance as claimed to be disbursed to the members to meet the expenditure, it required to be disbursed well before the activity of cutting and transportation takes place of sugarcane pertaining to a member to whom the advance is made. The sugar mill keeps on advancing money to samiti on its own without determination of amount either per MT or individual farmer whose sugarcane is cut and transported right from the beginning of the season from October and continue advancing money to samiti till season ends in the month of May. It shows that the factory does not advance money to individual member/farmer to the extent of weight of sugarcane, and not advances to the members before the cutting and transportation takes place. But in fact sugar factory advances money in lump sum to the samiti irrespective of the weight of sugarcane of individual farmer/member and date of its cutting and transportation. In turn, the samiti makes payment to the transporters and mukadams as and when required without keeping in view the cutting and transportation of sugarcane of individual member. In short, the total amount of advance is disbursed by the samiti which is an agency of sugar mill. Since the payment is made by sugar mill via its agency, the samiti, TDS is required to be deducted. Even deciding factor in respect of the money to be paid to transporters and mukadams is with samiti i.e. the agency of sugar mill and not individual member/farmer. The entire work of cutting and transportation done by the contractors and are controlled by sugar mill and samiti and Rs. 165 per MT is also charges not decided by individual member/farmer but decided by sugar factory in its resolution No. 8: This is very important that the amount of Rs. 165 decided per MT irrespective of distance involved in a particular case. Even this expenditure of cutting and transportation of sugarcane at Rs. 165 per MT is decided much after goods is transported and used by the sugar factory. It is clear that the debit entries in the books of sugar mill under the head of Sabhasad Sherdi advance in lump sum on various dates are the same amounts and dates credited in the books of samiti and from the books of samiti final payments to transporters and mukadams are made. Thus, the sugar factory makes payments to the transporters and mukadams through samiti which is a part of sugar factory only. The surplus in the books of samiti also suggests that no individual farmer/members undertakes the task of cutting and harvesting. If individual farmer/member does so, no surplus would remain. Moreover sugar mill deducts Rs. 165 per MT at a fixed rate for transportation and harvesting. There is no provision to allow excess expenditure or excess income.
Based on the abovementioned facts, the AO rejected the submission of the appellant and held it (appellant) liable for deducting the tax at source out of the payments made to mukadams and transporters as there existed a contract between the appellant and the mukadams and transporters.
4. The assessee went in appeal before the CIT(A) and objected to the order of the AO whereby demand under Sections 201 and 201(1A) for assessee's default to deduct the tax at source out of payments made to so-called transporters and Mukadams, through the so-called "samiti" and pay the same in the Government account had been created.
4.1 In brief, the assessee's submissions before the CIT(A), as have been recorded by the learned CIT(A) in para Nos. 11 to 11.5 of his order reads as under: 11. In the first ground of appeal, the appellant has stated that the learned ITO TDS-3, Surat's order is contrary to law and facts of the case and, therefore, consolidated order passed under Sections 201 and 201(1A) of the Act levying tax of Rs. 28,84,700 and interest of Rs. 5,93,200, respectively be annulled or deleted.
11.1 During the appellate proceedings, Shri J.P. Shah, advocate and Shri Mitesh Modi, CA attended on behalf of the appellant and filed submission in the form of paper book and the same has been examined.
A copy of the paper book as submitted by the Authorized Representative containing all the details filed before the AO was sent to the AO for his comments. During the proceedings, it was argued by Shri J.P. Shah, that the action of the AO by holding the appellant as liable for making TDS on the payments made to transporters and mukadams was patently wrong. He has stated that it was the responsibility of the farmers as per the bye-laws of the appellant to harvest and transport the sugarcane to the factory gate for making sales to the appellant and this work was supervised by a samiti was nothing but loose BOI who had carried out the work of arranging labourers through mukadams for cutting and harvesting of sugarcane on behalf of the farmer members and also carrying out the work of supervision of transportation of sugarcane to the mill gate.
In this view, zone samiti was spending the farmers' money while discharging the abovementioned duties, the money was received by it from the appellant on advance basis and finally when the works relating to harvesting and transporting was over at the end of the season, the final account for each farmer was prepared by it and adjustments out of advance received from the mill for such expenses was made by making out the expenses charged from each and every farmer against transport of his sugarcane. In this way, according to Authorized Representative, the samiti used to prepare a final account and after making adjustment of expenses incurred by it, return the balance money to the appellant and after that a final account for each farmer was prepared by the appellant and the payments were made to farmers. He has mentioned that samiti maintained its books of account keeping all minute details of expenses incurred by it in respect of farmers and its books of account were subject to audit. In this argument, by referring to various bye-laws of the appellant and which were binding on the farmers, it has been highlighted by him that the samiti was an independent body constituted of member farmers and it was totally concerned to look after the works of the farmers for harvesting and transporting of the sugarcane to the mill. He has also made reference about the affidavits given by various farmers and submitted before the AO wherein it has been mentioned by the farmers about the terms and conditions under which they would be supplying sugarcane to the appellant along with details of price fixed by the Central Government and payment of the same to the farmers after supplying of sugarcane. In this regard, he has again submitted that the AO did not consider the contents of the affidavits and passed the order without making any reference to the same. He has cited the findings of Hon'ble Gujarat High Court in the case of Glass Lines Equipments Co. Ltd. v. CIT in support of his contention. In the abovereferred case, the Hon'ble High Court, on the issue of non-discussion in relation to the affidavits filed, by lower authorities, has observed as under: None of the authorities considered it necessary to cross-examine the deponent with reference to the statement made in the affidavit, and, hence, under these circumstances it was not open to the Revenue to challenge the correctness of the statement made by the deponent in the affidavit.
11.2 Besides above, he has also cited various cases, such as, that of Frederik R. Hams (India)(P) Ltd. v. Dy. CIT (2004) 89 TTJ (Del) 257, CIT v. Gujarat Mineral Development Corporation , Madura Knitting Co. v. Crr/CEPT and CIT v. R.M. Chidambaram Pillai in support of the arguments taken by him.
11.3 During the course of argument, he has again submitted that as per Section 194C of the Act, 1961, four factors are required, i.e., there must be a contract; assessee must be responsible for paying contract amount; it must be assessee's work and the assessee must pay the amount and credit the same. According to him, none of the above-mentioned conditions were applicable in the case of the appellant as it did not make any payment to any party for harvesting or transporting of sugarcane of the farmers to the mill gate and therefore, there was no question of applicability of provisions of Section 194C in its case. He has further mentioned that all the expenses regarding arrangement of labourers by mukadams, majuri barthi karchha, such as, food expenses, medical expenses and insurance expenses for the labourers were incurred by the samiti and the appellant was nowhere responsible for the same.
11.4 Further, a remand report was received from the AO and a copy of the same was given to the appellant for its comments and in response to that a submission was again made by it on 6th Oct., 2004. In his remand letter, the AO has categorically stated that by way of submission of the paper book, no new submission has been made and therefore, no new facts were brought to the surface. Again in the report he has stated that the detailed discussion has already been made with regard to the papers submitted by the appellant while finalizing the order under Sections 201 and 201(1A) of the IT Act, 1961 and therefore to avoid repetition of the same, no comments were required to be made and thus, his stand remains the same as was taken by him at the time of passing of above order. But at the same time, in his report, he has discussed in brief about the applicability of the provisions of Section 194C in the case of the appellant. It has been mentioned by him that all the conditions as laid down in Section 194C, such as making of payment in pursuance of contract to a specified person and resident contractor, receiving a contract money of more than Rs. 20,000 and the nature of work carried out on behalf of the appellant through its zone samiti, which was nothing more than a division of the appellant mill itself are found fulfilled in this case. According to him, the appellant is a co-operative society, purchased sugarcane from its members keeping in view of the minimum price provision of Central Government and made payments by instalment. It used to prepare vouchers under the head "Sabhasad Sherdi Account" at the rate of Rs. 165 per ton and obtained the signature of the members to meet cutting and transporting charges for the sugarcane to be supplied and this amount claimed to have been paid in accordance with the resolution No. 8 of the society dt. 12th Nov., 2001. It was further mentioned by him that in fact the amount was not paid to the member though the signature was obtained and on the basis of abovereferred voucher, book entries were passed, debiting Sabhasad Sherdi Account by giving corresponding credit to the zone samiti account in the books of account of the appellant. It has been further observed by him that so far as this amount of money was concerned, it was not at all paid to any member of the appellant-society, as discussed at length in his order and thus, by fabricating vouchers, showing payment to a farmer member, which actually was never paid to him, it created false evidence and wrongly claimed that it followed the bye-laws made by it so far as the dealings with the farmers were concerned.
According to him, the amount not paid to the farmers were retained in the books of account of zone samiti, which was neither recognized by any statue nor it filed IT return and ultimately, the appellant transferred the credit balance to the zone samiti in order to make available cash/fund to the samiti as per its requirement for making payment to mukadams and transporters on account of cutting and transporting of sugarcane of the members. Thus, according to the AO, the entire payment to the transporters and mukadams was made by the appellant itself through the so-called samiti which was nothing but its division because the people who were looking after the works of samiti were the employees of the appellant-company and they were at its payroll.
11.5 In response to the remand report of the AO, it was replied by the Authorized Representative that he (AO) did not consider the documents contained in the paper book in the right perspectives and repeatedly held the same view which was held by him while passing the order under Sections 201 and 201(1A) of the IT Act, 1961. It has been mentioned by the Authorized Representative that it was very difficult for an individual farmer to deal with the, problem of harvesting and transporting the sugarcane from the field to the mills gate and therefore, for a collective dealing with the appellant, the mukadams and the transporters, they created this zone samiti for the sake of their convenience and, therefore, the view of the AO treating the zone samiti as an agent of the appellant is not correct. He has further mentioned that there was a written contract of sale of sugarcane between the farmers and the appellant regarding cutting and harvesting the sugarcane and transporting the same to the gate of the factory and for fulfilling the same, the farmers created this samiti and therefore, the samiti was spending for the work of harvesting and transporting @ Rs. 165 per metric ton on behalf of the farmers, who supplied the sugarcane to the appellant.
Regarding the observations of the AO that vouchers showing payment to farmers were fabricated and the Revenue had been defrauded and the poor farmers were exploited and deprived of their legitimate consideration, he asserted that it was not correct. According to him, the farmers have entrusted the responsibility of harvesting and transportation of the sugarcane to the mill gate to the zone samiti and therefore, after signing the vouchers the money was transferred to zone samiti's account to carry out these activities and making payment in lieu of that and in this way though the money was not directly given to the farmers but it was transferred to the samiti's account on behalf of the farmers and hence the finding of the AO is wrong. It has been mentioned by him that the crux of the matter is that zone samiti has entered into an agreement for and on behalf of the farmers with the mukadams and with transporters, some of whom were farmers themselves and in this way it can be seen that the appellant did not enter into any such contract with mukadams and transporters. The Authorized Representative has cited the findings of Hon'ble Supreme Court of India in the case of Siddheshwar Sahakari Sakhar Ltd. v. CIT argument wherein the Hon'ble Court has laid down the ratio that there is an authority for the proposition that the bye-laws of the co-operative society constitute a contract between the society represented by its managing body and its constituents. The Authorized Representative of the appellant further cited the findings of Hon'ble Madras High Court in the case of Madura Knitting Co. v. CIT (supra), which laid down the ratio that before arriving at a conclusion to hold certain entity as benami, there should have been certain material on record and only on that basis it should have been decided. Based on this judgment, it has been pointed out by the Authorized Representative that there was no material on record before the AO to come to a conclusion that zone samiti was a benami agency of the appellant.
5. The CIT(A) dealt with all the objections raised by the assessee and ultimately dismissed the assessee's appeals by observing as under: 12. I have carefully considered the findings of the AO as referred above along with the remand report submitted by him and also went through the submission as made by the Authorised Representatives of the appellant-company and the arguments made by them before me.
After perusing the plethora of evidences and details as filed by the appellant, it is seen that no basis has been provided by the appellant for forming the zone samiti to handle the onerous job of arranging harvesting and transportation of sugarcane on behalf of the member farmers. It is seen that there was no written bye-laws or rules on the basis of which such zone samiti was formed. It is also the fact that the appellant has carried out its business for years and as per the submission, it is clear that in every season the zone samiti, perhaps, was assigned this kind of work. It was also not been stated that what was the responsibilities assigned to each member of the samiti, what was the basis of selecting the members of the samiti amongst the old lot of member farmers. It is also seen that all the people who were carrying out the important works of samiti, such as, handling of expenses, receipts from the appellant, its disbursement and keeping the accounts on day-to-day basis were the people on the payroll of the appellant. It is pertinent to mention that the statement of the chairman of the appellant-society was recorded on 26th Dec., 2003 by the AO, in which, while replying to question Nos. 9, 10, 11 and 12, he stated that he was not aware as to how the zone samiti came into existence. This statement of the chairman of the appellant-society is clear-cut indication that no such body was ever in existence otherwise the body which was assigned the important works such as harvesting and transporting of sugarcane from the fields of member farmers to the mill gate must have been definitely known to the people like chairman of the society and others. Thus, such revealing facts about the existence of samiti leads to a definite conclusion that the so-called zone samiti was nothing but a section of the office of the appellant which was looking after the financial arrangements of the expenses which were incurred for harvesting and transportation of sugarcane.
It is also pertinent to mention that the bye-laws of the appellant-society, as has been submitted by the Authorized Representative of the appellant were binding on each farmer such as entering into a contract to grow, harvest and transport the sugarcane to the mill gate but in practice, after going through the order passed by the AO, and also after traversing through the various documents submitted during the appellate proceedings, it is seen that the practice followed was totally in contravention to the bye-laws of the appellant. It is also seen that no farmer ever paid the transportation charges for transporting his sugarcane to the mill gate on his own. It was rather arranged in different way that a flat rate of Rs. 165 per metric ton was deducted from the total sale proceeds of the sugarcane of a member farmer towards charges of expenses for harvesting and transportation to be paid to mukadams and transporters who were not known to the farmers. If it is believed that the activities of harvesting and transportation were arranged by the samiti in a collective way on behalf of the farmers, then it is seen that the rules and regulations of the samiti are found completely flouted because there is no mention of any zone samiti in the rules which could be given the task of organizing such activities. It has been clearly pointed out by the AO after referring the statements of some member farmers that vouchers of expenses were though signed by them but they were never paid the amounts in lieu of this to disburse the expenses for harvesting and transportation of sugarcane. In this regard the findings of the AO regarding the affidavits filed by the farmers appear to be acceptable. In his order, the AO stated that the farmers have given affidavits stating to abide by the rules and bye-laws of the society regarding growing and harvesting and transportation of sugarcane to the mill gate of the appellant but in practice, they never followed the same and therefore, the contents of the affidavit as per the AO bear no relevance to his findings. I, therefore, do not agree with the submission as made by the Authorised Representative before me regarding his objection that the AO did not consider the contents of the affidavits nor he cross-examined the farmers who filed the same.
I accept the findings of Hon'ble Gujarat High Court about the binding nature of affidavit on the Revenue authority unless otherwise it is proved contrary but in the case of the appellant on the basis of various submission as made by the Authorised Representative before the AO, it is seen that the activities of the farmers were not in tune with the contents of the affidavit with regard to growing, harvesting and transportation of the sugarcane and finally abiding by the bye-laws of the appellant-society and in this way, the finding of the AO that there was no nexus of the contents of the affidavit with regard to his findings appears to be correct and in this way, I do not accept the contentions of the Authorised Representative of the appellant.
12.1 The submission of the Authorised Representative by relying upon the decision of the Hon'ble Madras High Court that before holding the samiti as benami, no material was brought on record by the AO has been considered by me. In this regard, I am of the view that in the light of the findings of the Hon'ble Madras High Court, it is necessary to mention that the AO had discussed in great details the nature of the constitution of the so-called samiti, the works and duties assigned to it, its tenure and its nature of existence, etc.
and based on that proved it beyond doubt that such samiti was nowhere in existence and a mere section of the office of the appellant which was looking after the activities of harvesting, transportation of sugarcane of member farmers from the fields to the mill gate and keeping the details of expenses incurred, etc. In this way, the ratio of the abovereferred judgment is not applicable in the case of the appellant.
12.2 The ratio of the judgment of Hon'ble Supreme Court of India in the case of Siddheshwar Sahakari Sakhar Ltd. (supra) as has been cited by the Authorised Representative of the appellant stating that the bye-laws of the co-operative society constituted a contract within the society lead by managing body and as constituents, is of no help in the case of the appellant in the light of discussion carried out by me at various places in my order that the terms and conditions of the bye-laws have been thoroughly flouted by member farmers while harvesting and transporting the sugarcane from their fields to the mill gate. In the bye-laws, it has been laid down that the farmer member on his own would carry out harvesting and transporting the sugarcane from the fields to the mill gate.
Whereas, in practice, it was carried out by the appellant through mukadams and transporters and thus, there is found a clear cut contract between the bye-laws and its binding nature on the member farmers. Hence, the contention of the appellant is not accepted in this regard.
12.3 During the appellate proceedings, the Authorised Representative of the appellant again quoted the findings of Hon'ble Supreme Court in the case of CIT v. R.M. Chidambaram Pillai (supra). After the perusal of the said judgment, it is found that the Hon'ble Court laid down the ratio that salary paid to a partner by a firm which grows and sells tea, is exempt from tax under Rule 24 of the Indian IT Rules, 1922, to the extent of 60 per cent, thereof representing agricultural income and is liable to tax only to the extent of 40 per cent. By citing this judgment of Court, perhaps, the Authorised Representative of the appellant wants to say that the farmers were earning agricultural income by way of selling of sugarcane and therefore that was not subject to any tax. In the instant case, the issue is totally different than in the case law cited above. Here as per the provision of Section 194C, the appellant was required to deduct tax on the payments made by it through its office which was termed as zone samiti to mukadams for arranging labourers for all the member farmers and also to transporters for arranging transport owned by member farmers as well as outside transporters for carrying the sugarcane from the fields to the mill. Since the entire activity was organized by the appellant on behalf of the member farmers, there is found to be an implied contract in existence. Again as per the provision of Section 194C, the appellant is a co-operative society and therefore, it is qualifying the definition of 'persons' as laid down in that section. In view of the abovereferred facts, it is held that the appellant was bound to make TDS on the amount paid to mukadams and transporters as per the provisions of Section 194C because all the four conditions as laid down in this section are applicable in its case.
12.4 I would like to point out further that as per Monopolies and Restrictive Trade Practices Act, 1969 in Section 2, Expln. (iii)(g) the 'interconnected undertakings' means two or more undertakings which are interconnected with each other in any of the following manner, namely....'If one owns or controls the other' or 'if the undertakings are owned or controlled by some persons or by some group.' In the case of the appellant, the zone samiti was nothing but a part of the office of the appellant-company, as discussed earlier, and therefore, it is treated as interconnected undertaking and in this situation, the activities carried out by the zone samiti is treated as activity carried by the appellant itself and thus, in this way also, the appellant was responsible for making TDS as per the provision of Section 194C of the IT Act on the amount disbursed to mukadams and transporters.
12.5 In view of the abovereferred facts, I hold the findings of the AO and confirm the addition made by him while passing the order under Sections 201 and 201(1A) of the IT Act, 1961.
6. It was, in view of above facts and circumstances that the parties had advanced their respective arguments.
7. The learned Counsel for the assessee, referred to some of the documents (but not all) in paper book (vols. I and II), such as, page No. 72 which is copy of resolution No. 8 dt. 12th Nov., 2001, page No.73 which is the copy of resolution No. 10 dt. 7th Oct., 2002, (English version of these two documents is placed at page Nos. 72A, and 74A, 74B, respectively). Page Nos. 87(1), 287(4) which are copies of bye-laws for the season 2003-04, some vouchers for accounting for the amount of Rs. 165 per MT towards the sale price of the farmer and copy of account (from the assessee's book of account) of the farmers showing total purchase price payable by the assessee and deductions, including the deduction of Rs. 165 per MT towards payment to the samiti, page Nos. 90 to 166 which are copies of vouchers for making payment to the samiti in the form of alleged advance towards payment of purchase price to farmers and copies of notification by the Government fixing the purchase price of sugarcane for different sugar factories including assessee, during the different seasons submitted that farmers were under obligation to deliver the sugarcane at the factory gate of the assessee, i.e., at the gate of the factory and since it was time-consuming job and required transport also, the farmers had formed an organization known as "samiti" to look after all aspects from sowing, harvesting, cutting and delivery of their sugarcane at the gate of the assessee's factory. According to the learned Counsel for the assessee, the farmers were also under obligation to use a particular type of seed which they could purchase either from the open market or from the assessee. The learned Counsel for the assessee, submitted that since it was liability of the farmers to deliver the sugarcane at the assessee's factory gate, they instead of bringing their sugarcane individually and to save unreasonable omission of time had formed a "samiti" which was consisting of persons nominated/chosen by the farmers and was to look after harvesting, cutting and carrying the sugarcane from the fields of the farmers to the gate of the factory.
Since this working/job to be managed by the "samiti" involved a substantial amount of expenditure, the farmer had authorised the assessee to pay an amount of Rs. 165 per MT out of purchase price payable to the farmers and later to be adjusted against their respective accounts, to the "samiti". The "samiti" according to the learned Counsel for the assessee was having various supervisors and more than 200 boys who were responsible for harvesting, cutting and bringing the sugarcane from the field to the collection site of the "samiti" and from that site the sugarcane was brought to the factory gate. The harvesting, cutting, loading, etc. of sugarcane was got done by so-called mukadams who were nothing, but labour contractors and used to employ their own labour for harvesting and loading and unloading of sugarcane at the fields and at the collection site of so-called "samiti". Boys were to look after the overall sowing/growing of crop of sugarcane by the farmers by way of supervision and advise as to the fertilizer and watering, etc. etc. The learned Counsel for the assessee, after referring to various documents (page numbers have been already mentioned), vehemently stressed that the assessee had no control over the "samiti". According to him, it was an organization created by the farmers jointly and collectively for discharging their responsibility of delivering the sugarcane at the gate of the factory.
According to learned Counsel for the assessee, the salary to the supervisors and so-called field boys was being paid by the "samiti" and not by the assessee. To bring home his point, the learned Counsel for the assessee, strongly relied upon the terms of resolution No. 8 dt.
12th Nov., 2001, resolution No. 10 dt. 7th Dec., 2002, affidavits of the farmers, assessee's books of account wherein the advance payment of Rs. 165 per MT had been accounted for against purchase price payable by the assessee to various farmers (farmerwise), the receipts given by the farmers in token of having received part purchase price @ 165 per MT etc. etc. The learned Counsel for the assessee, further submitted that if the "samiti" was considered to be a benami organization of the assessee, onus was on the Revenue to establish that "samiti" was assessee's benami organization which has not been the case here. With respect to affidavits of various farmers filed by the assessee during the course of proceedings before the AO, the learned Counsel for the assessee submitted that the AO was not justified in rejecting the affidavits without cross-examining a single farmer. The learned Counsel for the assessee, further submitted that so far as transportation of the sugarcane is concerned, it was being done by the "samiti" by hiring the trucks/tractors, etc. either from the open market or from the farmers themselves because many of the farmers were having their own trucks/tractors. The learned Counsel for the assessee, further, tried to support his case that the "samiti" was not assessee's outfit or a branch by submitting that if a transporter of mukadam was not paid by the "samiti", the assessee was not responsible, i.e., the transporter of the mukadam could not file a suit against the assessee and it was so because they did not have any contract with the assessee and were not executing the work at the behest of the assessee.
8. The learned Departmental Representative, on the other hand, has supported the order of the CIT(A).
9. We have considered the rival submissions, facts and circumstances of the case and have perused various documents placed on assessee's two voluminous paper books-specially the documents which have been referred to and relied upon by the learned Counsel for the assessee, provisions of Section 194C of the Act and decision of Hon'ble Supreme Court in the case of Madura Knitting Company v. CIF & CEPT relied upon by the learned Counsel for the assessee, in support of his submission that the Department had not discharged the onus put on it to prove that the "samiti" was a benami outfit of the assessee, carefully and before arriving at conclusion, we would like to reproduce the rules and regulations of the assessee for sugarcane plantation for the planting season 2003-04, resolution Nos. 8 and 10 dt. 12th Nov., 2001 and 7th Oct., 2002, respectively; affidavits of the farmers which according to the assessee, contain the similar statements, and bye-laws, Clause 7(a) of 'Peta Niyam' (translated in English).
(i) Rules and regulations of sugarcane plantation for the planting season 2003-04 (English version as filed by the assessee): Shri Chalthan Vibhag Khand Udyog Sahakari Mandli Ltd., Chalthan Taluka-Palsana, Distt. Surat.
Rules and regulations of sugarcane plantation for the planting season 2003-04 1. Member can plant in his own village, and in all villages holding share in the area of operation, and in his own or tenancy land around the villages.
2. Member can plant upto 50 kms range out of area of operation from factory in his own land. For the evidence of his own land, copy of deed, copy of abstract of 7-12, 8-A. and Form No. 6 should be attached at the time of filling up the plantation form.
3. The sanction of month and area may be permitted as requested by the member.
4. Registered new plant cane/ratoon crop to be given to organization compulsorily. Defaulter may be liable for penalty of Rs. 3000 per acre.
5. Member himself has to send his own harvested sugarcane to the organization.
6. Member has to fill-up the form of such village in which his name is enlisted in the voting list of the village. Member has to register in the share-holding village only, though the actual cane plantation may fall in the dual territory villages in the area of operation and the villages falling outside the area of operation.
Registration of plantation made in the area of operation except dual territory village, may be made in the concerned villages.
7. The plantation of sugarcane of following varieties may be made as accepted by the organization: (a) Varieties permitted for plantation from October till season end : COC 671, CO 86032, COAN 95132, O 92020, CO 86002, COSI 95071 Permission can be given to the plantation of above permitted sugarcane varieties only.
(b) Varieties permitted for plantation from 1st Nov., 2003 till season end: COAN 91132 (There cannot be a plantation of non-granted or duplicate varieties except this.) (c) Can plantation registration will be started from 1st October, but the plantation can be started from 1st Sept., 2003, but the registration of plantation made before 1st Sept., 2003 may be considered from 16th Oct., 2003.
8. Member shall have to give instruction in writing four days before starting plantation to the zone office, for plantation that from whom he is going to take seed or he is going to take his own seed and its name, block number, area, variety of sugarcane. If plantation is started without giving any prior information of the said details, members shall be liable for the variety of sugarcane and cleanliness of the sugarcane. If it is found permitted by other or duplicate, the registration of the same sugarcane plantation is liable to be cancelled, and cannot be taken for crushing.
9. In the circumstances in which the gap filling observed in the field of cane plantation, gap filling shall be refilled by taking the seed of same variety of sugarcane which is planted.
10. The cane plantation else than the varieties permitted by the organisation will be liable for the cancellation.
Seed distribution shall be made by the management against the demand of the member out of the first seed plots. After completion of seed plot, out of commercial plantation and out of certified plots, seed distribution shall be made by cutting the upper portion of the stalk from last month.
12. Members are bound with the rules and regulation regarding burned cane as per time to time declared by the management.
13. The plantation shall be made only in the field having road, where the sugarcane can be transported by truck.
14. The plantation can be made by taking seed out of the seed plot approved by the organization or by taking seed out of the plot permitted from the commercial plantation of the last month.
15. If the sugar plantation is made in the block number having fruit trees and vegetables, management is not liable for the damage and preference cannot be given in the cutting programme.
16. New plantation plus two crops of ratoon can be taken. If the katta for keeping ratoon is 30 MT per acre or comes more production than it, more ratoon can be kept.
17. No preference in cane harvesting will be given for the cane crop damage due to animals, railway or riots.
18. Block No. of the field in which cane plantation is done is required to be informed.
19. If any question/dispute arises in future for the planted land, organization shall not be liable. Total responsibility for fulfilling sugarcane shall be of the member.
20. Organization reserves the right for change in above rules and regulations.
I have gone through the cane plantation rules and regulation for the season 2003-04 and thereafter I have filled this Form with full understanding and with a condition to abide by all the rules and regulations. Accordingly my cane plantation demand is as follows:Name of the member: _____________ Name of Village :_____________Member's Code No. : _____________ Village Code No. :_____________--------------------------------------------------------------------------------------Share Areas of Block No. AT & Post Canal/Water Name of Month CaneNo. Demand Village Well canal under variety Acre- demand Guntha---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Shree Chalthan Vibhag Khand Udyog Sahakari Mandli Ltd. Chalthan (Dist. Swat) True copy of resolution No. 8 of board of directors meeting held on 12th Nov., 2001.
Agenda-Fixation of first instalment of sugarcane price to be paid for the season 2001-02.
Resolution-It has been unanimously resolved to pay first instalment of cane price at Rs. 300 (plus Rs. 15) per MT of cane arrived for crushing in the season 2001-02. The said payment is to be disbursed after 30 days period for the cane arrived of shareholders/nominal shareholders.
It has further been unanimously resolved that since the members are incurring and borne the harvesting and transportation expenses for their sugarcane at their own, Rs. 165 per MT of cane arrived for this season will be paid as an advance to shareholders/nominal shareholders.
True copy of resolution No. 10 of board of directors meeting held on 7th Oct., 2002.
Agenda-Fixation on final ex-factory (gate delivery) sugarcane price to be paid for the season 2001-02 to members/nominal members for the registered/unregistered sugarcane.
Resolution-The provisional manufacturing and trading account and P&L a/c for the season 2001-02 of sugar and chemical unit has been prepared after making necessary provisions as per the bye-laws of the Mandli and placed before the board. Lengthy and deep discussion took place over the agenda in the meeting and after considering necessary provisions and provision for depreciation, it has been resolved unanimously to decide sugarcane ex-factory price as stated below for the good burnt sugarcane according to the month of supply; further unanimously resolved to pay interest @ 10 per cent per annum on sugarcane ana-mat deposit and development deposit and further to repay the development deposit of year 1986-87 to the members.
Sugarcane price of registered sugarcane supplied by members Ex-factory (gate cane price) of good and burnt sugarcane (per MT) Month Further resolved to deduct Rs. 1.50 per MT, towards Sabhasad Kalyan fund, Rs. 1.50 per MT towards hospital fund and Rs. 2 per MT towards road development fund from members registered sugarcane price.
Further resolved to deduct Rs. 30 per MT plus Rs. 10 per MT per week for the earlier period to scheduled crushing for the burnt sugarcane.
It is further resolved unanimously to pay cane price for registered and unregistered cane supplied by working sugar and members/normal members as under: 1. In the case of working sugar factory the price will be paid at the lower of ex-field price of that sugar factory and to borne (bear) harvesting transportation expenses. In addition to this, as per the rules and regulation the amount is to be deducted from cane price for Kalyan, Hospital, Road Development fund and burnt sugarcane.
2. It has been decided the ex-factory cane price of Rs. 1,049 per MT for the sugarcane crushed supplied by members/nominal members (within the area of plantation and outside the area of plantation), after deducting administrative charges, additional harvesting-transportation expenses, Kalyan, Hospital, Road Development Fund and burnt sugarcane as per rules and regulations.
3. As per the rules and regulation, the administration charges, Kalyan, Hospital, Road Development Fund and burnt sugarcane, shall be deducted from ex-factory cane price of Rs. 1,049 per MT for the unregistered sugarcane supplied by members.
It has been further resolved to pay the cane price as resolved above after making necessary arrangement with the bank from 16th Oct., 2002.
(iv) Sample affidavit of partner (sic) Shri Rameshbhai Vasantbhai Patel dt. 7th Jan., 2004.
I. Shri Rameshbhai Vasantbhai Patel aged about 45 years, business agriculturist, resident of Langad, Tal : Palsana, Dist. Surat do hereby solemnly affirm that: (1) I am shareholder of Shree Chalthan Vibhag Khand Udyog Sahakari Mandli Ltd., Chalthan, Dist.: Surat.
(2) My land for plantation of sugarcane is 10 acre Guntha 11 situated at village Lingad. My village is 14 kms. away from sugar factory, I abide as per bye-laws of the Mandli for allotted cane plantation. I am supplying the sugarcane at weighbridge of the sugar factory from my own cane filled by adopting all the activities of cane harvesting and transportation as per the instructions from the Mandli. This is my legal responsibility and I am bearing all the charges for the same.
Abide for all the rules and regulations and instructions pertaining to ploughing, protection and cultivation of the cane crop by the management. The committee formed amongst the board of directors of the Mandli plans the programme for cane plantation in the prescribed operational area of the Mandli. I am following the said programme of the Mandli and accordingly cultivating the cane crop from last so many years. Every year the Mandli processes the received cane from all farmer members at factory gate/weighbridge for production of white crystal sugar and the income of the sugar sale and other bye-products is distributed to every member in proportion with their cane receipt at factory gate after deduction of all the expenses thereof. Myself and other cane cultivating farmers are not getting the reasonable rates/returns of cultivated cane if we sell it directly in the open market. Moreover, the cane cultivating cost is increasing day-by-day, but cane prices are not increasing in that proportion. I am planting and cultivating the sugarcane crop in my own/tenancy land. The cultivated cane crop after maturity is being sent to the sugar factory by carts, trucks or tractors and the theft or any loss by any reason of the cane during transportation is absolutely my own responsibility. Nothing is being paid against theft or loss by any reason of cane by Mandli. I am the member of this Mandli and sending the cultivated cane in this sugar plant from past so many years. In short, the sugar factory purchases the cane crop cultivated in my land as a gate cane at the factory gate/weighbridge and pays us the ex-gate cane price after completion of cane crushing season.
Zone samiti (committee) formed amongst our farmers handling the job of cane harvesting and transportation upto sugar factory gate and the sugar factory is not having any relationship with this activity at all. The total responsibility of cane plantation, cultivation and harvesting and transportation upto factory gate as per harvesting programme is solely my work and my responsibility. Sugar factory is only doing the job of manufacture/conversion of white crystal sugar from sugarcane. The staff engaged for cane harvesting and transportation is owned by me and I am the responsible person of their recruitment and payment of their cost.
I am bound for cane cultivations as per the rules and bye-laws of the Mandli along with the cane varieties made available from agricultural staff of the Mandli following the instructions for cane plantation, fertilizer during, etc. for said cane cultivation.
For cane harvesting and transportation, local labour is not available as per requirement. Sugarcane being perishable crop needs immediate crushing after harvesting. The transportation media is either cart, truck or tractor for which ready facilities are not available in my own village. As such, we have to follow up the programme of cane harvesting, declared by the Mandli and accordingly we have to adopt the cane harvesting, heaping/bundling and transportation of the same upto sugar factory gate/weighbridge through our voluntary collective arrangement known as Sabhasad/zone samiti formed amongst our farmers named as 'Shree Chalthan Sugar Factory Na Khedut Sabhasadoni Samiti' as this total job work is not possible by me alone. The main theme and objective of this samiti is to harvest and to transport the cultivated cane of the farmers at reasonable lesser cost by doing the job collectively. The organization of sugarcane cultivation, harvesting and transportation on collective basis facilitate us to send the cultivated cane to sugar factory gate/weighbridge without any major problem/obstacle continuously in least possible time, non-aifocting the sugarcane processing in the factory which ultimately results in better sugar production, sales realization and cane price paid to us. All cane cultivating farmers have established this system of Sabhasad/zone samiti on the basis of 'Vina Sahakar Nahi Uddhar' and 'One for each and each for all' with no profit no loss basis. Accordingly, our Khedut Samiti is doing the total activities of cane harvesting and transportation upto factory gate/weighbridge. The expenses incurred for cane harvesting and transportation are borne by me and we have authorized our Khedut Sabhasad Samiti by giving due consent to take the received amount as expenses for cane harvesting and transportation on account of our ex-factory cane price payment against our sugarcane supplied to sugar factory for crushing. The necessary vouchers for advance amount needed for cane harvesting and transportation from my cane payment is signed by me and in this way, the said amount of advance money taken from my account as per my will and consent are being transferred to this Sabhasad zone samiti with my willing consent as given to sugar factory. I am totally empowered to manage my ex-factory cane price payment as per my needs and necessity as I am the sole owner of my cane crop sent to sugar factory. I always acknowledge and sign the voucher for payment of cane price as and when advance money or money required for payment of bill and as such, have authorized the trustworthy person of our samiti to withdraw the amount out of my gate delivery cane price.
The necessary information in respect of cane harvesting programme has sent to me by sugar factory through cane control quality boys from time to time specifying the cane harvesting period and date.
After receipt of the necessary instructions for cane harvesting through cane quality and control boys of the sugar factory. I am harvesting and transporting my own cane through the labour employed and by suitable transportation media at factory gate/weighbridge.
After receipt of cane harvesting schedule, I used to go to my own field and make all necessary arrangements for timely harvesting, by removing the trash, roots and such type of waste material from the harvested cane to get highest possible recovery from the sugar plant. All these harvesting and transportation arrangement are being arranged by our own formed Khedut Sabhasad Samiti and sugar factory is paying ex-factory or gate cane price for the sugarcane supplied by me to factory gate/weighbridge related with the weighment.
No deduction of income-tax is being in force in our nation from the farmers cultivating sugarcane, ground-nut, wheat, juwar, chana, cotton, rice, etc. The amount of cane harvesting and transportation instalment is the part and partial of ex-factory/gate delivery price and Chalthan Sugar Factory Na Khedut Sabhasadoni Samiti is collectively doing the job of cane harvesting and transportation, observing the least cost involvement and economically in the interest of the farmers which has no relationship with the sugar Mandli.
The information given in this affidavit is true and correct to the best of my knowledge.
English version of receipt issued by the Asstt. Government Labour Officer on 24th April, 2003 'I the undersigned Shri V.G. Khair, Asstt, Government Labour Officer, Palsana acknowledge and issue receipt to the effect that Shri Chalthan Sugar Factory Na Khedut Sabhasadoni Samiti, Chalthan, Taluka Palsana, District Surat has paid Rs. 65,700 (Rupees Sixty Five Thousand Seven Hundred only) towards premium of total 180 persons at the rate of Rs. 365 p.a. per person under Krishi Shramik Samajik Suraksha Yojna (KSSSY) of the Central Government.
(vi) Clause 7(a) of 'Peta Niyam' (translated in English) which are in the following terms: Reaping of sugarcane and bring it to the factory of co-operative society would be legal responsibility of the member However, the managing committee of the society, if possible will collectively decide for such kind of work and expenses thereof will be divided proportionately.
10. After considering the totality of the facts and circumstances of the case and the records, first of all, we would like to deal with the assessee's submission that the Revenue has rejected the affidavits of farmers without cross-examining a single farmer.
10.1 So far as the subject's right to file of an affidavit is concerned, we are of the opinion that in proceedings before the Tribunal, it is rule No. 10 of ITAT Rules, 1963, which provides for furnishing of an affidavit and according to this rule, the affidavit is to be filed where a fact which cannot be borne out or is contrary to, the record is alleged, it shall be stated clearly and consciously and supported by a duly sworn affidavit. The rule in question reads as under: 10. Filing of affidavits.-Where a fact which cannot be borne out by, or is contrary to the record is alleged, it shall be stated clearly and concisely and supported by a duly sworn affidavit.
10.2 The other provisions for enabling the subjects to file an affidavit are contained in Indian Evidence Act, 1872. Here, before considering the provisions of Indian Evidence Act, 1872, we are of the opinion that though, normally, the income-tax proceedings are not governed by strict rules of the Indian Evidence Act, and are also aware that the income-tax proceedings except for the purpose specified under Section 136 of the IT Act, are not judicial proceedings, but at the same time, since it is settled law that the income-tax proceedings are quasi-judicial in nature and therefore, we are of the opinion that when it comes to the issue relating to establishing a material fact or the issue relating to establishing the existence of a document on record, the issue to that extent goes out of the strict provisions of IT Act-at least with respect to applicability of Indian Evidence Act and consequently comes within the provisions of Indian Evidence Act-meaning thereby that existence or non-existence of a particular document has to be established in accordance with the provisions of Indian Evidence Act. In other words, when a party during the course of income-tax proceedings, claims the existence of a particular document on the official records in the custody of a person-may he/she be either Government officer or a subject (assessee), they are entitled to revert back to the provisions of Indian Evidence Act and can establish the existence or non-existence of such documents by resorting to the provisions of Indian Evidence Act.
10.3 Coming to the provisions of Indian Evidence Act, we are of the opinion that so far as the provisions of Indian Evidence Act are concerned, it is necessary to consider the provisions of Sections 61, 62, 63, 64 and 65 of the Indian Evidence Act, which are in the following terms: Section 61 : Proof of contents of documents -The contents of documents may be proved either by primary or by secondary evidence.
Section 62 : Primary evidence means the document itself produced for the inspection of the Court.
Explanation 1-Where a document is executed in several parts, each part is primary evidence of the document; Where a document is executed in counterpart, each counterpart being executed by one or some of the parties only, each counterpart is primary evidence as against the parties executing it.
Explanation 2-Where a number of documents are all made by one uniform process, as in the case of printing, lithography or photography, each is primary evidence of the contents of the rest; but, where they are all copies of a common original, they are not primary evidence of the contents of the original.
Section 63 : Secondary evidence-Secondary evidence means and includes- (1) Certified copies given under the provisions hereinafter contained; (2) Copies made from the original by mechanical processes which in themselves ensure the accuracy of the copy, and copies compared with such copies; (4) Counterparts of the documents as against the parties who did not execute them; (5) Oral accounts of the contents of a document given by some person who has himself seen total income.
Section 64 : Proof of documents by primary evidence-Documents must be proved by primary evidence except in the cases hereinafter mentioned.
Section 65 : Cases in which secondary evidence relating to documents may be given-Secondary evidence may be given of the existence, condition or contents of a documents in the following cases: (a) When the original is shown or appears to be in the possession or power-of the person against whom the document is sought to be proved, or Of any person out of reach of, or not subject to, the process of the Court, or And when, after the notice mentioned in Section 66, such person does not produce it; (b) When the existence, condition or contents of the original have been proved to be admitted in writing by the person against whom it is proved or by his representative in interest; (c) When the original has been destroyed or lost, or when the party offering evidence of its contents cannot, for any other reason not arising from his own default or neglect, produce it in reasonable time; (d) When the original is of such a nature as not to be easily moveable; (e) When the original is a public document within the meaning of Section 74; (f) When the original is a document of which a certified copy of permitted by this Act, or by any other law in force in (India), to be given in evidence; (g) When the originals consist of numerous accounts or other documents which cannot conveniently be examined in Court, and the fact to be proved is the general result of the whole collection.
In case of (a), (c) and (d), any secondary evidence of the contents of the documents is admissible.
In case (e) or (f), a certified copy of the document, but no other kind of secondary evidence, is admissible.
In case (g), evidence may be given as to the general result of the documents by any person who has examined them, and who is skilled in the examination of such documents.
10.4 From the provisions of Section 61, it is clear that the contents of documents can be proved either by primary or by secondary evidence and the primary evidence and secondary evidence as defined under Sections 62 and 63 are as under: (i) The primary evidence is the document itself and is to be produced for inspection of the Court.
It is further prescribed that if the document is executed in several parts, then each part falls within the definition of primary evidence of the document and if document is executed in counterparts, then each counterpart is primary evidence as against the parties executing it, Explanation Nos. 1 and 2 to this section further elaborate on the subject as to which document is primary evidence.
(ii) Section 63 defines the secondary evidence and according to it, the secondary evidence is of five kinds; (i) certified copy given in the provisions contained in the Evidence Act; (ii) copies made from the original by mechanical process, which in themselves ensure the accuracy of copies and copies compared with such copies; (iii) copies made from or compared with the original; (iv) counterparts of the documents as against parties, who did not execute them; and (v) oral accounts of the contents of the documents given by some person, who has himself seen it.
10.5 The provisions of Section 64, on the other hand, speaks of proof of primary evidence and according to these provisions, to establish the proof of document by considering the same as primary evidence, the documents must be proved except in the case mentioned in other provisions of the Act.
10.6 So far as Section 65 is concerned, it prescribes the circumstances under which the existence of a document can be established by way of secondary evidence when it cannot be proved by way of primary evidence.
11. So far as the present case is concerned, we are of the opinion that though it is not a case of establishment of existence of a document, yet the procedure to establish a fact, which is not borne out from the records, will be similar. In the present case, what the assessee had tried to establish, by way of the affidavits of various farmers, is that the "samiti" was not assessee's organization/branch because the liability to deliver the sugarcane at the gate of assessee's factory was that of farmers. .
12. After having gone through the statements made in the affidavits, we are of the opinion that these are nothing, but repetition of assessee's submissions, for which the assessee has already referred to various documents. In other words, by furnishing the affidavits of the farmers, the assessee is not establishing any fact which, irrespective of the fact as to whether the same is true or untrue, is not borne out from assessee's submissions and various documents referred to by him during the course of hearing and placed in the paper book. Still, in other words, what the assessee is bringing to get is support to its case by producing the said affidavits as witnesses without having been required or called by the AO which is not permissible under the law of Evidence Act.
13. In a nutshell, we are of the opinion that the affidavits of the farmers are nothing, but statements supporting assessee's contention and, therefore, cannot be said to be affidavits as envisaged in Rule 10 of ITAT Rules, 1963 and consequently the assessee had no right to furnish such affidavits.
14. Without prejudice to above findings, we are of the opinion that, as is evident from the provisions of Indian Evidence Act, 1872 reproduced in para No. 10.3 above, the assessee could file the affidavit firstly, on the directions of Courts/Tribunal/concerned authorities and that too by way of secondary evidence, or secondly, in accordance with the provisions of Rule 10 of the ITAT Rules.
15. So far as the present case is concerned, neither the AO nor the CIT(A) had required the assessee to furnish any affidavit nor it conforms to the requirement of Rule 10 of ITAT Rules, because there seems to be no necessity as all the submissions made in the affidavit find place in the pleadings and the documents relied upon in support of such pleadings-this observation is without prejudice to our findings as to whether pleadings and documents relied upon in support of such pleadings are found to be trustworthy/correct or a make belief affair.
16. In view of above facts and circumstances of the case, we are of the opinion that the assessee had no right to furnish any affidavit of any farmer of its own without being directed or required by the AO, and, therefore, there was no question for the Revenue to either consider the same or to cross-examine any of the farmers before rejecting the same.
17. Coming to the assessee's second plea, that in case Revenue was considering "samiti" to be assessee's benami unit/organization/outfit, then onus was on the Revenue to establish the same, we are of the opinion that- (i) Where the unit/organization/outfit a work place is considered to be a part the assessee's own organization, it falls, only within the ambit of term "branch office/branch unit or branch organization" and nothing else, meaning thereby that it does not fall/come within the definition of benami organization as has been confessed by the assessee.
(ii) Without prejudice to the above, even if it is assumed for the, sake of arguments, that "samiti" falls within the ambit of "benami organization", then also we are of the opinion that to prove the benami organization, the Revenue was to establish two ingredients; namely, (a) that, the funds available with the "samiti" belonged to the assessee and flowed from the assessee.
(b) The fruits of the activities carried on by the "samiti"/income earned by the samiti was enjoyed by the assessee.
18. So far as the assessee's case is concerned, it is an admitted fact that the total funds advanced to the samiti belonged to the assessee and have flown from assessee to the samiti for carrying out the jobs for which the assessee was under obligation to perform--this will be established in subsequent part of the order.
19. The funds/income, i.e., the surplus remaining with the samiti has admittedly been enjoyed by the assessee. This fact is admitted by the assessee and is confirmed on record that the surplus amount remaining with the samiti, after the season was over, came back to the assessee.
20. In view of above facts, we are of the opinion that the Revenue had discharged the onus, if any, put on it to establish that the samiti was nothing, but a benami outfit of the assessee.
21. After having considered the totality of the facts arid circumstances of the case, we are of the opinion that for the reasons stated hereinafter the samiti was nothing but a branch office of the assessee or assessee's own organization/outfit (by whatever name we may call it) for the reasons stated hereunder: (i) Rules and regulations for sugarcane plantation for planting season 2003-04 and resolution Nos. 8 and 10 dt. 12th Nov., 2001 and 7th Oct., 2002 are unilateral in nature, and the farmers are not party to them and, therefore, whatever has been stated therein cannot be held as binding on farmers.
(ii)(a) Rule No. 13 of the rules and regulations which reads as "plantation shall be made only in the Gold having road where the sugarcane can be transported by the truck" clearly leads one to believe that the sugarcane was to be transported from farmers' fields to the site of samiti's collection centre or to the gate of the factory, as the case may be not by the farmers, but somebody else and that somebody else in the facts and circumstances of the present case, could not be anybody else other than the samiti/assessee", meaning thereby that the transportation of the sugarcane from the farmers' fields was not the farmers' liabilities because had it been so, then how the assessee was concerned with the location of the field. Such a condition can be imposed only by a person who is to face/work under that situation. If the transportation was not the assessee's headache, then how the assessee was concerned with the location of the field and how the assessee could impose such condition. This condition clearly confirms that transportation of sugarcane from the fields even to the collection point, what to say of assessee's factory's gate, was of the assessee.
(b) This rule does not specify as to what will happen to the sugarcane of a farmer, who is member of the society, i.e., the assessee, but do not have his fields by the side of road. Could the assessee refuse to receive the sugarcane grown by such farmer-members in fields away from road and if not, then how those farmers could be charged deduction @ Rs. 165 per MT. The rule also does not specify as to what will happen to the case of farmers who had their transport-specially in view of the admitted fact by the assessee that it was deducting an amount equal to Rs. 165 per MT from the sale price payable in the case of each farmer. Such bye-laws, in our opinion, is a well knit planning of the assessee to befool the farmers as well as the Revenue and, therefore, the same cannot be accepted to be lawful.
(iii) Deduction of an amount of Rs. 165 per MT, allegedly out of purchase price payable by the assessee-against purchase of sugarcane from various farmers is or cannot be said to be in the interest of all the farmers, because the farmers whose fields were nearer/in the vicinity of the, factory they were in loss as compared to farmers whose fields were situated far away. Same freight cannot be charged for different distances and nobody will pay at least the farmers whose fields were nearer to the factory will not pay so much freight.
(iv) Similarly, the farmers who had their own transport would not have preferred to pay a sum of Rs. 165 per MT for transportation of sugarcane from their fields to the assessee's factory gate because for farmers, money is more important than the time.
(v) If the payments to the "samiti" were towards purchase price of sugarcane of farmers, then was not it incumbent upon the "samiti" to distribute/pay the surplus remaining with the "samiti" after the season was over to respective farmers. But in the present case, admittedly, it is not so. On the contrary, it is an admitted fact that the total surplus with the "samrti" as on 31st March, 2002 was Rs. 2,82,84,823 out of which an amount of Rs. 93,16,935 (page No. 5 of the assessment order) had gone back to the assessee.
(vi) Had the "samiti" not been assessee's branch office/outfit, as the case may be, the total surplus remaining with the "samiti" on 31st March, 2002 as well as at the end of each one of the other years would have been distributed among the farmers. Further, since the assessee has not furnished any detail with respect to the surplus with the "samiti" as on 31st March, 2003 or 31st March, 2004 and also the details of balance sheet remaining with the assessee (having come back out of alleged advance given to samiti) and in absence of such details, but in view of undisputed fact that every year surplus with the samiti used to come back to the assessee, it has to be presumed that the total surplus remaining with the samiti as on 31st March, 2003 or 31st March, 2004 at the end of each season had come back to the assessee. This aspect was not denied by the assessee.
22. The aforesaid facts clearly go to show that samiti was nothing, but a branch office of the assessee to which the assessee was sending money in advance, but in the garb of a part of purchase price of sugarcane payable to farmers. By adopting this method or 'modus operandi', the assessee was not only avoiding its liability to deduct the tax at source on payments made to transporters and the 'mukadams' through the so-called branch office/outfit in the garb of "samiti" which admittedly, were in excess of the limits prescribed under Section 194C of the Act, but has also evaded the tax payable on that part of income which remained as surplus with the "samiti" at the end of each season/year, by claiming the same to be expenditure on account of purchase price. In fact, the payment to "samiti" was not at all the payment on account of part payment of purchase price payable to farmer, rather was in the nature of impressed payments to branch office and should not have been allowed as deduction. We are conscious of the fact that this issue is not before us, but the observation has to be made to bring home the point that payment to "samiti" was not on account of purchase price.
23. So far as the assessee's plea that salary to supervisors and more than 200 field boys was being paid by the "samiti" and not by the assessee is concerned, we are of the opinion that it is normal practice for the assessee having branch office or outfit that money is transferred to the branch office for incurring expenditure and surplus or deficit is accounted for in assessee's books of account. We are, therefore, of the opinion that payment of salary by the "samiti" to supervisors and field boys was for and on behalf of assessee itself.
24. During the course of hearing, the learned Counsel for the assessee, had made another submission that the truck owners and 'mukadams' had little income and some of the truck owners being partners (sic) i.e., agriculturists, their income was not taxable.
25. We have considered this plea and are of the opinion that for liability to deduct the tax at source, both these factors were absolutely irrelevant, because the Government has provided enough safeguard for such person and according to those, if the payee is of the opinion that his account will be below taxable limit, he can furnish a declaration as provided under the Act/Rules to the payer giving details of his income and making request for non-deduction of tax, at all, or at a lesser rate, and assessee was to be got absolved of its liability to deduct the tax at source by filing copies of such declarations to the prescribed authority.
26. So far as the assessee's case is concerned, we are of the opinion that the assessee, except making a plea, has not furnished any evidence that any of the transporter or the mukadam had filed any such declaration. The assessee having not complied with the requirement of the law, we are of the opinion that the assessee's this plea also fails.
27. In view of above discussion and the facts and circumstances of the case, we are of the opinion that the so-called terms and conditions or bye-laws and regulations being unilateral, the farmers not being the parties to the same, whatever evidences have been created by the assessee with farmers is only due to ignorance or connivance of the farmers because it is not established that samiti was an organization formed by the farmers. On the contrary as discussed above, the so-called "samiti" is nothing but a branch office/outfit of the assessee which was looking after the harvesting, cutting and transportation of sugarcane from the fields of the farmers to the assessee's factory's gate. The "samiti" was just a collection centre of the assessee. In view of above discussions and facts and circumstances of the case, we do not find any reason to interfere with the order of the CIT(A) which is well reasoned and has dealt with every aspect with of the issue in a judicious, elaborate and legal manner. The order of the CIT(A) is confirmed.
28. In view of aforesaid totality of the facts and circumstances of the case, we are of the opinion that so far as the present case is concerned, since, on facts we have found that the "samiti" was assessee's own branch and payments to it were not on account of purchase price payable to farmers, the accounting for the same by the assessee in farmers' accounts or other entries in the books of account were not relevant. This plea is rejected.