| SooperKanoon Citation | sooperkanoon.com/74757 |
| Court | Income Tax Appellate Tribunal ITAT Chandigarh |
| Decided On | Feb-28-2006 |
| Judge | N Saini, J Singh |
| Reported in | (2006)101ITD288(Chd.) |
| Appellant | Assistant Commissioner of |
| Respondent | Shiv Shankar Rice Mills |
2. The facts of the case in brief are that the Assessing Officer, during the course of assessment proceedings noticed that in the trading account, the assessee had not shown sales of by-products of paddy. When the enquiries were made, it revealed that the g assessee had given away rice-bran and phuck to M/s. Balaji Rice & General Mills, Peoda Road, Kaithal in exchange for milling of paddy work done and chilka was burnt in the boiler to prepare 'sela1 rice. The Assessing Officer opined that the rice-bran and phuck given away in exchange for milling of paddy services was required to be accounted for as domestic sales and as milling expenses and by making this entry, the net profit shall not be p effected. He, accordingly, worked out the quantity of rice-bran and phuck at 13,440 qtls. by taking yield at the rate of 10 per cent of 1,34,405 qtls. paddy milled. He applied the rate of Rs. 400 per quintal and calculated the amount at Rs. 53,76,000 which was treated as domestic sales and consequently the deduction under Section 80HHC was reduced due to the increase in domestic sales.
3. The assessee carried the matter to the CIT (Appeals) and submitted that an agreement was entered into with M/s. Balaji Rice & General Mills, Kaithal for milling of rice. As per this agreement, phuck and bran (polish) etc. obtained during manufacturing of rice was to be the property of the miller as lease charges and that such type of agreements were quite common in this line of business. The assessee also filed one copy of the Model Agreement that Government, normally entered into with the millers. Clause 8(iv) of the said agreement reads as under: The by-products viz., Broken rice, rice kani, phuck (rice husk) and rice-bran etc. obtained during manufacture of rice shall be the property of the miller and the Government shall have no right or responsibility in this regard.
It was stated that rice by-products were retained by the miller M/s.
Balaji Rice Mills by terms of agreement as lease/milling charges. As such, the property in those by-products never pass on to the assessee.
It was stated that such type of treatment automatically increased the cost/purchase value which ultimately merged into valuation of closing stock. It was explained that sums paid in respect of such type of lease agreements were revenue expenditure which increased the purchase cost.
It was argued that the Assessing Officer, instead of taking such milling/ lease charges as part of cost of production, hypothetically treated it the internal sales and consequently denied the benefit of deduction under Section 80HHC of the Income-tax Act. It was further stated that such type of lease settlement did not fall within the definition of sales as had been held by the Hon'ble Supreme Court in the case of CIT v. Motors & General Stores (P.) Ltd. [1967] 66ITR 692.
Reliance was also placed on the judgment of Hon'ble Allahabad High Court in the case of M.P. Sugar Mills v. CIT 4. The learned CIT (Appeals), after considering the submissions of the assessee observed that the comments of the Assessing Officer had been obtained on the written submissions of the assessee. However, he could not rebut the ratio laid down by the Hon'ble Supreme Court in the case of Motors & General Stores (P.) Ltd. (supra) wherein it had been held that exchange or barter cannot be treated/included in the sales.
Accordingly, the issue was decided in favour of the assessee.
5. Before us, the learned Sr. DR supported the order of the Assessing Officer and submitted that the assessee adopted the modus operandi to increase export profit by not adopting the milling charges to manufacturing account, it not only claimed wrong deduction under Section 80HHC but also tried to increase export profit and had suppressed local sales. He argued that the learned CIT (Appeals) had not appreciated the motive of the assessee behind the transaction which resulted in higher computation of deduction claimed under Section 80HHC. He further stated that the sales worked out by the Assessing Officer should be treated as local sales for the reason that in case the byproducts were not to be given to the miller, then those were to be sold in the market. He placed his reliance on the following case laws: (ii) Orient Trading Co. Ltd. v. CIT [1997] 224 ITR 371 90 Taxman 535 (SC) 6. In his rival submissions, the learned Counsel for the assessee reiterated the submissions made before the learned CIT (Appeals) and further submitted that the assessee had not sold the by-products. Those were given in exchange of milling charges and there was no contract of sales with the miller, so it could not be treated as sales. He further submitted that there was no transfer of the property and even no price was paid by the miller, so it was not a sale but the exchange in lieu of the paddy milled for the assessee. The reliance was placed on the following case laws: (i) Oil & Natural Gas Commission v. Addl. CIT [1999] 69 ITD 69 (Delhi)State of Tamil Nadu v. Sri Srinivasa Sales Circulation 7. We have heard both the parties and carefully gone through the material available on record. In the present case, the only controversy revolves around the paddy by-products given by the assessee to the miller in lieu of paddy milling charges. The assessee, on the one hand, had not paid milling charges to the miller, on the other hand, had given it the rice-bran and phuck obtained after paddy milling. The Assessing Officer considered the value of the rice, bran and phuck given to the miller by the assessee as a local sales and, consequently, increased the total turn over as well as local sales thus, reduced the claim of the assessee under Section 80HHC. Now, the relevant question to be decided is as to whether the rice-bran and phuck given by the assessee in lieu of milling charges can be considered as sale? The essential component of the sale is the transfer of the property in goods to the buyer for a price. Sub-section (1) of Section 4 of the Sale of Goods Act defines the sale and agreement to sale which reads as under: 4. Sale and agreement to sell (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and Anr.
From the above, it would be clear that to constitute a valid sale, there should be purchaser and seller who agrees to transfer the property i.e., the goods are to be transferred from the seller to the buyer for a consideration. However, in the present case, there is no such relationship of purchaser and seller in between the miller and the assessee. The miller had also not paid any price for the by-products of the paddy, i.e., rice-bran and phuck, so it cannot be said that the sale has taken place. The Hon'ble Supreme Court in the case of Sri Srinivasa Sales Circulation (supra) has held as under: Under the Sale of Goods Act, it is essential to establish that there is an agreement between the parties for transfer of title to the goods and that such agreement should be supported by money consideration and as a result of the transaction the goods, article or the property must actually pass to the purchaser. It is settled law that the expression 'sale' under the Sales Tax Act has to be understood with reference to the definition of "sale of goods" under the Sale of Goods Act. But if the title of the goods passes without any contract between the parties, express or implied, there is no sale. Similarly, if the consideration of the transfer is not money, but some other valuable consideration, it may amount to exchange or barter but not a sale in the strict sense of the law for the purposes of taxation.
From the ratio laid down by the Hon'ble Supreme Court in the aforesaid referred to case, in the instant case, the transfer of the title of the goods, i.e., the rice-bran and phuck from assessee to the miller can be considered as an exchange or barter but not a sale because there was no consideration in the form of money.
7.1 The Hon'ble jurisdictional High Court in the case of Satya Nand Munjal (supra) has held as under : If on account of a lacuna in the law or otherwise the assessee is able to avoid payment of tax within the letter of law, it cannot be said that the action is void because it is intended to save payment of tax. So long as the law exists in its present form, the taxpayer is entitled to take advantage of it.
In the instant case also, the assessee although is able to avoid payment of tax within letter of law, but it cannot be held that the action is void since it is intended to save payment of tax. In the present case, although the assessee, instead of selling the rice byproducts and then paying the milling charges to the miller, had given the rice by-products itself to the miller in exchange of milling charges, but this transaction cannot be considered as a sale and consequently, the turn-over as well as local sales of the assessee and therefore, these cannot be increased on notional basis as was done by the Assessing Officer.
7.2 The Hon'ble Supreme Court in the case of New India Sugar Mills Ltd. (supra) had held as under: In popular parlance 'sale' means transfer of property from one person to another in consideration of price paid or promised or other valuable consideration. But that is not the meaning of 'sale' in the Sale of Goods Act, 1930. Under Section 4 of the Sale of Goods Act, a transaction is called sale only where for money consideration property in goods is transferred under a contract of sale. A contract of sale between the parties is, therefore, a pre-requisite to a sale.
In the instant case, it is noticed that there was no money consideration and also there was no contract of sale between the assessee and the miller, i.e., M/s. Balaji Rice & General Mills. So, the transaction under consideration cannot be equated with sales.
Therefore, the Assessing Officer was not justified in treating this transaction as sale and in working out the notional value of the sales by assuming the yield of rice-bran and phuck at the rate of 10 per cent of paddy milled.
7.3 The Hon'ble Allahabad High Court in the case of M.P. Sugar Mills (supra) had differentiated the sale from exchange by holding as under: That the difference between a sale and an exchange is that in the former the price is paid in money, whilst in the latter it is paid in goods. Money consideration is an essential element of a sale.
In the present case, since there was no money consideration, which is an essential element of sale, so the transaction cannot be considered as a sale.
7.4 The Hon'ble Supreme Court in the case of Motors & General Stores (P.) Ltd. (supra) interpreted the meaning of "Sale" and differentiated between sale and exchange. The Hon'ble Apex Court had held as under: Sale is a transfer of property in goods or of the ownership in immovable property for a money consideration. But in exchange there is a reciprocal transfer of interest in immovable property, a corresponding transfer of interest in movable property being denoted by the word "barter". The difference between a sale and an exchange is this, that in the former the price is paid in money, whilst in the latter it is paid in goods by way of barter.
The presence of money consideration is an essential element in a transaction of sale. If the consideration is not money but some other valuable consideration it may be an exchange or barter but not a sale.
In the present case also there was a reciprocal transfer of interest because the assessee on one hand was getting its paddy milled by the miller, i.e., M/s. Balaji Rice & General Mills, Kaithal, on the other hand, was giving rice by-product, i.e., rice-bran and phuck etc. to the miller, so the transaction can be stated as an exchange, since there was reciprocal transfer, but not the sale due to the absence of essential element of sales, i.e., money consideration.
8. In the light of the aforesaid discussion and by analyzing the various judicial pronouncements referred to in the former part of this order, we are of the confirmed view that the learned CIT (Appeals) was justified in reversing the action of the Assessing Officer. We do not see any infirmity in the impugned order.
9. As regards to the case law relied by the learned Sr. DR i.e., the case of Orient Rice Trading Co. Ltd. (supra) is concerned, the facts in that case are not similar to the facts of the present case because in the said case, the assessee was dealing in shares and had taken the shares in the new company in exchange for the shares of the first company. The assessee had made realization of the value of the shares of the first company and the difference between the price of the shares of the first company and the new company on the date of such exchange had to be treated as a profit of the assessee. However, in the present case, there is no such transaction of shares. So, the case relied by the learned Sr. DR is distinguishable. Similarly, the facts in the case of B. Sathiar Singh (supra) relied by the learned Sr. DR were different from the facts of the assessee's case because the said case pertained to the gift tax and the issue involved was whether the gift tax attracted on difference between the fair market value and actual consideration. However, in the present case, no such issue is involved.
Therefore, the ratio laid down by the Hon'ble Madras High Court is not applicable to the facts of the assessee's case.
10. In view of the aforesaid discussion, we are of the confirmed view that the learned CIT (Appeals) rightly directed the Assessing Officer not to include the notional value of rice by-products given by the assessee to the miller of paddy in lieu of paddy milling as local sales.