HC Rules Cash Payments to Milk Companies Not Exempt Under Rule 6DD

Case Details: Arasappan Madhivanan vs. Income-tax Officer - [2025] 173 taxmann.com 876 (Madras)

Judiciary and Counsel Details

• Dr Anita Sumanth & G. Arul Murugan, JJ.
• A.S. Sriraman, for the Appellant.
• J. Narayanaswamy, Sr. Standing Counsel for the Respondent.

Facts of the Case

The assessee was engaged in the business of wholesale milk distribution of Arokya Milk to dealers for Hatsun Agro Products Limited (Company). During the scrutiny proceedings, it was found that the assessee made cash payments in excess of Rs. 20,000, which attracted provisions of Section 40A(3).

In response, the assessee contended that the exclusion under Rule 6DD(e)(ii) would apply as the Company was engaged in the production of milk. However, the Assessing Officer (AO) rejected the contention and made the disallowance as proposed. The matter reached the Madras High Court.

High Court Held

The High Court held that the term ‘producer’ in Rule 6DD(e)(ii) is clearly with reference to a dairy farmer and not to a company. The term ‘producer’ qua ‘dairy farming’ has to be understood noscitur a sociis with the terms ‘cultivator’ and ‘grower’ qua agriculture, forestry, poultry farming, apiculture etc, respectively. It cannot, by any stretch of the imagination, stretch to include a company that is engaged in the activity of pasteurisation of milk, particularly bearing in mind the object of section 40A(3), being to discourage cash payments.

Both the company and the distributor (assessee) had full access to banking facilities. The operation of Section 40A(3) is absolute. Rule 6DD has been brought in to carve out exceptions to the rigour of Section 40A(3) in worthy situations as identified in that Rule itself.

Nowhere does Rule 6DD envisage the extension of that benefit to cash payments made by a distributor (assessee) to the company. There is no justification for why the payments in the present case were made in cash or what the exigencies were that prevented the entities from transacting through the bank.

Accordingly, disallowance under section 40A(3) was justified.

List of Cases Referred to

• Pr. CIT v. Standard Leather (P.) Ltd. [2022] 137 taxmann.com 124/287 Taxman 31/442 ITR 177 (Calcutta) (para 5)
• Attar Singh Gurmukh Singh v. ITO [1991] 59 Taxman 11/191 ITR 667 (SC) (para 8)
• Smt. Chanchal Dogra v. ITO [2013] 33 taxmann.com 394 (Himachal Pradesh) (para 10)
• Mrs. R. Thiruvengadam v. Asstt. CIT Circle-1, Pondicherry [2019] 108 taxmann.com 487 (Madras) (para 22).