Payment for Processing of Milk into Milk Products is Subject to TDS u/s 194C, Not Sec. 194J | Gujarat HC

Case Details: PCIT vs. Maahi Milk Producer Co. Ltd. - [2023] 156 taxmann.com 217 (Gujarat)

Judiciary and Counsel Details

• • Biren Vaishnav & Bhargav D. Karia , JJ.
  • Karan Sanghani, Ld. Sr. Standing Counsel & Mrs Kalpana K Raval for the Appellant.

Facts of the Case

The assessee was engaged in the business of selling milk and milk products. It made payments to a dairy for converting raw milk into processed milk and milk products and deducted tax at source under section 194C at 2%, treating payments as contract payments.

Assessing Officer (AO) held that the payments were in the nature of payments for technical services. Thus, the same should have been subjected to TDS at the rate of 10% under section 194J. Under section 40(a)(ia), he made disallowance on the proportionate amount of payments for short tax deduction at source at the rate of 8 percent.

On appeal, the Tribunal deleted the additions, and the matter reached the Gujarat High Court.

High Court Held

The High Court held that the assessee provided raw milk and necessary materials to the dairies for processing as per specification. The dairies pack it on a job-work basis. Since the job work falls within the definition of ‘work’ under section 194C, the assessee deducted tax under section 194C on conversion charges paid to such dairies.

The services rendered by the dairies were not technical services. The dairies were not experts on any technology they could provide to the assessee, nor did they provide any managerial or consultancy services. The dairies were not assigned any exclusive work relating to quality checks but were assigned work relating to the conversion or processing of milk and milk products, wherein one of the requirements is to ensure quality parameters. The main and basic nature of the transaction viz., conversion or processing of milk on a job-work basis does not lose its true characteristic.

Accordingly, the appeal was dismissed.

List of Cases Referred to

• • Dy. CIT v. Maahi Milk Producer Co. Ltd. [IT Appeal No. 161 (Rjt.) of 2017, dated 23-3-2018] (para 5).