THE issues before the Bench are - Whether cash payments made to agents are deemed direct payment to milk producers as per clause (f) of Rule 6DD - Whether cash payments made to milk producers are outside the provisions of Sec 40A(3). YES is the Tribunal's answers.
Facts of the case
Assessee is engaged in the business of purchasing milks, and after processing, selling the milk and milk products. Assessee purchased milk in cash for Rs. 23.78 crores. AO disallowed 20% of the cash payments u/s 40A(3) stating that as
Assessee is engaged in the business of purchasing milks, and after processing, selling the milk and milk products. Assessee purchased milk in cash for Rs. 23.78 crores. AO disallowed 20% of the cash payments u/s 40A(3) stating that as
per the vouchers produced payments had been made to some persons who in turn had split payment to various persons. Initially it was stated that the payments were made to employees. On verification it was found that only some of the persons were employees and the balance were claimed as agents and relief under rule 6DD item–‘L’ was claimed. On enquiry it was further observed that no commission was paid and they were not the agents of the assessee company but procured milk for the sake of their own business and sold it to the assessee company. The claim that payments were made in places where banking services were not available was not acceptable as banking facilities were available in nearby centres.
Assessee submitted before CIT (A) that the payments were made to the supplier of milk and the amount never exceeded Rs. 20,000/- and the provision of Sec 40A(3) were inapplicable. CIT (A) called for a remand report in which the AO held that the case was covered by exception in Rule 6DD(l). CIT (A) again called for a detailed report and AO filed a detailed reply. Assessee submitted the mechanism of the purchase of milk and making of the payment to the village representatives/agents and emphasized the fact that the assessee was covered by exceptions to Rule 6D vide clause (g), (f) and (l) of the I.T. Rules. The case was covered under Rule 6DD(f), as the payments in question were made to the producers of dairy milk indirectly through the village representative/ agent, which was a deemed contract payment to the producers of milk. Without prejudice, the payments in question were made to the agents who in turn were required to make payment in cash for goods on behalf of the purchaser of milk covered under clause (l) of Rule 6DD.
CIT(A) admitted the additional evidences and allowed the appeal of the assessee stating that the company made the payment in the name of the representative, and after receipt of the payment, he disbursed the amounts to the members as per the entries recorded in the milk collection centre. The representative had to file a form of agent application, after receipt of which the company supplied various material to this person for utilization in milk collection centre. The payments were made in cash because at the primary states of milk collection centre, the members insisted on cash payments and gradually bank accounts were opened in nearby banks after which the payments were made through banks only. All these persons filed confirmation letters stating that they were agents of the company. Thus, the milk representatives were acting not only as representatives of the milk vendors at the milk collection centre, but also acted as agents of the company for the purpose of performing various functions associated with the operation of milk collection centre, including disbursement of payments. Although there was no agency agreement in writing, their conduct and function in procurement of milk and disbursement of amounts to the vendors could be considered as the Act of an agent. Both the company as well as the representatives (payees) confirmed that the representatives were acting as the agents of the company. Accordingly, the payments made to them would be covered by the exception in clause (l) of Rule 6DD. The relationship between the assessee company and the representatives was of implied agency and could not be considered to be a relationship between principals. Thus, the exception in clause (l) of Rule 6DD was clearly applicable. Even if it is assumed that the payees were representatives of farmers and could not be considered as agents of the assessee, the payments in question have to be considered as having been made to these persons with the objective of making final disbursement to the milk vendors for milk products, and would be covered by clause (f) of Rule 6DD.
After hearing both the parties, the ITAT held that,
++ bare reading of the provisions of clause (f) indicates that the payments made for purchase of produce of the animal husbandry or dairy etc to its producer are outside the scope of the provisions of section 40A(3) of the Act. The expressions ‘to the cultivator, grower or producer of such articles, produce or products’ placed at the end of clause (f) of the rule 6DD commonly apply to all four sub clauses of the said clause (f). Further, where assessee makes the payment in cash to his agent who is required to make payment in cash for goods or services on behalf of such person, such payments are outside the scope of the provisions of section 40A(3) of the Act. There is no bar on the said agent to work in dual capacity to the milk producers too. The representatives are admittedly the agents as evident from the confirmation letters filed by them before the lower authorities. Further, there is no dispute on the fact that the milk, for which the impugned payments are made by the assessee, is not a dairy produce. The requirement of making the payments in cash to the producers of milk is much beyond the existence of Banking facilities in that village or nearby villages. The economic problems of milk producers are such that the Parliament/CBDT felt it necessary to incorporate milk producer should be free to receive payments in cash. The payments in cash made by the assessee to the milk producers though the aegis of the composite representatives/agents in dual capacity of the assessee milk producers combine, should be deemed as direct payment to the milk producers within the meaning of the provisions of clause (f) of Rule 6DD of the Income tax rules, 1962;
++ the representatives of the MCC are also should be deemed as the agents of both assessee and milk producers as such persons fill the ‘Form of Agent’ to be initially entertained by the assessee as well as the milk producers. It is a fact on approval by both parties, the assessee hands over the fat-measuring equipments and subsequently, the assessee periodically hands over the requisite cash for disbursal among the milk suppliers and of course, the milk producers hand over the milk for the assessee to the same representative. These representative cannot be considered as middleman considering the fact quite often, he is one among the suppliers of the milk and receive some incentive for the extra services rendered by him for both the assessee and the colleague members of the village;
++ AO made addition without considering that each payment never exceeded the specified sum of Rs.20,000. Violation arises only if the payments at the point of representative and not otherwise. The representative filed confirmation letters before the AO asserting that they are the agents of the company alongwith their duties and responsibilities towards suppliers of milk to. It is the requirement of these agents to make the payment in cash for goods, i.e. milk, to the cattle owners, who belong to economically weaker section, on behalf of the assessee. Thus, the payments are squarely covered by the exceptions provided in clause (l) of Rule 6DD. The assessee should be entitled for relief even if the impugned payments are covered under any one of the exceptions prescribed in Rule 6DD, viz. either under clause (f) or clause (l) of Rule 6DD, even if not both. Thus, AO should not have considered the payments made in cash to the ‘representative’ for applying the provisions of section 40A(3) of the Act as cash payments of any amount to such producers of milk are covered by the above said clauses of (f) and (l) of the Rule 6DD of I T Rules, 1962
Assessee submitted before CIT (A) that the payments were made to the supplier of milk and the amount never exceeded Rs. 20,000/- and the provision of Sec 40A(3) were inapplicable. CIT (A) called for a remand report in which the AO held that the case was covered by exception in Rule 6DD(l). CIT (A) again called for a detailed report and AO filed a detailed reply. Assessee submitted the mechanism of the purchase of milk and making of the payment to the village representatives/agents and emphasized the fact that the assessee was covered by exceptions to Rule 6D vide clause (g), (f) and (l) of the I.T. Rules. The case was covered under Rule 6DD(f), as the payments in question were made to the producers of dairy milk indirectly through the village representative/ agent, which was a deemed contract payment to the producers of milk. Without prejudice, the payments in question were made to the agents who in turn were required to make payment in cash for goods on behalf of the purchaser of milk covered under clause (l) of Rule 6DD.
CIT(A) admitted the additional evidences and allowed the appeal of the assessee stating that the company made the payment in the name of the representative, and after receipt of the payment, he disbursed the amounts to the members as per the entries recorded in the milk collection centre. The representative had to file a form of agent application, after receipt of which the company supplied various material to this person for utilization in milk collection centre. The payments were made in cash because at the primary states of milk collection centre, the members insisted on cash payments and gradually bank accounts were opened in nearby banks after which the payments were made through banks only. All these persons filed confirmation letters stating that they were agents of the company. Thus, the milk representatives were acting not only as representatives of the milk vendors at the milk collection centre, but also acted as agents of the company for the purpose of performing various functions associated with the operation of milk collection centre, including disbursement of payments. Although there was no agency agreement in writing, their conduct and function in procurement of milk and disbursement of amounts to the vendors could be considered as the Act of an agent. Both the company as well as the representatives (payees) confirmed that the representatives were acting as the agents of the company. Accordingly, the payments made to them would be covered by the exception in clause (l) of Rule 6DD. The relationship between the assessee company and the representatives was of implied agency and could not be considered to be a relationship between principals. Thus, the exception in clause (l) of Rule 6DD was clearly applicable. Even if it is assumed that the payees were representatives of farmers and could not be considered as agents of the assessee, the payments in question have to be considered as having been made to these persons with the objective of making final disbursement to the milk vendors for milk products, and would be covered by clause (f) of Rule 6DD.
After hearing both the parties, the ITAT held that,
++ bare reading of the provisions of clause (f) indicates that the payments made for purchase of produce of the animal husbandry or dairy etc to its producer are outside the scope of the provisions of section 40A(3) of the Act. The expressions ‘to the cultivator, grower or producer of such articles, produce or products’ placed at the end of clause (f) of the rule 6DD commonly apply to all four sub clauses of the said clause (f). Further, where assessee makes the payment in cash to his agent who is required to make payment in cash for goods or services on behalf of such person, such payments are outside the scope of the provisions of section 40A(3) of the Act. There is no bar on the said agent to work in dual capacity to the milk producers too. The representatives are admittedly the agents as evident from the confirmation letters filed by them before the lower authorities. Further, there is no dispute on the fact that the milk, for which the impugned payments are made by the assessee, is not a dairy produce. The requirement of making the payments in cash to the producers of milk is much beyond the existence of Banking facilities in that village or nearby villages. The economic problems of milk producers are such that the Parliament/CBDT felt it necessary to incorporate milk producer should be free to receive payments in cash. The payments in cash made by the assessee to the milk producers though the aegis of the composite representatives/agents in dual capacity of the assessee milk producers combine, should be deemed as direct payment to the milk producers within the meaning of the provisions of clause (f) of Rule 6DD of the Income tax rules, 1962;
++ the representatives of the MCC are also should be deemed as the agents of both assessee and milk producers as such persons fill the ‘Form of Agent’ to be initially entertained by the assessee as well as the milk producers. It is a fact on approval by both parties, the assessee hands over the fat-measuring equipments and subsequently, the assessee periodically hands over the requisite cash for disbursal among the milk suppliers and of course, the milk producers hand over the milk for the assessee to the same representative. These representative cannot be considered as middleman considering the fact quite often, he is one among the suppliers of the milk and receive some incentive for the extra services rendered by him for both the assessee and the colleague members of the village;
++ AO made addition without considering that each payment never exceeded the specified sum of Rs.20,000. Violation arises only if the payments at the point of representative and not otherwise. The representative filed confirmation letters before the AO asserting that they are the agents of the company alongwith their duties and responsibilities towards suppliers of milk to. It is the requirement of these agents to make the payment in cash for goods, i.e. milk, to the cattle owners, who belong to economically weaker section, on behalf of the assessee. Thus, the payments are squarely covered by the exceptions provided in clause (l) of Rule 6DD. The assessee should be entitled for relief even if the impugned payments are covered under any one of the exceptions prescribed in Rule 6DD, viz. either under clause (f) or clause (l) of Rule 6DD, even if not both. Thus, AO should not have considered the payments made in cash to the ‘representative’ for applying the provisions of section 40A(3) of the Act as cash payments of any amount to such producers of milk are covered by the above said clauses of (f) and (l) of the Rule 6DD of I T Rules, 1962
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