Jamshedpur Dairy, a unit of Bihar State Cooperative Societies Milk Producers Federation Ltd. vs Joint Commissioner of Income Tax (TDS) and Assistant Commissioner of Income Tax (TDS)

The petitioner-Jamshedpur Dairy has assailed the notice dated 10.11.2009, as contained in Annexure-4 to this writ petition, wherein the Assistant Commissioner of Income Tax(TDS), Jamshedpur has raised a demand for a sum of Rs. 13,48,934/- and Rs. 11,70,569/- in regard to the financial year 2006-07 and 2007-08 respectively on the basis of an order dated 31.3.2009 wherein the Assistant Commissioner of Income Tax had been pleased to hold that petitioner had failed to get the tax deducted at source which it had received by way of commission from the buyers of the milk. The Assistant Commissioner, therefore, passed an order that as the petitioner had failed to get the tax deducted at source on the amount which it had received from the buyers by way of commission, hence the petitioner -Dairy was liable to make the payment towards the income tax.

Admittedly the petitioner has an alternative remedy of appeal before the Income Tax Appellate Tribunal of Jharkhand at Ranchi and the petitioner has also filed an appeal which is pending before the Tribunal. However, it was stated that the Tribunal is not functioning at the moment and the Tribunal would conduct the proceedings only in the month of February, 2010 but in the meantime the petitioner-Dairy has been saddled with the demand notice, raising a claim for the amount indicated hereinbefore, merely on the ground that the petitioner had failed to get the tax deducted at source from the amount received from the buyers/consumers. It was submitted that the petitioner although will avail the remedy of appeal before the Tribunal, the demand notice issued by the respondent No. 2 should be stayed as it is not legally permissible for the Respondent- Revenue to deduct any amount by way of TDS from the amount which is paid to the petitioner-Dairy by way of commission for supplying milk to the consumers/ buyers and according to his submission, the same cannot be treated as income.

In sum and substance, it has also been submitted that the liability of deducting tax at source could not be fastened upon the petitioner -Dairy as the transaction is essentially of sale and purchase of milk and milk products in between the petitioner and buyers/ consumers which gets established from the terms and conditions of the agreement, which would reflect that distributors upon making payment of milk or milk product become the owner of the product.

Prima facie, the submission of the counsel appeared to be arguable but the same cannot be treated to be conclusive, since the appeal is yet to be considered by the Income Tax Appellate Tribunal, but merely to grant interim protection, we have examined whether TDS was liable to be deducted by the petitioner-Dairy.

However, we find that the transaction between the petitioner-Dairy and the consumers/buyers is only a transaction of sale and purchase on commission basis and whether the liability was of the petitioner to deduct tax at source required consideration.

Hence, we deem it appropriate to direct that no realization as per the demand notice shall be made by the respondents until 28th February, 2010 and in the meantime we expect that the petitioner will get the matter adjudicated before the Tribunal.

It is made clear that this order of stay has been granted only by way of interim protection to the petitioner, since the Tribunal is not functioning at the moment. Whether the petitioner is legally entitled for further protection from the liability to satisfy the demand raised shall be considered by the Tribunal and the same obviously will be governed by the order to be passed by the Tribunal.

This writ petition, accordingly, is disposed of.