Per Bench These are appeals by the assessee against the common order dated 30.04.2012 of the CIT(Appeals), Bangalore relating to A.Ys. 2007-08 to 2009-10. In these appeals, the assessee has challenged the order of the CIT(Appeals), whereby the CIT(Appeals) had confirmed the order of the Assessing Officer treating the assessee as an assessee in default u/s. ITA Nos. 721 to 723/Bang/2012 & 71 to 73/Bang/2013 Page 2 of 14 201(1) of the Act for not deducting tax at source u/s. 194H of the Income- tax Act, 1961 [hereinafter referred to as the Act in short] on payments made to State Level (Co-operative) Agency [ SLA for short] and levying interest u/s. 201(1A) of the Act on the tax that ought to have been deducted at source for the period commencing from the date on which the assessee ought to have deducted tax at source till the taxes are paid to the Government.

2. The facts and circumstances under which the assessee was treated as an assessee in default are as follows. The assessee (hereinafter referred to as NAFED or Assessee for the sake of brevity) is an apex Co-operative Society and Marketing Federation for dealing in agricultural produce, functioning under the direct control and supervision of the Ministry of Agriculture in the Central Government. Besides the Government of India (GOI) itself, the Primary Producer Co-operative Societies at the village, district and National Marketing Federation are its members.

3. The GOI through the Ministry of Agriculture in order to protect the interest of the farmers announces before the beginning of each agricultural season, the Minimum Support Price (MSP) for the major crops like wheat, rice, cotton, sugarcane, potatoes, onions, oilseeds etc. In case the price of any of these items falls below the MSP in any part of the country, then GOI enters the market and procures that agricultural produce at the MSP by what is referred as the Price Support Scheme (PSS) operations.

4. Similarly, under adverse conditions like floods, drought or diseases, the agricultural produce shrinks in short supply and the prices of these ITA Nos. 721 to 723/Bang/2012 & 71 to 73/Bang/2013 Page 3 of 14 commodities shoot up on account of short supply and higher demand. This puts the common man to hardship on account of high food prices. In such cases, the GOI ensures better supply by releasing such produce from its buffer stocks and through imports. The prices fixed for sale are kept lower than market rates so that the common man can afford them. This method of increasing the supplies to common man through Public Distribution System and fair price shop is referred to as Market Intervention Scheme (MIS) of the GOI.

5. NAFED is the nodal organization employed by the GOI for implementing both the PSS and MIS. NAFED in turn utilizes the State, District and Village level co-operative societies to procure the produce from individual farmers in the respective States where the PSS and MIS operations are to take place. These co-operatives called SLAs purchase the agricultural produce from the farmers and then sell them to NAFED. Thereafter, NAFED would hold such stocks and sell them in accordance with the directions of the GOI at a later time and at prices directed by it. The resultant loss if any on account of purchasing at the MSP which is higher than the prevailing market rate and holding them till sale is borne by the GOI.

6. The GOI fixed MSP of Ball and Milling Copra for Season 2008. NAFED was designated as the Central Nodal Agency for purchase and delivery of Copra under the MSP on its behalf. NAFED in turn appointed the Karnataka State Co-operative Marketing Federation Ltd. (KSCMFL) as its state level agency (SLA) in the state of Karnataka for implementing MSP ITA Nos. 721 to 723/Bang/2012 & 71 to 73/Bang/2013 Page 4 of 14 for copra. An Agreement dated 11.04.2008 was entered into between NAFED and KSCMFL which contains the terms and conditions under which KSCMFL has to assist NAFED in purchase of copra in Karnataka under the MSP scheme. Some of the terms of the said Agreement in so far as it is relevant for the purpose of deciding these appeals are as follows:-
KSCMFL has to procure copra from farmers and growers in the state of Karnataka through Primary Co-op. Marketing Societies / Service Co-op. Banks, Oilseed Growers Society / Tribal Society of the respective areas.
KSCMFL and the respective societies have to ensure quality standards required of the copra, ensure that the farmers lawfully entitled to MSP get the benefit.
NAFED will supply gunny bags for packing copra procured.
Storage charges are not payable to the procuring societies.
Procuring Societies have to maintain proper records regarding payments made.
Annexure-C to the Agreement gives the service charges that NAFED will pay to KSCMFL and societies that procure copra over and above the MSP. They include:- (a) Handling charges (for sorting, filling, weighing, stitching charges of gunny bags, stacking, loading into truck, etc.); (b) Transportation charges; (c) Gunny bags cost; (d) Market committee cess; & (e) Service charges.

7. In these appeals, the issue to be decided is as to whether the payment on account of service charges by NAFED to KSCMFL or procuring societies is in the nature of commission within the meaning of section 194H of the Act. If it is commission within the meaning of section 194H, then whether NAFED ought to have deducted tax at source on the ITA Nos. 721 to 723/Bang/2012 & 71 to 73/Bang/2013 Page 5 of 14 component of payment made to KSCMFL or procuring societies; and failure to do so will result in NAFED being treated as an assessee in default u/s. 201(1) of the Act.

8. It is the plea of the assessee that the procuring SLAs will be incurring salaries of staff, administrative expenses for maintaining offices and accounts etc., which varies from society to society and from place to place. Since it is not practicable to verify and reimburse these costs individually, they are allowed a Gross margin/profit as a fixed mark-up rate on the agricultural produce procured under PSS/MIS and sold to NAFED. This mark-up margin varies from produce to produce depending on their nature, such as perishable or non-perishable, etc. This system has been evolved to enable the Ministry of Agriculture and the CAB of the Ministry of Finance, GOI to verify them and determine the amount of loss to be borne by the GOI. Upon procurement, the State Level Co-operatives raise their sales bill on NAFED giving the various components of the direct costs (like basic price, purchase tax, market fees, packing charges, etc.) as well as their margin of profit for meeting their own administrative costs etc. The mark-up is shown in the invoice as commission or service charges but in pith and substance it is nothing but reimbursement of administrative cost of the SLA or other procuring co-operative societies.

9. The Assessing Officer and the CIT(Appeals) have taken the view that service charges are in the nature of commission within the meaning of section 194H of the Act and therefore the assessee ought to have deducted tax at source thereon while making payment or crediting the ITA Nos. 721 to 723/Bang/2012 & 71 to 73/Bang/2013 Page 6 of 14 account of the payees. The particulars of the tax and interest u/s. 201(1) & 201(1A) for the various assessment years are as follows:- (in Rs.) Name of the Fedn. Commission paid u/s. 201(1) u/s. 201(1A) F.Y. 2006-07 M/s. Lakshadweep Co-op. Marketing Fedn. Ltd. 504740 51483 24197 Karnataka Co-op. Oilseeds Growers Fedn. Ltd. 3609071 21654 Karnataka Co-op. Oilseeds Growers Fedn. Ltd. 356349 5618 Karnataka Co-op. Oilseeds Growers Fedn. Ltd. 936364 632 Gulbarga TAPCMS 105269 99 TDS FOR F.Y. 2006-07 is 51,483 52,200 Total payable is Rs.1,03,683 F.Y. 2007-08 Karnataka Co-op. Oilseeds Marketing Fedn. Ltd. 7296138 744205 260472 Gadag TAPCMS Ltd. 7498 45 Total TDS for F.Y. 2007-08 is 7,44,205 2,60,517 Total payable is Rs.10,04,722 F.Y. 2008-09 Karnataka Co-op. Oilseeds Marketing Fedn. Ltd. 68018 6937 1596 Karnataka Co-op. Oilseeds Marketing Fedn. Ltd. 1862173 11173 Total TDS for F.Y. 2008-09 is 6,937 12,769 Total payable is Rs.19,706 Grand Total Tax payable Rs.1128111/-

10. Aggrieved by the order of the CIT(Appeals), the assessee has preferred the present appeals before the Tribunal.

11. We have heard the rival submissions. The ld. counsel for the assessee submitted that the substance of the transactions with the SLAs are as follows:- ITA Nos. 721 to 723/Bang/2012 & 71 to 73/Bang/2013 Page 7 of 14 (i) The State Level Co-operatives purchase the goods from the farmers in its own name and discharges the price to the farmer from its own funds. During this process, it discharges the liabilities towards Market/Mandi fee and local VAT/Purhcase tax, if any, to the State Commercial Tax department in its own capacity. It then gets the produce sorted and packed at its own cost. (ii) NAFED purchases the goods from the District/State Level Co-operatives against their sales bill/invoice which would show the break-up of the costs and the mark-up allowed to the Society in accordance with the Scheme of the GOI and makes the payment as per the invoice amount. (Sample copies of some of the invoices are filed). It was submitted, thus the transaction between NAFED and the SLAs are on a principal to principal basis since there is no dealing between the farmers and NAFED.

12. Clause (i) of the Explanation to section 194H of the Act provides that the term commission or brokerage for the purpose of that section means any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable articles or thing, not being securities.

13. It was pointed out that in the instant case, SLAs are transacting with the farmers in their own capacities and thereafter with the assessee as any trader would do. The SLAs do not represent the assessee in their dealings with the farmers and there is also no privity of contract between the ITA Nos. 721 to 723/Bang/2012 & 71 to 73/Bang/2013 Page 8 of 14 assessee and the farmers. Accordingly, the transactions between the assessee and the SLAs are on a principal to principal basis and is clearly outside the mischief of section 194H of the Act. It was submitted that the Assessing Officer has misdirected himself in treating the profit margin allowed to the societies as commission payment and treating the assessee as liable to withhold tax for the same. Reliance was placed on the decision of the Honble Gujarat High Court in the case of Ahmedabad Stamp Vendors Association v. UOI (257 ITR 202)(Guj). The Honble High Court while dealing with the issue of discounted price given by the State Treasury to the Stamp Vendors, held that it is not possible to accept the contention of the revenue that the definition of commission or brokerage as contained in Explanation to section 194H is so wide that it would be include any payment receivable, directly or indirectly, for services in the course of buying or selling of goods and that the discount availed of by the stamp vendors constitutes commission or brokerage within the meaning of section 194H. On the crucial question, whether ownership in the stamp papers passed to the stamp vendor when the Treasury Officer delivered the stamp papers on payment, the Honble High Court held in the affirmative.

14. Reliance was also placed on SRL Ranbaxy Ltd. (now known as Super Religare Laboratories Ltd.) v. Addl. CIT in ITA No.434(Del)2011, wherein the Delhi Bench of the Tribunal held that to fall within the ambit of section 194H, the payment must be by a person acting on behalf of another person. The element of agency has ITA Nos. 721 to 723/Bang/2012 & 71 to 73/Bang/2013 Page 9 of 14 necessarily to be there. If the dealings between the parties is not on a principal to agent basis, then section 194H does not get attracted.

15. The ld. DR relied on the order of the CIT(Appeals).

16. We have considered the rival submissions. As already seen, clause (i) of Explanation to section 194H of the Act defines what is commission/brokerage for the purpose of section 194H of the Act. It lays down that commission/brokerage means any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities.

17. Further, clause 16 of the agreement dated 11.04.2008 lays down as follows:-

16. The SLA understands that the Price Support Operations of Ball/Milling Copra is in the account and on behalf of the Ministry of Agriculture, Government of India. They shall ensure that the same is undertaken by them on behalf of NAFED efficiently so that its maximum possible benefit is reaped by the farmers. The SLA shall maintain all records/accounts of the said operation properly, making available timely information/documents, etc. as and when required by NAFED/Government of India. It is clearly understood by both the parties that this agreement does not confer the status of an agent of NAFED on the second part but it extends full authority to facilitate and support procurement of the commodities covered, subject to the terms and conditions specified herein.

ITA Nos. 721 to 723/Bang/2012 & 71 to 73/Bang/2013 Page 10 of 14

18. It is thus clear from the aforesaid clause in the agreement that there is no relationship of principal and agent as between NAFED and the procuring societies. It is also seen that the service charges of 1% referred to in Annexure C of the Agreement dated 11.04.2008 is only for the purpose of meeting the administrative cost of the procuring societies. In fact, it is an administrative mark-up and as per the agreement, it has to be separately shown in all the bills raised by the SLAs as well as procuring agencies. Besides the above, the Jaipur Bench of the Tribunal in the assessees own case in respect of an identical scheme of PSS/MIS in ITA No.23, 24, 50 & 51/JP/2010 by order dated 31.08.2010 had an occasion to consider the applicability of section 194H of the Act and held as follows:-

7. After hearing both the parties as well as considering the above submissions and orders of the authorities below and also the paper book filed by the ld.AR, it is noted that Section 194H is applicable where any person pays any income by way of commission or brokerage. Explanation provides that commission or brokerage include any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for any services in course of buying or selling of goods. The provision of section 194H is not applicable on the societies commission reflected by the societies in there sale bills for the reasons stated here under:- (a) The transaction between the assessee and the societies is on principal to principal basis and not on principal and agent relationship. (b) The societies while procuring the goods from the Mandi no where disclose that the purchases are made by them for or on behalf of the assessee. This is also evident from the auction register of Krishi Upaj Mandi Samitee where name of the societies are mentioned as a purchasing party. The name of the assessee no where appears in this register. ITA Nos. 721 to 723/Bang/2012 & 71 to 73/Bang/2013 Page 11 of 14 (c) After purchase of goods by the societies but before delivery of the same to the specified warehouse of the assessee, if there is any shortage/pilferage or damage to the goods it is on account of the societies and not of the assessee. It becomes the property of the assessee only after goods are deposited in the warehouse. (d) The societies declare the goods which are mentioned in there VAT Invoice (in which societies commission is reflected) as sales in there books of accounts and the assessee declare the same as purchase in its books of accounts. Thus the transaction is of purchase and sales and not a payment of commission. The societies commission is thus only the disclosed margin of profit of the societies. It is just like profit plus agreement/arrangement for purchase of goods. (e) In the VAT Invoice raised by the societies they separately disclose the naked cost of the goods purchased by them, the Mandi Tax paid by them. the expenses incurred by them for bringing the goods to the specified warehouse of the assessee and their profit margin named as societies commission/charges. All these components are separately disclosed in VAT Invoice as per the requirement of the government as per PSS/MIS scheme. On the entire total of the above items, VAT is charged as par the applicable rates. Section 2(36) of the Rajasthan VAT Act 2003 which defines sale price also specifies that the amount paid or payable to a dealer as consideration for sale of any goods inclusive of any statutory levy or any sum charged for any thing done by the dealer in respect of the goods or services rendered at the time of or before the delivery thereof would be taken as sales price. Thus assessee only purchases the goods from the societies wherein the margin of profit of the societies is separately disclosed as societies commission/ charges.

7.1 From the above it is held that the societies commission/charge mentioned in the VAT Invoice of the societies, selling goods to the assessee, is not a payment of the commission as envisaged in section 194H and therefore, there is no liability on the assessee to deduct tax at source on such payment of purchase price which includes the payment of societies charges. Very recently the Honble Punjab & Haryana ITA Nos. 721 to 723/Bang/2012 & 71 to 73/Bang/2013 Page 12 of 14 High Court in the case of CIT (TDS) Vs. Assistant Manager (Accounts), Food Corporation of India, 326 ITR 106 on identical facts has observed as under: The assessee in the present case is Food Corporation of India which is engaged in procurement of food grains for the Central pool. The food grains is procured through the State Agencies and directly as well. Proceedings were initiated u/s 201 of the Income-tax Act, 1961 with the allegation that the assessee had failed to deduct tax at source on the interest, rent and transportation charges paid by it to various agencies. The order came to be passed by the ITO (TDS) on Feb. 25, 2005, raising a demand of Rs. 12,34,814/-. The order was upheld by the Commissioner of Income tax (Appeals). In further appeal before the Tribunal, the plea set up by the assessee was accepted. It was noticed that in the invoices raised by various State agencies who procured food grains on behalf of the assessee, the cost of wheat has been shown apart from the cost on account of other incidental expenses incurred by the procurement agencies. VAT had also been charged. It was not evident from there that the expenses so incurred by the procurement agencies were on behalf of the assessee rather it was found to be part of the cost at which the food grains were to he transferred by the procurement agencies to the assessee. With these facts, it was found that as the assessee had not paid any amount to the procurement agencies on account of transportation, interest or storage charges as such, accordingly there was no liability for deduction of tax. The contention of the learned Counsel for the Revenue that in fact all these factors had been taken care of while fixing the price at which the food grain was to be billed to the assessee, carries no weight. If expenses incurred by a person on account of transportation, interest, storage etc. are added to the cost of the goods, it cannot be inferred that the person who is billed had paid certain amount on account of those services separately as the same becomes part of the commodity so sold. For the reasons mentioned above, we do not find any substantial question of law arises in the present appeal. The same is accordingly dismissed. ITA Nos. 721 to 723/Bang/2012 & 71 to 73/Bang/2013 Page 13 of 14 Placing reliance on the above decision and the facts and circumstances discussed in foregoing paragraphs, we are of the view that the finding of lower authorities that society commission charged in the sale bills by these societies is a payment of commission by assessee in terms of section 194H is not correct as per law and accordingly the issue is decided against the Revenue. Thus Ground No. 1 of all the appeals of the assessee are allowed.

8. The second ground of appeal of the assessee is that the ld. CIT(A) has erred in facts and law in confirming the levy of interest u/s 201(1A) from the date the tax was deductible to the date of filing of return by the societies.

9. Since we have already held in foregoing paragraphs that the assessee is not liable to deduct the tax at source u/s 194H of the Act, therefore, question of charging of interest u/s. 201(1A) does not arise. Hence the second ground of appeal in all the four appeals are allowed.

19. We are of the view that in the light of the aforesaid decisions, the provisions of section 194H of the Act are not attracted. We also find that the CIT(Appeals) has held that the decision of the Jaipur Bench of the Tribunal in assessees own case (supra) was a case where the relationship was between principal and agent, without realizing that NAFED has similar agreements with all SLAs across the country. We are therefore of the view that the provisions of section 194H are not attracted to the disputed payments made by the assessee, on which TDS has not been deducted. Consequently, the assessee cannot be treated as an assessee in default u/s. 201(1) of the Act and interest u/s. 201(1A) of the Act. We therefore cancel the impugned orders of the Assessing Officer and allow these appeals by the assessee. ITA Nos. 721 to 723/Bang/2012 & 71 to 73/Bang/2013 Page 14 of 14

20. In the result, the appeals are allowed. Pronounced in the open court on this 8 th day of March, 2013. Sd/- Sd/- ( N. BARATHVAJA SANKAR ) ( N.V. VASUDEVAN ) Vice President Judicial Member Bangalore, Dated, the 08 th March, 2013. Ds/- Copy to:

1. Appellant

2. Respondent

3. CIT

4. CIT(A)

5. DR, ITAT, Bangalore.

6. Guard file By order Senior Private Secretary ITAT, Bangalore.