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Monday, September 24, 2012

Milk Producers are covered under the exception to Rule 6DD (f) of the Income Tax Rules, 1962 read with Sec- 40A(3) of the Income Tax Act,1961 held ITAT Hyderabad Bench

Recently, Hon'ble Income Tax Appellate Tribunal, Hyderabad in the case of D.C.I.T vs. Heritage Foods (India) Ltd. has held that Cash Payments to the Milk Producers through it's Representatives/ Agents shall be Deemed to be payments made directly to the milk producers and therefore excluded from the rigors of Rule-6DD falling under the exception of clause (f) of Rule 6DD of the Income Tax Rules, 1962.

Provision of Rule - 6DD and Exception

No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees in the cases and circumstances specified here-under, namely :—

(f) where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products;

Rule 6DD(f) mentions one of the circumstances, which indicates that when the payment is made of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products, injunction specified under Section 40A(3) would not come into play. 

(lwhere the payment is made by an authorised dealer or a money changer against purchase of foreign currency or travellers cheques in the normal course of his business.

Observation by Hon'ble I.T.A.T.:

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. 

Stated the following findings while passing the judgment:-

  • that, as per settled issue 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).
  • that the payment was made in cash to his agent who was required to make payment in cash for goods or services on behalf of such person,hence, such payments are outside the scope of the provisions of section 40A(3) of the Act. 
  • that there is no bar on the said agent to work in dual capacity to the milk producers too as the representatives are admittedly the agents as evident from the confirmation letters filed before the lower authorities. 
  • that 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. 
  • that nothing is brought onto the records by the assessee to show that the representatives/agents of MCC are not required to make payments in cash. 
  • that 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. 
  • that the economic problems of milk producers are such that the Parliament/ CBDT felt it necessary to incorporate milk producer should be free receive payments in cash. 
  • although such exclusion from the rigor of the provisions of section 40A(3) of the Act, is subjected to certain conditions. 

Also held that the assessee be entitled for relief when 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. 

Therefore, in any case, cash payments of any amount to such producers of milk are covered by  clauses of (f) and (l) of the Rule 6DD of I T Rules, 1962 and such payments must enjoy the exclusion benefits.

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