Taxpublishers.in - Monday Corner Answer to the Quiz for the week (09 Sep 2024)

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Quiz for the week (09 Sep 2024): XY Sugar Mills (P) Ltd is engaged in manufacture of sugar. It entered in to agreements with various agriculturists for exclusive sale of sugarcane cultivated by them. The annual turnover of the company always exceeded Rs.200 crore. One agriculturist by name Ram supplied sugarcane for Rs.66 lakhs during the financial year 2024-25. The company deducted Rs.6 lakhs towards cane cutting charges plus freight and had to pay Rs. 60 lakhs to Ram. Is the payment to Ram liable for tax deduction at source, if so, how much is deductible? Best Answer : Section 194Q mandates deduction of tax at source on purchase of goods exceeding a specified limit by the buyer. It applies in the case of buyer who is responsible for paying any sum to a resident seller where the total value of purchase exceeds Rs.50 lakhs in a financial year. The rate of TDS is 0.1% on the amount that exceeds the threshold of Rs.50 lakhs. It is applicable where the buyer's turnover exceeded Rs.10 crore in the immediately preceding financial year. In the facts given in the quiz the assessee XY Sugar Mills (P) Ltd is purchasing sugarcane from a resident seller which is a purchase of goods and the value being Rs.66 lakhs during the financial year 2024-25. The turnover of XY Sugar Mills (P) Ltd always exceeded Rs.200 crores and therefore the turnover condition for TDS stands satisfied. The nature of transaction is purchase of sugarcane which is considered a transaction of goods falling within the scope of section 194Q. The total value of purchase is Rs.66 lakhs and after deducting cutting charges of Rs.6 lakhs the payment to the supplier i.e. agriculturist is Rs.60 lakhs. Therefore, the TDS is applicable on Rs.60 lakhs minus Rs.50 lakhs = Rs.10 lakhs @0.1% being Rs.1,000. One may also refer the CBDT Circular No.13/2021 dated 30.06.2021 wherein for Q.No.4.5 it is stated as under: 4.5.1 It is requested to clarify if the provisions of section 194Q of the Act shall apply to a seller whose income is exempt. To remove difficulty, it is clarified that the provisions of section 194Q of the Act shall not apply on purchase of goods from a person, being a seller, who as a person is exempt from income tax under the Act (like the person exempt under section 10) or under any other Act passed by the Parliament (like RBI Act, ADB Act etc.). 4.5.2 Similarly, with respect to sub-section (1H) of section 206C of the Act, it is clarified that the provisions of this sub-section shall not apply to sale of goods to a person, being a buyer, who as a person is exempt from income-tax under the Act (like person exempt under section 10) or under any other Act passed by the Parliament (like RBI Act, ADB Act etc.). 4.5.3 The above clarifications would not apply if only part of the income of the person (being a seller or being a buyer, as the case may be) is exempt. Conclusion: Therefore, if the agriculturist Ram does not have any other income chargeable to tax under the Act, he would be covered by section 10 in respect of agricultural income and in such case XY Sugar Mills (P) Ltd need not deduct TDS in respect of sugarcane purchased by it. On the other hand, if Ram has other incomes which are chargeable to income-tax then the buyer XY Sugar Mills (P) Ltd must comply with the provisions of section 194Q.

Quiz for the week (09 Sep 2024):

XY Sugar Mills (P) Ltd is engaged in manufacture of sugar. It entered in to agreements with various agriculturists for exclusive sale of sugarcane cultivated by them. The annual turnover of the company always exceeded Rs.200 crore. One agriculturist by name Ram supplied sugarcane for Rs.66 lakhs during the financial year 2024-25. The company deducted Rs.6 lakhs towards cane cutting charges plus freight and had to pay Rs. 60 lakhs to Ram. Is the payment to Ram liable for tax deduction at source, if so, how much is deductible?

Best Answer :

Section 194Q mandates deduction of tax at source on purchase of goods exceeding a specified limit by the buyer. It applies in the case of buyer who is responsible for paying any sum to a resident seller where the total value of purchase exceeds Rs.50 lakhs in a financial year. The rate of TDS is 0.1% on the amount that exceeds the threshold of Rs.50 lakhs. It is applicable where the buyer's turnover exceeded Rs.10 crore in the immediately preceding financial year.

In the facts given in the quiz the assessee XY Sugar Mills (P) Ltd is purchasing sugarcane from a resident seller which is a purchase of goods and the value being Rs.66 lakhs during the financial year 2024-25. The turnover of XY Sugar Mills (P) Ltd always exceeded Rs.200 crores and therefore the turnover condition for TDS stands satisfied.

The nature of transaction is purchase of sugarcane which is considered a transaction of goods falling within the scope of section 194Q. The total value of purchase is Rs.66 lakhs and after deducting cutting charges of Rs.6 lakhs the payment to the supplier i.e. agriculturist is Rs.60 lakhs. Therefore, the TDS is applicable on Rs.60 lakhs minus Rs.50 lakhs = Rs.10 lakhs @0.1% being Rs.1,000.

One may also refer the CBDT Circular No.13/2021 dated 30.06.2021 wherein for Q.No.4.5 it is stated as under:

4.5.1 It is requested to clarify if the provisions of section 194Q of the Act shall apply to a seller whose income is exempt. To remove difficulty, it is clarified that the provisions of section 194Q of the Act shall not apply on purchase of goods from a person, being a seller, who as a person is exempt from income tax under the Act (like the person exempt under section 10) or under any other Act passed by the Parliament (like RBI Act, ADB Act etc.).

4.5.2 Similarly, with respect to sub-section (1H) of section 206C of the Act, it is clarified that the provisions of this sub-section shall not apply to sale of goods to a person, being a buyer, who as a person is exempt from income-tax under the Act (like person exempt under section 10) or under any other Act passed by the Parliament (like RBI Act, ADB Act etc.).

4.5.3 The above clarifications would not apply if only part of the income of the person (being a seller or being a buyer, as the case may be) is exempt.

Conclusion:

Therefore, if the agriculturist Ram does not have any other income chargeable to tax under the Act, he would be covered by section 10 in respect of agricultural income and in such case XY Sugar Mills (P) Ltd need not deduct TDS in respect of sugarcane purchased by it. On the other hand, if Ram has other incomes which are chargeable to income-tax then the buyer XY Sugar Mills (P) Ltd must comply with the provisions of section 194Q.