THE MAHARASHTRA STATE CO-OP MARKETING FEDERATION LIMITED,MUMBAI vs. DY. COMMISIONER OF INCOME TAX, CIRCLE 26(1), MUMBAI

PER SHRI AMIT SHUKLA, JUDICIAL MEMBER:

The aforesaid appeals have been filed by the assessee against the respective orders passed by the learned CIT(A)/NFAC for assessment years 2006- 07, 2008-09 and 2009-10. Since the issues involved in these appeals arise out of the same set of facts and the nature of transactions is common, they were heard together and are being disposed of by this consolidated order. The principal issue arising in all the three years relates to disallowance made under section 40(a)(ia) on account of non-deduction of tax at source on payments towards Market Cess/Market Fee and Supervision Charges and Sub-Agent Commission. In A.Y. 2008-09, the assessee has additionally challenged the addition of ₹26,89,627 made under section 41(1) in respect of outstanding sundry creditors. For the sake of convenience, the facts of A.Y. 2008-09 are being referred to wherever necessary. 2. The assessee, Maharashtra State Co-operative Marketing Federation Limited, is an apex co-operative marketing society which, inter alia, functions as an implementing/procurement agency of the Government of Maharashtra under various schemes relating to procurement and distribution of agricultural produce. Approximately 95% of its share capital is stated to be held by the Government of Maharashtra and its Managing Director is appointed by the State Government. Under the Minimum Support Price procurement scheme, the assessee acts as the implementing agency for procurement of foodgrains through rural/member co-operative societies. The actual procurement at the field level is undertaken through such societies, whereas the assessee essentially supervises and administers the scheme, verifies the claims submitted by the procuring societies with reference to the rates prescribed by the Government, 2

ITA 4289, 4290 & 4291/MUM/2026 THE MAHARASHTRA STATE CO-OP MARKETING FEDERATION LTD forwards the same for sanction and, upon receipt of sanctioned funds, releases the corresponding amounts to the societies/APMCs. 3. The present proceedings arise from the second round of litigation. In the earlier round, the issues relating to Market Cess and Supervision Fees, Sub- Agent Commission and, in A.Y. 2008-09, the addition relating to sundry creditors under section 41(1), were restored by the Tribunal to the file of the Assessing Officer for examination afresh. Pursuant thereto, the Assessing Officer passed the de novo assessment orders. In A.Y. 2008-09, the assessment under section 143(3) read with section 254 was completed on 30.12.2019. Before the Assessing Officer, the assessee explained the entire mechanism of the MSP procurement scheme and specifically contended that Market Cess/Supervision Charges and amounts payable to the sub-agents were components of expenditure sanctioned by the Government at predetermined rates and were merely routed through the assessee for onward payment. It was further explained that owing to the time involved in verification and sanction of claims by the Government, the assessee maintained control accounts reflecting the amounts receivable from the Government and the corresponding amounts payable to the rural co-operative societies. 4. The Assessing Officer was, however, not satisfied with the explanation and held that the assessee had failed to furnish sufficient evidence demonstrating why TDS was not required to be deducted or any specific clause providing for non-applicability of TDS. Accordingly, in A.Y. 2008-09, he reiterated the disallowances of ₹28,86,710 towards Market Cess and Supervision Fees and ₹29,65,637 towards Sub-Agent Commission. He also sustained the addition of ₹26,89,627 under section 41(1) in respect of sundry creditors, principally for the reason that complete creditor-wise particulars had not been furnished in the manner required by him. The learned CIT(A), vide order dated 20.02.2026,

ITA 4289, 4290 & 4291/MUM/2026 THE MAHARASHTRA STATE CO-OP MARKETING FEDERATION LTD confirmed the additions observing, in substance, that the assessee had failed to satisfactorily explain the non-deduction of tax at source and had also failed to establish the non-applicability of section 41(1). Similar disallowances relating to Market Cess/Supervision Charges and Sub-Agent Commission have been sustained in A.Ys. 2006-07 and 2009-10. 5. Before us, the learned counsel has referred extensively to the Government sanction letters/office memoranda dated 15.05.2007, 17.10.2008 and 22.10.2009 and the accompanying schedules prescribing the admissible expenditure under the MSP procurement scheme. He submitted that these documents demonstrate that the assessee does not independently determine either the nature or quantum of the impugned payments. The Government sanctions the admissible procurement expenditure at predetermined rates, the assessee verifies the claims of the procuring societies and, after receipt of the sanctioned amount, releases the same to the concerned societies/APMCs. Our attention was also drawn to the ledger/control accounts, sample receipts and debit vouchers and details of payments placed in the paper book. Insofar as Market Cess/Market Fee and Supervision Charges are concerned, learned counsel further referred to section 31 of the Maharashtra Agricultural Produce Marketing (Development and Regulation) Act, 1963 and submitted that the Market Fee is a statutory levy which the Market Committee is empowered to levy and collect and, therefore, payment thereof cannot be regarded as consideration for any contractual or agency service rendered to the assessee. 6. We have heard the parties and perused the material placed before us. At the outset, it would be relevant to understand the precise nature of the arrangement under which the impugned payments have arisen. The assessee is an apex co-operative marketing federation functioning, inter alia, as an implementing/procurement agency of the Government of Maharashtra under

ITA 4289, 4290 & 4291/MUM/2026 THE MAHARASHTRA STATE CO-OP MARKETING FEDERATION LTD the Minimum Support Price Scheme. The contemporaneous Government sanction letters and the accompanying schedules show that procurement of agricultural produce is undertaken according to rates and norms prescribed by the Government; various components of incidental expenditure are separately identified; claims of the procuring rural co-operative societies are verified with reference to such prescribed rates; and the admissible amounts are thereafter sanctioned/reimbursed by the Government. The assessee, therefore, performs an administrative and supervisory function in the implementation of the Government procurement scheme. The material placed before us further shows that because there is ordinarily a time lag between submission of claims and receipt of Government sanction, the assessee maintains control accounts recording the corresponding amount receivable from the Government and payable to the concerned societies/APMCs. It is in this factual setting that the applicability of the provisions relating to deduction of tax at source has to be examined and not merely from the nomenclature given to an entry in the accounts. 7. Insofar as Market Cess/Market Fee and Supervision Charges are concerned, the matter stands on an even stronger footing. Section 31 of the Maharashtra Agricultural Produce Marketing (Development and Regulation) Act, 1963 empowers the Market Committee to levy and collect fees, in the prescribed manner and at the prescribed rates, from every purchaser of agricultural produce marketed in the market area. The statutory scheme further recognises the dues of the Market Committee as amounts payable by the purchaser. Thus, the liability to pay Market Fee emanates from the statute and not from any contract entered into between the assessee and the Market Committee. This distinction assumes significance because section 194C, as applicable to the relevant years, operates where a sum is paid for carrying out

ITA 4289, 4290 & 4291/MUM/2026 THE MAHARASHTRA STATE CO-OP MARKETING FEDERATION LTD any work in pursuance of a contract. A statutory levy imposed by operation of the State enactment cannot be converted into consideration under a works contract merely because the assessee, while acting as the Government procurement agency, discharges or facilitates payment of that liability. There is neither any work contracted by the assessee to the Market Committee nor any consideration paid to it for execution of such work. The basic statutory ingredient which could attract section 194C is therefore absent. 8. The Government sanction documents reinforce the same conclusion from another angle. The schedules placed before us specifically prescribe Market Fee and Supervision/Development Charges at 1.05% of the Minimum Support Price and state that these amounts are reimbursable at the rates approved by the Government of India. Neither the incidence of the liability nor its quantum is determined by the assessee. The assessee does not negotiate the rate with the APMC, does not retain any portion thereof as its income, and does not make the payment in consideration of any service contracted by it. It merely operates within a statutory and Government-controlled procurement framework. Thus, two features converge: first, the payment owes its origin to the statutory levy; and second, under the MSP scheme it constitutes an identified component of procurement expenditure reimbursable at the Government-approved rate. Once these foundational facts are appreciated, the reasoning of the Assessing Officer that the assessee ought to have produced some separate “non- applicability clause” for TDS cannot be accepted. Liability to deduct tax must emanate from the relevant provision of Chapter XVII-B; absence of such liability does not require an exemption clause in the Government sanction. The first enquiry ought to have been whether the payment itself falls within the charging description of the relevant TDS provision. On the facts before us, it does not.

ITA 4289, 4290 & 4291/MUM/2026 THE MAHARASHTRA STATE CO-OP MARKETING FEDERATION LTD 9. Coming then to the Sub-Agent Commission, the nomenclature undoubtedly requires closer examination, but nomenclature alone cannot determine the incidence of withholding tax. What is decisive is the actual relationship between the parties and the capacity in which the assessee makes the payment. The documents placed before us demonstrate that the rural/member co-operative societies undertake procurement at the field level under the Government scheme; the rates and admissible expenditure are prescribed by the Government; the assessee verifies their claims with reference to those norms and forwards them for sanction; and, on receipt of the sanctioned amount, the corresponding payment is released to the societies. The Government schedules separately identify the remuneration/commission admissible to the procurement agency and the components required to be passed on in implementation of the procurement programme. The assessee’s own entitlement is thus separately ascertainable and cannot be equated with every amount which merely passes through its books. The Assessing Officer has not brought on record any material showing that the impugned amount represented consideration under an independent commercial contract entered into by the assessee with the rural societies dehors the Government scheme, nor has the control-account mechanism explained by the assessee been disproved by any contrary evidence. 10. The distinction, in our opinion, is fundamental. An assessee may undoubtedly incur a liability to deduct tax where it engages a contractor or sub- contractor for carrying out its own contractual obligation and makes payment to such person in consideration thereof. But that principle cannot mechanically be extended to every disbursement made by an intermediary merely because the recipient performs certain functions at the ground level. The statutory obligation has to be tested against the real juridical relationship giving rise to

ITA 4289, 4290 & 4291/MUM/2026 THE MAHARASHTRA STATE CO-OP MARKETING FEDERATION LTD the payment. Here, the assessee is implementing and supervising a Government procurement programme; the underlying procurement expenditure is sanctioned according to predetermined Government norms; and the assessee receives and disburses the corresponding amounts under that scheme. The contemporaneous Government records and the accounting mechanism therefore support the assessee’s contention that, except for its separately identifiable entitlement, the impugned amounts are Government-sanctioned pass-through disbursements. The mere routing of these amounts through the assessee’s accounts cannot, without something more, convert them into expenditure independently incurred by the assessee under a contractor/sub- contractor relationship so as to attract section 194C and consequently section 40(a)(ia). 11. We may also observe that the Assessing Officer, despite the matter having been restored in the earlier round for examination of the underlying character of these payments, has substantially rejected the explanation because the assessee could not produce a provision expressly declaring TDS to be inapplicable. This, in our view, reverses the statutory enquiry. The question is not whether the assessee can point to an express exclusion from TDS; the question is whether the Revenue can first bring the payment within the ingredients of the particular provision imposing the obligation to deduct tax. In the case of Market Fee/Supervision Charges, the statutory origin of the levy itself takes the payment outside the character of contractual consideration. In the case of the amounts passed on to the procuring societies, the Government sanction documents, predetermined rates, control accounts and separate identification of the assessee’s own remuneration establish the capacity in which the assessee acts. There is no material brought by the Revenue to displace this documentary position. We therefore hold that the disallowances made

ITA 4289, 4290 & 4291/MUM/2026 THE MAHARASHTRA STATE CO-OP MARKETING FEDERATION LTD under section 40(a)(ia) in respect of Market Cess/Market Fee and Supervision Charges and the impugned Sub-Agent Commission cannot be sustained and are directed to be deleted for all the three assessment years under appeal. 12. There is also a subsequent course of conduct which lends corroborative assurance to the above factual conclusion. The assessee has stated that no such disallowance has been made in respect of identical payments in the subsequent years and has placed before us the assessment order for A.Y. 2023-24. We are conscious that each assessment year is a separate unit and subsequent acceptance cannot by itself determine the statutory liability for an earlier year. We have, therefore, not rested our conclusion upon this circumstance. Nevertheless, where the underlying Government scheme and the character of the payments remain the same, the subsequent treatment is consistent with, and reinforces, the conclusion independently emerging from the contemporaneous documents. 13. The remaining issue, confined to A.Y. 2008-09, relates to the addition of ₹26,89,627 under section 41(1) in respect of sundry creditors. Here also, the issue has to be tested against the statutory requirement rather than the mere age of the outstanding balances. Section 41(1) contemplates an allowance or deduction having been granted in respect of a trading liability and the assessee subsequently obtaining a benefit in respect of such liability by way of remission or cessation. Therefore, what must be established is an event of remission or cessation occurring during the relevant previous year. Mere continuance of an unpaid liability for a length of time, or failure to furnish creditor-wise particulars in the particular format desired by the Assessing Officer, does not by itself establish such cessation. Before us, the assessee has placed the list of creditors as well as extracts of the running ledger accounts showing continued recognition of the liabilities, continuing transactions and subsequent payments. No creditor

ITA 4289, 4290 & 4291/MUM/2026 THE MAHARASHTRA STATE CO-OP MARKETING FEDERATION LTD has been shown to have waived or relinquished its claim; no liability has been shown to have been written back by the assessee; nor has the Revenue identified any event during the relevant previous year by which any specific liability stood extinguished in law or in fact. 14. The factual context in which these balances arise is also relevant. The assessee is substantially engaged in implementation of Government procurement and distribution schemes where settlement of liabilities may depend upon verification, sanction and release of funds by the Government. Delay in payment in such circumstances cannot, without any further material, be elevated into cessation of the liability. More importantly, the running accounts and subsequent payments constitute positive evidence inconsistent with the inference that the liabilities had ceased during the year under consideration. The addition made by the Assessing Officer therefore proceeds essentially from an evidentiary deficiency perceived by him rather than from establishment of the statutory event contemplated by section 41(1). Once the material now on record demonstrates the subsistence of the liabilities and there is no evidence of remission, cessation, waiver or write-back, the essential condition of section 41(1) remains unfulfilled. Accordingly, the addition of ₹26,89,627 is directed to be deleted. 15. Thus, after examining the Government sanction letters and schedules, the statutory framework governing Market Fee, the nature of the assessee’s supervisory and implementing functions, the control-account mechanism and the creditor ledgers, we find that the evidentiary material now available sufficiently establishes the true character of the transactions. The disallowances under section 40(a)(ia) in respect of Market Cess/Market Fee and Supervision Charges and Sub-Agent Commission for A.Ys. 2006-07, 2008-09 and 2009-10 are accordingly deleted. The addition of ₹26,89,627 under section 41(1) for A.Y.

ITA 4289, 4290 & 4291/MUM/2026 THE MAHARASHTRA STATE CO-OP MARKETING FEDERATION LTD 2008-09 is also deleted. No purpose would therefore be served by remitting these issues for yet another round of proceedings. 16. In the result, all the three appeals of the assessee are allowed. Order pronounced in the open court on 19th day of August 2026.

Sd/- Sd/-

(ARUN KHODPIA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,िदनांक/Dated: 19/08/2026 Soumili, PS

Copy of the Order forwarded to: अपीलाथ�/The Appellant , 1. �ितवादी/ The Respondent. 2. आयकरआयु� CIT 3. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, 4. Mumbai गाड�फाइल/Guard file. 5.

BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI