The Income Tax Appellate Tribunal held that exemption under Rule 6DD(e) applies only to direct payments to cultivators. Payments made indirectly through agents do not qualify for deduction under Section 44AD.
ITAT Rules Indirect Payments to Cultivators Not Covered Under Rule 6DD(e)
The Income Tax Appellate Tribunal (ITAT) has held that the exemption under Rule 6DD(e) of the Income Tax Rules, which permits deductions for payments to cultivators, growers, or producers, applies only when such payments are made directly. The appeal arose from a disallowance where payments were routed through an intermediary agent.
The assessee argued that the ultimate beneficiary was the cultivator, and therefore the intent of Rule 6DD(e) was satisfied. However, the ITAT emphasized the mandatory wording of the rule, stating:
"The rule explicitly requires payment to be made to the cultivator, implying a direct transaction without intermediaries."As such, the deduction under Section 44AD was partially disallowed for those payments not made directly.
For tax practitioners, this decision mandates careful structuring of procurement transactions. To avail benefits under presumptive taxation schemes, taxpayers must ensure payments to primary producers are direct and documented. Entities using agents or contractors should maintain clear bifurcations and consider contractual redesign to preserve eligibility.
Citations
- Rule 6DD(e), Income Tax Rules; Section 44AD, Income Tax Act
