I pay a dairy to process my milk. Do I deduct 2% under 194C or 10% under 194J?
2% under s.194C. Processing of milk by a dairy is job work, not technical services — the Gujarat High Court approved the Tribunal's reliance on CBDT Circular No. 13/2006 dated 13 December 2006 to that effect, and the s.40(a)(ia) disallowance fell with the characterisation.
Decided by the High Court (Gujarat High Court — Biren Vaishnav and Bhargav D. Karia, JJ. (order delivered by Biren Vaishnav, J.)) on 2023-09-25, reported as (2024) 460 ITR 222 (Guj)(HC) — judgment dated 25 September 2023; R/Tax Appeal No. 333 of 2023. It bears on section 194C, section 194J, section 40(a)(ia), section 260A of the Income Tax Act 1961, in TDS Defaults and Deductions & Disallowances matters.
This is the cleanest job-work answer in the cluster because it comes with a circular the officer is expected to follow, not merely a judicial view. The point the reasoning turns on is portable: the dairies were not assigned any exclusive work relating to quality check, they were assigned conversion and processing work of which ensuring quality parameters is one requirement, so the character of the transaction as job work is not lost. The disallowance point follows automatically — get the section right and s.40(a)(ia) has no foundation. What the case does not give you is the separate argument that s.40(a)(ia) never reaches short deduction: that was pleaded in the alternative and accepted by the first appellate authority, but the High Court did not decide it.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee, engaged in selling milk and milk products, paid Rs 29,63,90,780 to Mother Dairy and Milk Pvt. Ltd. and to M/s Giriraj for conversion of raw milk into processed milk and milk products, deducting at 2 per cent under s.194C as contract payments. The Assessing Officer held these to be payments for technical services requiring 10 per cent under s.194J and made a disallowance under s.40(a)(ia) on the proportionate amount of Rs 23,71,12,624 referable to the 8 per cent shortfall. There was a separate proceeding under ss.201(1) and 201(1A) on the same issue, in which the Commissioner (Appeals)-1, Rajkot had already held, by order of 10 March 2017, that the assessee correctly applied s.194C to the payments made to the dairies; that order was not appealed and was the foundation of the assessee's case. The first appellate authority deleted the disallowance and the Tribunal upheld that deletion, and the revenue appealed under s.260A.
The appeal was dismissed at para 7: 'no substantial question of law much less a substantial question of law is involved'. The High Court decided the matter on characterisation alone — processing of milk falls under s.194C, so there is no question of short deduction and the s.40(a)(ia) addition was rightly deleted (para 6). It did not decide the assessee's alternative plea, accepted by the Commissioner (Appeals), that s.40(a)(ia) can be invoked only on non-deduction of tax and not on short deduction; that question was left untouched, and the judgments said to support it are not named anywhere in the order.
The substance of the reasoning is the Tribunal's, reproduced by the Court at para 5 from a coordinate Bench decision in the assessee's own case and adopted at para 6. The assessee supplied raw milk and the necessary materials to the dairies for processing to its own specification, and the dairies custom-pack it on a job work basis, which falls within the definition of 'work' in s.194C, Circular No. 13/2006 dated 13 December 2006 being relied on. The services are not technical services because the dairies are not expert in any technology they could provide to the assessee, and they give no managerial or consultancy service because they give the assessee no advice. The point the Court treated as decisive is that the dairies are not assigned any exclusive work relating to quality check: they are assigned conversion and processing work, of which ensuring quality parameters is merely one requirement, so the basic character of the transaction as conversion or processing of milk on a job work basis is not lost. The Court noted that the earlier Tribunal decision in the assessee's own case had not been challenged, and held that processing of milk falls under s.194C so that there is no question of short deduction (para 6).
The dairies are not assigned any exclusive work relating to quality check but are assigned work relating to conversion/processing of milk and milk products, wherein one of the requirements is to ensure quality parameters. The main and basic nature of transaction viz. conversion/processing of mild [sic] on job work basis does not lose its true characteristic.
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Handle my notice → Ask a CA on WhatsApp2% under s.194C. Processing of milk by a dairy is job work, not technical services — the Gujarat High Court approved the Tribunal's reliance on CBDT Circular No. 13/2006 dated 13 December 2006 to that effect, and the s.40(a)(ia) disallowance fell with the characterisation. This was decided by the High Court (Gujarat High Court — Biren Vaishnav and Bhargav D. Karia, JJ. (order delivered by Biren Vaishnav, J.)) and bears on section 194C, section 194J, section 40(a)(ia), section 260A of the Income Tax Act 1961. It is reported as (2024) 460 ITR 222 (Guj)(HC) — judgment dated 25 September 2023; R/Tax Appeal No. 333 of 2023. This is the cleanest job-work answer in the cluster because it comes with a circular the officer is expected to follow, not merely a judicial view. The point the reasoning turns on is portable: the dairies were not assigned any exclusive work relating to quality check, they were assigned conversion and processing work of which ensuring quality parameters is one requirement, so the character of the transaction as job work is not lost. The disallowance point follows automatically — get the section right and s.40(a)(ia) has no foundation. What the case does not give you is the separate argument that s.40(a)(ia) never reaches short deduction: that was pleaded in the alternative and accepted by the first appellate authority, but the High Court did not decide it. If it applies to you, the first step is this: Cite CBDT Circular No. 13/2006 dated 13 December 2006 by number and date, since a circular in the assessee's favour is binding on the officer in a way a judgment is not.
The assessee, engaged in selling milk and milk products, paid Rs 29,63,90,780 to Mother Dairy and Milk Pvt. Ltd. and to M/s Giriraj for conversion of raw milk into processed milk and milk products, deducting at 2 per cent under s.194C as contract payments. The Assessing Officer held these to be payments for technical services requiring 10 per cent under s.194J and made a disallowance under s.40(a)(ia) on the proportionate amount of Rs 23,71,12,624 referable to the 8 per cent shortfall. There was a separate proceeding under ss.201(1) and 201(1A) on the same issue, in which the Commissioner (Appeals)-1, Rajkot had already held, by order of 10 March 2017, that the assessee correctly applied s.194C to the payments made to the dairies; that order was not appealed and was the foundation of the assessee's case. The first appellate authority deleted the disallowance and the Tribunal upheld that deletion, and the revenue appealed under s.260A. The matter was decided on 2023-09-25 by the High Court (Gujarat High Court — Biren Vaishnav and Bhargav D. Karia, JJ. (order delivered by Biren Vaishnav, J.)). On those facts the High Court held as follows. The appeal was dismissed at para 7: 'no substantial question of law much less a substantial question of law is involved'. The High Court decided the matter on characterisation alone — processing of milk falls under s.194C, so there is no question of short deduction and the s.40(a)(ia) addition was rightly deleted (para 6). It did not decide the assessee's alternative plea, accepted by the Commissioner (Appeals), that s.40(a)(ia) can be invoked only on non-deduction of tax and not on short deduction; that question was left untouched, and the judgments said to support it are not named anywhere in the order.
The substance of the reasoning is the Tribunal's, reproduced by the Court at para 5 from a coordinate Bench decision in the assessee's own case and adopted at para 6. The assessee supplied raw milk and the necessary materials to the dairies for processing to its own specification, and the dairies custom-pack it on a job work basis, which falls within the definition of 'work' in s.194C, Circular No. 13/2006 dated 13 December 2006 being relied on. The services are not technical services because the dairies are not expert in any technology they could provide to the assessee, and they give no managerial or consultancy service because they give the assessee no advice. The point the Court treated as decisive is that the dairies are not assigned any exclusive work relating to quality check: they are assigned conversion and processing work, of which ensuring quality parameters is merely one requirement, so the basic character of the transaction as conversion or processing of milk on a job work basis is not lost. The Court noted that the earlier Tribunal decision in the assessee's own case had not been challenged, and held that processing of milk falls under s.194C so that there is no question of short deduction (para 6). In the words reproduced by the source cited on this page: "The dairies are not assigned any exclusive work relating to quality check but are assigned work relating to conversion/processing of milk and milk products, wherein one of the requirements is to ensure quality parameters. The main and basic nature of transaction viz. conversion/processing of mild [sic] on job work basis does not lose its true characteristic." The decision followed or applied Dy. CIT v. Maahi Milk Producer Co. Ltd., Rajkot Bench of the Tribunal, IT Appeal No. 161 (Rjt.) of 2017, order dated 23 March 2018 — reasoning reproduced at para 5 and adopted at para 6; the Court recorded that it went unchallenged; CBDT Circular No. 13/2006 dated 13 December 2006 — relied on through the Tribunal's reasoning that services provided by dairies are in the nature of job work (para 5).
It was decided by the High Court on 2023-09-25 and is reported as (2024) 460 ITR 222 (Guj)(HC) — judgment dated 25 September 2023; R/Tax Appeal No. 333 of 2023. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 194C, section 194J, section 40(a)(ia), section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was dismissed at para 7: 'no substantial question of law much less a substantial question of law is involved'. The High Court decided the matter on characterisation alone — processing of milk falls under s.194C, so there is no question of short deduction and the s.40(a)(ia) addition was rightly deleted (para 6). It did not decide the assessee's alternative plea, accepted by the Commissioner (Appeals), that s.40(a)(ia) can be invoked only on non-deduction of tax and not on short deduction; that question was left untouched, and the judgments said to support it are not named anywhere in the order. It arises in TDS Defaults and Deductions & Disallowances matters, on section 194C, section 194J, section 40(a)(ia), section 260A of the Income Tax Act 1961, and was decided by Gujarat High Court — Biren Vaishnav and Bhargav D. Karia, JJ. (order delivered by Biren Vaishnav, J.). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show from the processing agreement that the dairy carried no exclusive quality-check or managerial responsibility of the kind that would give the work a consultancy character. Argue the characterisation first and the disallowance second, because once s.194C is the right section the s.40(a)(ia) ground disappears rather than needing a separate answer.
Searched for later treatment; none was found. That is not the same as a source affirming it. The judgment has now been read in full. It carries no later-treatment banner, no case-review entry and no later decision applying, following or affirming it; a search on the assessee's name returns only this judgment and one commentary page, and no special leave petition or appellate history appears. Absence of contrary authority is not positive authority, so the status does not move. The digest permalink reproduces the holding in the same terms and its own full-text search on the assessee's name returns this one entry, recording no appeal and no case following it. What was previously offered as later treatment is not: the report of the Tribunal order in the same litigation is the decision affirmed, not treatment of it. On the circular limb, the citation line for the judgment expressly carries Circular No. 13 of 2006 dated 13 December 2006, and para 5 records the Tribunal's reliance on it, so the entry's reliance on the circular is corroborated on the judgment page itself; the circular's own text is not set out in the judgment and could not be retrieved, and no later circular or instruction departing from it was found. That finding was checked against a published source, which is linked on this page, on 2026-08-24. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment is dated 25 September 2023 and was reported in a 2024 volume; cite it as a 2023 Gujarat High Court judgment. Bench and appeal number are now established. The assessment year is still not stated anywhere in the judgment, and it should be left open rather than imported from a report of the Tribunal order below. Three points on how the decision works. Its foundation is an unappealed order: the Commissioner (Appeals)-1, Rajkot had already held, on 10 March 2017 in separate proceedings under ss.201(1) and 201(1A) on the same issue, that s.194C was correctly applied, and the s.40(a)(ia) result was built on that. The analysis is the Tribunal's, reproduced at para 5 from a coordinate Bench decision in the assessee's own case and adopted at para 6, and the Court recorded that the earlier decision was unchallenged; cite it that way. And the assessee ran a second argument in the alternative — that s.40(a)(ia) can be invoked only for non-deduction and never for short deduction — which the Commissioner (Appeals) accepted but the High Court did not decide, and the judgments said to support it are not named in the order. Do not cite this judgment for that proposition. The appeal was dismissed for want of a substantial question of law, which limits how hard it can be pressed as considered High Court authority. The circular is known here only through this judgment, so quote it as relied on in this decision and verify its current status before resting a reply on it. One tagging disclosure: s.260A is carried in this entry's section list as the provision under which an appeal from the Tribunal to the High Court lies, but the judgment as printed nowhere mentions s.260A. It is a practice tag on this page, not a provision the Court cited. The assessment year is not stated in the judgment. The full text of Circular No. 13/2006 could not be obtained; it is known only through this decision. The judgments relied on below for the proposition that s.40(a)(ia) reaches only non-deduction and not short deduction are not named in the order, so that argument cannot be run from this decision. What is in the processing agreements beyond the quality-parameter requirement is not set out. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed at para 7: 'no substantial question of law much less a substantial question of law is involved'. The High Court decided the matter on characterisation alone — processing of milk falls under s.194C, so there is no question of short deduction and the s.40(a)(ia) addition was rightly deleted (para 6). It did not decide the assessee's alternative plea, accepted by the Commissioner (Appeals), that s.40(a)(ia) can be invoked only on non-deduction of tax and not on short deduction; that question was left untouched, and the judgments said to support it are not named anywhere in the order.
TaxSphere, “PCIT v Maahi Milk Producer Co Ltd”, https://taxnotice.vittsphere.com/caselaw/case/pcit-v-maahi-milk-producer-194c-job-work/ (validity last checked 2026-08-24)
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