2012 (9) TMI 717 - AT - Income Tax

Dis-allowance u/s 40(a)(ia) - charter hire charges to sister concern SML - Revenue contended applicability of Section 194C and alternatively of Section 194I - period 01.04.2006 to 12.07.2006 - AY 07-08 - Held that - Tribunal in assessment of AY 05-06 has held non-applicability of Section 194C on payment of charter hore charges. Same is followed in impugned AY and consequently no dis-allowance u/s 40(a)(ia) can be made on that account. As regards the applicability of section 194-I, it is observed provisions, was substituted by Taxation Laws (Amendment) Act, 2006 w.e.f. 13.07.2006 extending the scope of rent to any payment by whatever name called for the use inter alia of machinery or plant or equipment. Such amendment cannot be applied retrospectively from 01.04.2006. In that view of the matter the ground raised by the Revenue for extending the amount of dis-allowance u/s 40(a)(ia) to the amount paid during the period 01.04.2006 to 12.07.2006, is dismissed. Period 13.07.2006 to 02.11.2006 - assessee explained that no payment was made nor any amount was credited to the account of SML during the period 13.07.2006 to 02.11.2006 and certificate of tax exemption was granted u/s 197 by the competent tax authority permitting the deduction of tax at Nil rate in respect of charges credited after 03.11.2006 - Held that - If there is neither the credit of income to the account of the payee nor payment thereof, the provisions of section 194-I cannot apply. Once the provisions of section 194-I are held to be not applicable, the question of disallowance u/s 40(a)(ia) is also ruled out. During the period 13.07.2006 to 02.11.2006, amount was neither credited to the account of SML nor were paid. Both the credit to the account as well as payment took place after 03.11.2006, being the date from which the assessee got certificate u/s 197 for deduction of tax at source at Nil rate. We, therefore, overturn the impugned order to the extent it sustained disallowance u/s 40(a)(ia) in respect of charter hire charges for the period 13.07.2006 to 02.11.2006 - Decided in favor of assessee

Summary

Issues:
1. Applicability of section 194C on charter hire charges.
2. Applicability of section 194-I on charter hire charges.
3. Disallowance under section 40(a)(ia) for non-deduction of tax at source.

Issue 1: Applicability of section 194C on charter hire charges

The Tribunal upheld that section 194C was not applicable to payments made to the sister-concern for charter hire charges, as previously decided in an earlier year and not modified by the High Court. Consequently, no disallowance under section 40(a)(ia) could be made on this ground.

Issue 2: Applicability of section 194-I on charter hire charges

The Tribunal held that the amendment to section 194-I, extending the scope of "rent," was effective from 13.07.2006 and could not be applied retrospectively from 01.04.2006. Therefore, the disallowance under section 40(a)(ia) for the period before 13.07.2006 was dismissed.

Issue 3: Disallowance under section 40(a)(ia) for non-deduction of tax at source

For the period from 13.07.2006 to 02.11.2006, the assessee contended that no disallowance could be made as no payment or credit was made during that time. The Tribunal analyzed the account details and held that since the charter hire charges were neither credited nor paid during that period, section 194-I did not apply, thus ruling out disallowance under section 40(a)(ia). Additionally, the Tribunal cited a recent Special bench ruling that disallowance under section 40(a)(ia) applies only to amounts "payable" at the end of the year, not to amounts already "paid" during the year. As the charges were fully paid by the end of the year, the disallowance could not be sustained.

In conclusion, the Tribunal allowed the appeal of the assessee and dismissed that of the Revenue, based on the detailed analysis and interpretation of the relevant sections and precedents.