2016 (11) TMI 1309 - AT - Income Tax

TDS u/s 194C - non deduction of tds on payment towards hire charges - disallowance u/s 40(a)(ia) - Held that - As from amended definition of rent for the purpose of Sec.194I that payment for use of machinery, plant or equipment was considered as rent for the purpose of Sec.194I only w.e.f. 13.7.2006. Prior to such amendment any payment of rent for use of machinery, plant or equipment was not considered as Rent for the purpose of Sec.194I. The payment of rent for use of any plant, machinery or equipment cannot fall within the ambit of Sec.194C also as it does not fall within the definition of the term Work as laid down in Sec.194C of the Act. In the light of the aforesaid statutory provision we are of the view that the disallowance u/s 40(a)(ia) of the Act was rightly deleted by CIT(A) as the payment towards hire charges do not require deduction of tax at source at the relevant point of time when it was paid or credited to the account of the payee. With regard to the argument of the ld. DR that the payment in question, if it is a composite payment for carrying out work as well as hiring of machinery, then the provision of section 194C of the Act would be attracted, we are of the view that it is neither the case made out by the AO nor the case made out in the grounds of appeal before the Tribunal. Nevertheless a perusal of the relevant bills evidencing the payment of hiring charges shows that these were payments made independently of any contract for carrying out work and was hiring simpliciter. There is no material on record to show that the payment in question was part of a composite payment for carrying out a work as a part of which machinery was also hired. We are therefore of the view that the provision of section 194C of the Act are not attracted.- Decided against revenue.

Summary

Issues involved:
1. Justification of deletion of addition made under section 40(a)(ia) of the Income Tax Act.
2. Applicability of section 194C versus section 194I for TDS deduction on hire charges.

Issue-wise detailed analysis:

1. Justification of deletion of addition made under section 40(a)(ia) of the Income Tax Act:

The Revenue appealed against the CIT(A)'s order dated 26.08.2013, which deleted the addition of ?72,59,483/- made under section 40(a)(ia) of the Income Tax Act. The Assessing Officer (AO) had disallowed these expenses, claimed as deductions under "Income from Business," because the assessee did not deduct tax at source on payments made for hiring equipment. The AO considered these payments as payments to a contractor for carrying out work under section 194C of the Act. The CIT(A), however, held that the payments were for hiring machinery and not for carrying out any work under a contract, thus not covered under section 194C. Additionally, it was noted that section 194I, which mandates TDS on rent, including machinery hire, was amended to include such payments only from 13.07.2006, which was not applicable for AY 2005-06. Therefore, the CIT(A) concluded that there was no obligation to deduct tax at source at the time of payment, and no disallowance under section 40(a)(ia) could be made.

2. Applicability of section 194C versus section 194I for TDS deduction on hire charges:

The Revenue's argument was that it should be verified whether the payments for hiring equipment were part of a composite contract for carrying out earth-moving work, in which case section 194C would apply. However, the assessee contended, and the CIT(A) agreed, that the payments were solely for hiring machinery and not part of any composite contract. The Tribunal examined the relevant statutory provisions and noted that section 40(a)(ia) initially did not include rent and was amended to do so only from 1.4.2005. The Tribunal also referred to section 194C and section 194I, noting that the definition of "rent" under section 194I, which includes payments for machinery hire, was amended only from 13.07.2006.

The Tribunal concluded that the payments for hiring machinery did not fall under section 194C as they were not for carrying out any work. Furthermore, since the payments were made before the amendment of section 194I, they were not subject to TDS under that section either. The Tribunal found no evidence that the payments were part of a composite contract and upheld the CIT(A)'s decision to delete the disallowance under section 40(a)(ia).

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming that the payments for hiring machinery were not subject to TDS under sections 194C or 194I at the relevant time and thus, the disallowance under section 40(a)(ia) was rightly deleted by the CIT(A). The appeal by the Revenue was dismissed, and the order was pronounced in the Court on 19.10.2016.