2018 (4) TMI 90 - HC - Income Tax

TDS u/s 194C OR 194I - TDS not having been done for the vehicles hired by the respective assessee - Held that - The Tribunal was perfectly correct in so deciding the issue. Section 194C of the Act speaks of any payment made to any resident referred to as a contractor for carrying out any work including supply of labour in pursuance of a contract between the contractor and a specified person. Here the contract if at all is between the assessee and the principal being M/s.Logos Logistics (P) Ltd. The hiring of vehicles on the conditions above noticed does not fall within the ambit of Section 194C of the Act. We also notice that from 01.06.2007 definitely deduction would have to be made at source even for hiring of vehicles as Section 194-I of the Act stands amended to bring in such transactions also. The questions of law for the subject assessment years is answered against the revenue and in favour of the assessee.

Summary

Issues:
1. Interpretation of Sections 194C and 40(a)(ia) of the Income Tax Act, 1961.
2. Application of Section 194-I of the Income Tax Act, 1961.
3. Tax Deduction at Source (TDS) on vehicle hiring expenses.
4. Disallowance of expenses due to non-deduction of TDS.

Analysis:

1. The High Court addressed the issue of interpretation of Sections 194C and 40(a)(ia) of the Income Tax Act, 1961 in the context of two separate appeals concerning vehicle hiring for goods and passengers. The Tribunal reversed the Assessing Officer's order, emphasizing the mandatory deduction of TDS under Section 194-I for rent payments related to machinery, plant, or equipment. The Court found that the disallowance made by the Assessing Officer was incorrect, as the hiring of vehicles did not fall within the scope of Section 194C, which pertains to payments made to contractors for work. The expenses claimed by the assessees were disallowed due to non-deduction of TDS, leading to additions under Section 40(a)(ia).

2. Regarding the application of Section 194-I, the Court noted that the amendment effective from 01.06.2007 required TDS for hiring vehicles as well. The contracts in question were between the assessees and the principal entities, such as M/s. Logos Logistics (P) Ltd. and individual subscribers to tour programs. The Court concluded that the hiring of vehicles under the specified conditions did not align with Section 194C but fell under the amended provisions of Section 194-I, necessitating TDS deductions.

3. The issue of Tax Deduction at Source (TDS) on vehicle hiring expenses was central to the appeals. The assessees, one being a transporting contractor and the other a tour operator, hired vehicles when needed for their operations. The Court observed that the assessees reimbursed the hire charges paid to individual owners, with expenses like driver batta and diesel being covered by the assessees themselves. The Assessing Officer's addition was primarily due to the lack of TDS on these hiring expenses, leading to disputes over the applicability of relevant provisions.

4. Lastly, the Court addressed the disallowance of expenses resulting from the non-deduction of TDS. Both the Appellate Authority and the Tribunal overturned the Assessing Officer's decision, emphasizing the necessity of TDS deductions under Section 194-I. The Court ultimately ruled in favor of the assessees, rejecting the Income Tax Appeals and holding that the hiring of vehicles, under the specified circumstances, did not contravene Section 194C, but rather fell under the amended provisions of Section 194-I, warranting TDS deductions.