2021 (8) TMI 939 - AT - Income Tax

TDS u/s 194I - hire charges paid for the equipment disallowed - addition u/s 40(a)(ia) - As per assessee amount on account of hire charges of equipment was deducted by the Principal Contractor NCC Limited from the amount payable to the assessee-company and since there was actually no payment directly made by the assessee-company on account of hire charges there was no requirement of deduction of tax at source - HELD THAT - We are unable to accept the contention of assessee as rightly held by the authorities below the amount in question on account of hire charges for equipment was payable by the assessee-company to M/s. NCC Limited and even though it was adjusted by NCC Limited against the amount payable to the assessee-company such adjustment was not possible without crediting the said amount to the account of NCC Limited. The provision of section 194I thus was clearly attracted and the assessee-company was liable to deduct tax at source from the amount in question towards equipment hire charges. Since there was a failure on account of the assessee-company to comply with this requirement the provision of section 40(a)(ia) was rightly invoked by the Assessing Officer. However find merit in the alternative contention raised by the ld. Counsel for the assessee that the amount of equipment hire charges in question having been already offered to tax by NCC Limited the assessee-company cannot be treated as assessee in default for non-deduction of tax at source from the said payment as held in the case of Hindusthan Coca Cola Beverages Pvt. Limited 2007 (8) TMI 12 - SUPREME COURT and there is no question of making disallowance under section 40(a)(ia). As rightly contended by the ld. D.R. this claim made by the ld. Counsel for the assessee specifically for the first time before the Tribunal however requires verification and the matter may therefore be sent back to the AO for the limited purpose of this verification. We accordingly restore this issue to the file of the Assessing Officer for the limited purpose of verifying the claim of the assessee - Appeal of the assessee as partly allowed for statistical purposes.

Summary

Issues Involved:
Disallowance under section 40(a)(ia) for non-deduction of tax at source on equipment hire charges.

Detailed Analysis:

1. Issue of Disallowance under Section 40(a)(ia):
The solitary issue in this case pertains to the disallowance of &8377; 8,95,334/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 40(a)(ia) of the Income Tax Act, 1961. The assessee, a Company engaged in Engineering and Construction Work, had hired equipment during the relevant year and paid hire charges without deducting tax at source as required under section 194I of the Act. The Assessing Officer disallowed the equipment hire charges under section 40(a)(ia), which was challenged before the ld. CIT(Appeals and subsequently in the Tribunal.

2. Assessee's Explanation and Assessing Officer's Disallowance:
The assessee contended that the hire charges were adjusted from the payment due from the Principal Contractor, NCC Limited, and no direct payment was made, hence no tax deduction was required. However, the Assessing Officer did not find this explanation acceptable and disallowed the amount under section 40(a)(ia). The ld. CIT(Appeals upheld this disallowance, stating that the adjustment of hire charges from the bill was equivalent to payment, making the assessee liable for TDS deduction.

3. Tribunal's Decision and Legal Precedent:
The Tribunal analyzed the contentions and held that the provision of section 194I was attracted as the amount was payable by the assessee to NCC Limited, necessitating TDS deduction. However, the Tribunal found merit in the alternate argument that since NCC Limited had already paid tax on the amount, the assessee could not be treated as an assessee in default. Citing the decision in Hindusthan Coca Cola Beverages Pvt. Limited vs. CIT, the Tribunal decided to send the matter back to the Assessing Officer to verify if NCC Limited had paid tax on the equipment hire charges. The Tribunal partially allowed the appeal for statistical purposes, directing the Assessing Officer to verify the claim before making a final decision.

In conclusion, the Tribunal's judgment addressed the issue of disallowance under section 40(a)(ia) concerning non-deduction of tax at source on equipment hire charges, emphasizing the necessity of TDS compliance while also considering the applicability of legal precedents to determine the assessee's liability in the given circumstances.