2012 (4) TMI 396 - AT - Income Tax

Disallowance u/s 40(a)(ia) - Sub contractor - Non deduction of TDS under Section 194C - hiring charges - tippers and excavators. - transport charges by utilising the trucks of other owners - The assessee being a transport contractor having executed whole of the contract for transportation by hiring lorries from other lorry owners who simply placed the vehicles at the disposal of the assessee without involving themselves for carrying any part of the work undertaken by the assessee could not be said to have made the payments for his business involving deduction of tax at source to another contractor. The work contract as defined exclude payments for hiring out lorries therefore could not be subjected to consider the issue of claiming of higher depreciation also. The assessee owns those assets which are leased out for the purpose of hiring out and the nature of business clearly entitles the assessee to claim higher depreciation when the assessee for the volume of work hires other trucks from other truck owners for executing its contract. - No TDS - Dis-allowance deleted - Decided in favor of assessee. Higher rate of depreciation - lease out of trucks - held that - as the assessee has clearly hired them out by way of a sub-contract its machinery and equipments which income has been returned by the assessee therefore could not be said to have been reduced from the expenditures incurred for hiring out the vehicles of the other truck owners. - The word hired used by the law was to only indicate that some income should be rendered to taxation by utilization of those assets and not that assets which can only be hired out can be used for claiming higher depreciation. The fact that the assessee chose to lease out the trucks does not on that score disentitle higher rate of depreciation. - - Decided in favor of the assessee

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income-tax Act, 1961.
2. Entitlement to higher depreciation on vehicles used for hiring out.

Detailed Analysis:

1. Disallowance under Section 40(a)(ia):

The assessee was engaged in the business of plying trucks and filed a return of income for the relevant assessment year. The Assessing Officer (AO) issued a notice under Section 147, believing that the assessee had claimed higher depreciation at 30% instead of 15% without showing income from plying trucks on hire as a separate business. The AO also noted that a sum of Rs. 65,24,800 was paid to contractors without deducting tax at source, invoking the provisions of Section 194C read with Section 40(a)(ia).

Before the CIT(A), the assessee argued that he was not required to deduct tax at source from the payments identified by the AO, as the payments were made to truck owners who were not under any contractual obligation with the assessee. The CIT(A) upheld the AO's decision, stating that the payments were part of a contract and should have been subjected to TDS.

The assessee appealed, arguing that there was no contract between him and the truck owners, and hence, no requirement to deduct tax at source. The Tribunal considered various case laws, including CIT v. United Rice Land Ltd., which held that payments to truck owners without a formal contract do not attract the provisions of Section 194C. The Tribunal found that the payments were made for hiring trucks, not as part of a contractual obligation, and therefore, Section 40(a)(ia) was not applicable.

2. Entitlement to Higher Depreciation:

The second issue was whether the assessee was entitled to claim higher depreciation at 30% on vehicles used for hiring out. The AO had disallowed the higher depreciation, arguing that the assessee had not shown income from hiring out trucks as a separate business.

The Tribunal referred to various judicial pronouncements, including CIT v. Madan & Co. and CIT v. M.G.F (India) Ltd., which held that vehicles leased out for consideration qualify for higher depreciation. The Tribunal noted that the assessee was in the business of hiring out vehicles and had shown this income in the financial statements. Therefore, the assessee was entitled to claim higher depreciation at 30%.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, directing the AO to delete the disallowance of Rs. 65,24,800 made under Section 40(a)(ia) and to allow depreciation at 30% on the vehicles used for hiring out. The stay petition filed by the assessee was dismissed as infructuous.