2013 (2) TMI 606 - AT - Income Tax

Applicability of Sec 194C - TDS provision on machinery hire charges prior to 13.7.2006 - whether the addition made by the AO has rightly been deleted by the learned CIT(A), holding that the provisions of s. 194C are not attracted - Held that - Provisions of section 194C are applicable when the contract is entered into (i) for carrying out any work and (ii) supply of labour to carry out any work. Therefore, the main condition prescribed in s. 194C is that there must be carrying out of any work whether tangible or intangible. In the instant case, the assessee was not under an obligation to carry out the work as it was not under the control of the lender and the possession of the machinery temporarily was passed to the assessee after entering into agreement with the lender. Therefore, in the present case, taking of the machinery and equipment on hire would not amount to a contract for carrying out any work as contemplated in s. 194C. The said contract i.e. taking of machinery and equipment on hire also cannot be treated with a contract for supply of labour. Therefore, the provisions of s. 194C were not applicable to the facts of the assessee s case, as such no disallowance was called for under s. 40(a)(ia) of the IT Act. See CIT Versus Poompuhar Shipping Corporation Ltd.(2006 (1) TMI 60 - MADRAS HIGH COURT) The provisions of section 194-1 are not applicable to the facts of the present case because the previous year relevant to the assessment year under consideration ends on 31st March 2006 while insertion of the words machinery or plant or equipment has been made effective from 13th July, 2006 i.e. much after the end of the previous year relevant to the assessment year under consideration. Therefore, the provisions of s. 194-1 of the Act are also not applicable to the facts of the present - in favour of assessee.

Summary

Issues Involved:
1. Applicability of TDS provisions under section 194C of the Income Tax Act on machinery hire charges prior to 13.07.2006.
2. Applicability of TDS provisions under section 194-I of the Income Tax Act on machinery hire charges.
3. Whether the machinery hire charges can be considered a contract for work under section 194C.

Issue-wise Detailed Analysis:

1. Applicability of TDS Provisions under Section 194C on Machinery Hire Charges Prior to 13.07.2006:

The primary issue in this case is whether the machinery hire charges paid by the assessee prior to 13.07.2006 attract TDS under section 194C. The Assessing Officer (AO) had added Rs. 44,50,421 to the assessee's income under section 40(a)(ia) for non-deduction of TDS on machinery hire charges, arguing that section 194C was applicable. However, the CIT(A) held that the machinery hire charges were not covered under section 194C, as the provision for TDS on machinery hire was introduced only from 13.07.2006 under section 194-I.

2. Applicability of TDS Provisions under Section 194-I on Machinery Hire Charges:

The CIT(A) observed that section 194-I, which mandates TDS on rent including machinery, plant, and equipment, came into effect from 13.07.2006. Prior to this amendment, the definition of "rent" did not include machinery, plant, or equipment. Therefore, the CIT(A) concluded that for the assessment year 2006-07, the assessee was not legally obligated to deduct TDS on machinery hire charges.

3. Whether the Machinery Hire Charges Can Be Considered a Contract for Work under Section 194C:

The Revenue contended that the machinery hire charges should be considered under section 194C, which deals with TDS on payments for carrying out any work. However, the CIT(A) and the Tribunal disagreed, citing the judgment in CIT v. Poompuhar Shipping Corpn. Ltd., where it was held that hiring of ships did not amount to a contract for carrying out any work under section 194C. The Tribunal noted that the machinery hire in the present case was similar to the hiring of ships and did not involve any work or supply of labor. The machinery was hired for a fixed period, and the assessee used its personnel to operate the machinery. Hence, it was not a contract for work as defined under section 194C.

Conclusion:

The Tribunal upheld the CIT(A)'s decision, stating that the provisions of section 194C were not applicable to the machinery hire charges paid by the assessee. The machinery hire did not constitute a contract for carrying out any work, and there was no obligation to deduct TDS under section 194C. Furthermore, section 194-I, which includes machinery hire under "rent" for TDS purposes, was applicable only from 13.07.2006, and therefore, not relevant for the assessment year in question. The appeal by the Revenue was dismissed, affirming that no TDS was required to be deducted on machinery hire charges for the period before 13.07.2006.