2015 (9) TMI 805 - HC - Income Tax

Disallowance under section 40(a)(ia) - non deduction of tds - ITAT deleted the addition holding that the payment in question was not covered within the meaning of either Section 194(C) or Section 194(I) - whether the assessee was liable to deduct TDS while making payment to its sister concern in respect of equipments taken on lease by it from the sister concern either under section 194C or section 194I? - Held that - Insofar as the applicability of section 194C of the Act is concerned, both, the Commissioner (Appeals) as well as the Tribunal have recorded a concurrent finding of fact to the effect that there was no contract between the assessee and its sister concern and that as and when such equipments were lying idle and the assessee needed them, the same were utilized by the assessee and payment was made to the sister concern. Therefore, the transaction was not in the nature of contract but was in the nature of lease agreement. As regards the applicability of section 194I of the Act, a perusal of the relevant statutory provisions as they stood at the relevant time reveals that section 194I did not include the words, machinery and equipment which were inserted only with effect from 14.7.2006. Under the circumstances, having regard to the fact that in the year under consideration the words machinery and equipment did not find place in section 194I of the Act, the same would not be applicable in the facts of the present case. Thus it cannot be said that the impugned order passed by the Tribunal suffers from any legal infirmity so as to give rise to any question of law - Decided in favour of assessee.

Summary

Issues Involved:
Challenge to order under section 260A of the Income Tax Act, 1961 regarding disallowance under section 40(a)(ia) and applicability of sections 194C and 194I.

Analysis:
1. Disallowance under section 40(a)(ia): The appellant challenged the order of the Income Tax Appellate Tribunal (ITAT) deleting the addition of Rs. 45,56,000 made on account of disallowance under section 40(a)(ia) of the Income Tax Act. The Assessing Officer found a default in deduction of TDS on a payment made by the assessee to another company. The Commissioner (Appeals) deleted the disallowance, stating that tax was not deductible under sections 194C or 194I. The Tribunal upheld this decision, emphasizing that the transaction was a lease agreement, not a contract, and therefore, not subject to TDS under section 194C.

2. Applicability of sections 194C and 194I: The Tribunal considered whether the payment in question fell under section 194C or 194I of the Act. It noted that there was no contract between the assessee and the sister concern; instead, the payment was for utilizing idle equipment through a lease agreement. As section 194I did not include machinery and equipment until 14.7.2006, it was deemed inapplicable to the case. Therefore, the Tribunal concluded that the assessee was not liable to deduct TDS under either section 194C or 194I for the payment made to the sister concern.

3. Judgment: The High Court analyzed the Tribunal's decision and found no legal infirmity in it. The Court concurred with the Tribunal's findings that the transaction was a lease agreement, not subject to TDS under section 194C, and that section 194I did not apply due to the absence of machinery and equipment in its scope during the relevant period. Consequently, the appeal was dismissed as there was no substantial question of law warranting interference.