2015 (10) TMI 386 - AT - Income Tax

Disallowance u/s 40(a)(ia) - non deduction of tds on amount paid to LDS Engineers as covered u/s 194C - CIT(A) identified the nature of transaction by considering it as the payment for hiring of machines i.e. dumpers as partaking the character of work & proceeded by holding that the deduction of tax at source was required to be made u/s 194C by taking it as work contract Held that - We are at loss to appreciate as to how machinery given on a monthly rental can be construed as work contract , being a consideration for carriage of goods by any mode of transport, as has been canvassed by the ld. CIT(A). AR has relied on an order passed by the Delhi bench of the tribunal in ACIT Vs Sanjay Kumar (2011 (7) TMI 662 - ITAT, Delhi) in which it has been held that the payment made by the assessee for taking cranes on lease on time basis, did not constitute payment with regard to works contract as defined in sec. 194C and hence the assessee was not required to deduct tax at source under this action. No contrary precedent has been brought to our notice by the ld. DR. Thus we hold that the authorities below were not justified in making and sustaining disallowance u/s 40(a)(ia) of the Act in the given circumstances. - Decided in favour of assessee. Depreciation on Earth moving machine - @ 30% allowed by CIT(a) as against 15% allowed by the A.O - Held that - There is no dispute on the fact that the assessee company used the machines on hire business, on which depreciation @ 30% was claimed. These facts as recorded in the impugned order have not been controverted by the ld. DR. It is patent that when a particular vehicle is used by its owner on hire basis, then the normal rate of depreciation needs to be discarded and substituted with the higher rate of depreciation. We, therefore, uphold the impugned order on this score. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under section 40(a)(ia) of the Income-tax Act, 1961 for non-deduction of tax at source on payment to M/s LDS Engineers.
2. Dispute regarding the rate of depreciation on Earth moving machine.

Analysis:
1. Disallowance under section 40(a)(ia): The dispute arose from the disallowance of Rs. 6,72,000 made by the Assessing Officer under section 40(a)(ia) for non-deduction of tax at source on payment to M/s LDS Engineers. The Assessing Officer held that tax should have been deducted on the payment made for hiring machinery for excavation. However, the tribunal observed that the Assessing Officer failed to correctly identify the nature of the transaction, as the payment was for hiring machinery on a fixed monthly rental, not excavation charges. The tribunal emphasized that for invoking section 40(a)(ia), the Assessing Officer must first establish a violation of specific sections requiring tax deduction at the source, such as section 194C. As the Assessing Officer did not refer to any specific section mandating tax deduction on the payment to LDS Engineers, the disallowance under section 40(a)(ia) was deemed unjustified. The tribunal also highlighted a precedent where a similar payment for machinery lease did not constitute a works contract under section 194C, supporting the decision to overturn the disallowance.

2. Rate of Depreciation Dispute: The second issue pertained to the rate of depreciation on Earth moving machine claimed by the assessee at 30%, which was challenged by the Assessing Officer who allowed only 15% depreciation. The tribunal noted that the assessee was engaged in the business of hiring dumpers for construction companies, justifying the higher rate of depreciation claimed. It was established that when a vehicle is used on a hire basis, the normal rate of depreciation should be replaced with a higher rate. The tribunal upheld the decision of the CIT(A) to allow depreciation at 30% on the Earth moving machine, dismissing the Revenue's appeal.

In conclusion, the tribunal allowed the assessee's appeal regarding the disallowance under section 40(a)(ia) and upheld the depreciation rate of 30% on the Earth moving machine, resulting in the dismissal of the Revenue's appeal.