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TMI Blog2010 (10) TMI 903X X X X Extracts X X X X X X X X Extracts X X X X ..... ince no tax was deducted at source, Assessing Officer required explanations from the assessee. The submission was that 70 per cent of the payment was towards materials used and balance 30 per cent alone was for tanning. Reliance was placed by the assessee on Circular No. 13/2006 dated 13-12-06 in this regard. However, Assessing Officer was of the opinion that assessee was bound to deduct tax at source on the payments under section 194C of the Act. He disallowed the claim under section 40(a)( ia) for failure to deduct tax on the following reasoning: "The nature of job entrusted to the contractor necessarily requires the use of material and labour for which the payment has been made. It is the duty of the assessee to deduct TDS on any payment made to the contractor for carrying out any work (including supply of labour for carrying out the work). The assessee has not produced books of accounts in support of his claims. Also there is no written agreement with the contractor for the work entrusted. The circular 13/2006 dated 13-12-06 and the case law which the assessee has cited in his submission has no relevance to the case as the tanning fabrication is a contract of work and not a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in Birla Cement Works [supra] ld. CIT(A) observed that the conditions the mentioned therein were satisfied here and assessee has failed to deduct the tax. He therefore, confirmed the disallowance. 6. Now before us ld. AR strongly assailing the order of the ld. CIT(A) submitted that tanners had given separate bills for chemicals, machinery hiring and actual tanning expenses as given at facts above. According to him the only error committed by the assessee was that it passed a single book keeping entry under the head "tanning expenses". Further submission is that if the tanning works were done directly by the assessee it would have incurred the same expenses. Again it was submitted that payment towards machine hiring and materials were only re-imbursement of expenses. Explaining the process of tanning ld. Counsel submitted that first two stages did not involve any labour being processing of material done through machine and only the third state required labour. Ld. Counsel further urged that 'any sum' found in section 194C should read continuously a "only sum to any resident for carrying out any work .....", since there was no full stop or coma or any other punctuation mark af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid by the concerns were never paid for based on any separate contract. It was very much a composite contract. In the case of .... relied on by the ld. DR, there was a solitary plea taken by the assessee that it was obliged to deduct tax at source only in respect of payment for services rendered and not for cost of materials where the work done by the contractor was whole work of the repair and maintenance in a composite manner. It was held by the Delhi Bench of the Tribunal that, merely because assessee had bifurcated the payments into two groups, it could not be held that there were two independent and distinct contracts. It was held by the Bench that assessee was obliged to deduct tax at source on the whole of the amount in a composite contract and otherwise section 40(a)( ia) could be attracted. We do appreciate argument of the ld. AR that the words "any work" appearing under section194C should not be read in isolation by continuously with other terms between. But we can not accept the pleading that the Parliament wanted to confirm deduction only to labour charges even in a composite contract, which predominantly would below and there was no bifurcation whatsoever. As per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proviso to section 194C, it was not necessary for it to make any deduction of tax at source. However, ld. CIT(A) did not agree. According to him, the obligation to deduct tax on hiring of machinery was effective only from 13-7-2006. However, aggregation for the purpose of considering Rs. 1,20,000 had to be reckoned for the whole of the year and not from the date 13-7-2006. Therefore, according to him, section 194C was not applicable and section 194(1) was applicable and assessee had failed to deduct tax at source. Disallowance made was, therefore, confirmed. 12. Now before us, the ld. A.R. assailing the order of the ld. CIT(A) reiterated the contentions taken before it. 13. Per contra, the ld. D.R. supported the orders of the authorities below. 14. We have heard the rival submissions and perused the orders. In the first place, Revenue has not taken any ground against the finding of the ld. CIT(A) that section 194C was not applicable but only section 194(i) was applicable. Ld. CIT(A) accepted the plea of the assessee that there was no work done by men but only by machine and therefore, payment made was for use of machinery. Explanation (1) to section 194( i) was substituted by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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