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TMI Blog2011 (10) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. The revenue's contention in the grounds is that in the instant case the provisions of section 194-I for deduction of tax will apply instead of tax deducted by assessee u/s. 194C(2) of the Act. For this, revenue has raised following ground: "Factual circumstances of the case reveals that in the instant case section 194I is applicable instead of section 194(2) of the I. T. Act. Hence the A. O has rightly made addition as section 40a(ia) of the I. T. Act. Therefore 2nd appeal is suggested." 3. We have heard rival submissions and gone through facts and circumstances of the case. The brief facts are that assessee is engaged in the business of construction of bridges, roads, dams and canals, and heavy earth moving activities in contract wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been deducted @ 10%. The Assessing Officer then made proportionate disallowance under the provisions of section 40a(ia) of the Act in respect to 'machinery hire charges'. Aggrieved, assessee preferred appeal before CIT(A). 4. The CIT(A) deleted the disallowance by holding the 'machinery hire charges' expenses falling u/s. 194C(2) of the Act, by holding as under: "7. I have considered the assessment order and the submission of the appellant. I have also perused the assessment record. The AO has relied solely on the accounting entries made in the books of account in as much as the subcontract expenses are clubbed under the head 'machine hire charges'. The AO has confined himself only to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed has no role in deciding the payments made to the sub-contractors; moreover, labour charges are paid by the sub-contractors, and, the sub-contract expenses debited in the books of account of the appellant do not include labour charges. It was contended before me that the nature of work assigned to the subcontractors is such that there was actually no requirement of any material in completion of the work, except for providing RCC M-30, where the principal employer itself has supplied the required material (iron and cement) for quality reasons. It was also argued that the payments made to the sub-contractors have been shown by them as receipts from sub-contract work. The P & L a/c, Computation of Income, etc., in respect of some sub-contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has deducted TDS u/s. 194C(2) of the Act and covered itself under the head 'sub contractor'. We find that CIT(A) after verifying records and explanation submitted by assessee reached to a conclusion that payments are in the nature of contract payments made to sub contractors. On merits, we are in agreement with the findings of CIT(A) and even revenue before us could not controvert the same. Another facet of this issue is that once the assessee has deducted TDS u/s. 194C(2) of the Act, whether disallowance can be made by invoking the provisions of section 40a(ia) of the Act. The relevant provision reads as under: "40a(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividual assessments declared these payments as salary payments and accepted by revenue as it is. Further, it is held that the assessee had deducted tax u/s. 192 of the Act as against the allegation of revenue that the provisions of section 194J of the Act would be attracted as these consultants are in the capacity of professionals. The Bench held that the provisions of section 40(a)(ia) of the Act will not apply as the said provision can be invoked only in the event of non-deduction of tax but not for lesser deduction of tax. In that case the assessee has deducted tax u/s. 192 of the Act as against section 194J of the Act as against the claim of revenue. 6. In the present case before us the assessee has deducted tax u/s. 194C(2) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of TDS, the provisions of section 40(a)(ia) of the Act cannot be invoked. Here in the present case before us, the assessee has deducted tax u/s. 194C(2) of the Act and not u/s. 194I of the Act and there is no allegation that this TDS is not deposited with the Government account. We are of the view that the provisions of section 40(a)(ia) of the Act has two limbs, one is where, inter alia, assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into Government Account. There is nothing in the said section to treat, inter alia, the assessee as defaulter where there is a shortfall in deduction. With regard to the shortfall, it cannot be assumed that there is a default as the deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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