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Income Tax Appellate Tribunal, “A” BENCH : KOLKATA
Before: Hon’ble Shri A.T. Varkey, JM & Shri M.Balaganesh, AM ]
This appeal by the assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-Burdwan [in short the ld CIT(A)] in Appeal No. dated 30.12.2016 against the order passed by the ACIT, Circle-2, Burdwan [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 15.03.2013 for the Assessment Year 2010-11.
The only issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in upholding the disallowance made in the sum of Rs. 9,13,700/- u/s 40a(ia) of the Act, in the facts and circumstances of the case.
The brief facts of this issue is that the assessee is a government contractor. The return of income for the assessment year 2010-11 was filed by the assessee individually on 16.09.2010 electronically disclosing total income of Rs. 10,21,911/-. The ld. AO observed from the profit and loss account of the assessee that the assessee has debited a sum of Rs. 9,13,700/- under the head hire charges. The assessee explained that the said payment towards hire charges were made for hiring the machinery required for execution of the Government tender works. The assessee furnished party wise details of payment of hire charges as under:
The assessee stated that his case does not fall under the provisions of section 194C of the Act and that the case falls under 194I of the Act as the hire charges on equipments/ machineries are covered in section 194I of the Act. The assessee further pleaded that since the payment made to each of the aforesaid parties did not exceed the prescribed 2
Hafijur Rahaman A.Yr. 2010-11 amount of Rs. 1,20,000/- in aggregate during the year, there is no obligation to deduct tax at source in terms of 194I of the Act. The ld. AO however disregarded the contentions of the assessee and held that case falls under the ambit of section 194C of the Act and accordingly the failure of the assessee to deduct tax at source makes the expenditure disallowable u/s 40a(ia) of the Act. The Ld. CIT(A) observed that it does not make any difference whether the case falls under 194C or 194I of the act inasmuch as the assessee has not deducted tax at source on the payments made towards hire charges to the aforesaid parties. Accordingly, he upheld the action of the ld. AO. Aggrieved the assessee is in appeal before us.
We have heard rival submission. At the outset, we find that there is no dispute that the payment of Rs. 9,13,700/- was made by the assessee towards hire charges for taking certain machineries/equipment on hire for the purpose of execution of government contract by the assessee. Hence the equipment taken on hire has been used by the assessee for the purpose of his business. The expression ‘rent’ is defined in section 194I of the act to improve machinery, equipment etc. among others. Hence hire charges paid for hiring of equipment / machinery would squarely fall within the ambit of provisions of section 194I of the Act. It is not in dispute that the payment made by the assessee towards hire charges to each of the aforesaid parties did not exceed Rs. 1,20,000/-, i.e the prescribed limit as per section 194I of the Act. Hence there was no obligation on the part of the assessee to deduct tax at source on the said payments. We hold that the Ld. CIT(A) erred in holding that there would be no difference whether the case falls u/s 194C or 194I of the Act in the instant case, inasmuch as, the assessee has not deducted tax at source. As per the provisions of section 194I of the Act, the assessee is obliged to deduct tax at source only if the aggregate of the payments exceed the prescribed limits thereon. In the instant case, the payment made is within the prescribed limit.
Hafijur Rahaman A.Yr. 2010-11 Accordingly, we direct the ld. AO to delete the disallowance made in the sum of Rs. 9,13,700/- u/s 40a(ia) of the Act. Accordingly, ground raised by the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 05.10.2018