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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Shri P.M.Jagtap, AM & Sri N.V.Vasudevan, JM ]
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : KOLKATA [Before Hon’ble Shri P.M.Jagtap, AM & Sri N.V.Vasudevan, JM ] I.T.A No. 130/Kol/2014 Assessment Year : 2005-06
D.C.I.T., Circle-3, -vs.- M/s. Vishnu Shiva Infrastructure (P)Ltd. Kolkata Kolkata [PAN : AABCV 6631 L] (Appellant) (Respondent) For the Appellant : Shri Debasis Banerjee, JCIT, Sr.DR For the Respondent : Shri Subash Agarwal, Advocate.
Date of Hearing : 17.10.2016. Date of Pronouncement : 19.10.2016
ORDER Per N.V.Vasudevan, JM
This is an appeal by the Revenue against the order dated 26.08.2013 of CIT(A)-I, Kolkata, relating to AY 2005-06.
The grounds of appeal raised by the revenue reads thus: “1.For that on the facts and circumstances of the case, the Ld. CIT(A) was not justified in deleting the addition of Rs.72,59,483/- made u/s 40(a)(ia) of the Income Tax Act. 2. The appellant craves leave to amend, modify or alter any grounds of appeal during the course of hearing of this case.”
The Assessing is a company. It derives income from carrying out earth moving contracts. In the course of his business the assessee hired certain equipments and paid the following sums towards hire charges :- (i) Crane Hire Charges: Cr.Mangalwar : Rs. 30,900/- Closing balances transferred (ii) Machinery Hire Charges paid : Cr.Rana Jitendra Const. (P) Ltd. (No.388) : Rs.63,50,000/- Cr.Berhampur (Orissa) Closing balances transferred Rs. 3,51,025/- ITA No.130/Kol/2014- M/s. Vishnu Shiva Infrastructure (P) Ltd. A.Y.2005-06 1
Cr.Varanasi Work Site Closing balances transferred: Rs. 1,00,525/- (iii) Truck & Trailor Hire Charges : Cr.Rana Jitendra Const. (P)Ltd. Being Machinery transportation Bill amount payable (No.123) Rs. 1,08,500/- Cr.Rana Jitendra Const. (P)Ltd. Being Machinery transportation Bill amount payable (No.235) Rs. 70,700/- Cr.Rana Jitendra Const. (P)Ltd. Being Machinery transportation Bill amount payable (No.287) Rs. 27,000/- Cr.Sadbhav Engg. Ltd. (halwad) Truck Hire Charges (No.370) Rs. 71,100/- Cr.Shringar (Kishangarh) Closing balances transferred (No.406) Rs. 46,500/- Cr.Varanasi Work Site Closing balances transferred (No.436) Rs. 1,03,233/- Rs. 72,59,483/-
The assessee admittedly did not deduct tax at source at the time of making the aforesaid payment towards hire charges. According to the AO the payments in question are in the nature of payments made to a contractor for carrying out work within the meaning of section 194C of the Income Tax Act, 1961 (Act). Since the assessee did not deduct tax at source on the aforesaid payment the AO invoking the provision of section 40(a)(ia) of the Act disallowed the expenses which were claimed as deduction in computing the income of the assessee under the head “Income from Business”.
Before CIT(A) the assessee submitted that the payment in question made on account of hire was not in the nature of payment made to a contractor for carrying out the work within the meaning of section 194C of the Act. The assessee further pointed out that the payment in question was in the nature of “rent” paid for use of machinery, plant, machinery or equipment. Section 194I of the Act provides for obligation for deduction of tax at source when then person paying any income by way of rent. For the purpose of section 194I of the Act, prior to the amendment of the said definition of “Rent” for the purpose of Sec.194I of the Act, by Taxation Laws (Amendment) Act 2006 w.e.f. 13.07.2006, did not include payment made for use of equipment,
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machinery or plant. Since the payment in question was neither covered u/s 194C of the Act nor u/s 194I of the Act, at the time of making payment and in the previous year relevant to A.Y.2005-06, there was no obligation to deduct tax at source at the time of making payment. Consequently no disallowance u/s 40(a)(ia) of the Act could be made by the AO. The assessee relied on the decision of the Honb’ble Madras High Court in the case of CIT vs Rathinam 197 Taxman 486 wherein on identical facts the Hon’ble Madras High Court held that no disallowance u/s 40(a)(ia) of the Act could be made.
The CIT(A) deleted the addition made by the AO by observing as follows :-
“6. The submissions of the appellant as well as the case laws related upon by it have been considered . It is seen that the fact in this case are not in dispute. However, the AO has held the appellant liable for deduction of TDS in respect of the following payments made by it and since the TDS have not been deducted, the payments have been disallowed u/s 40(a)(ia). It is however, seen that the AO has considered the appellant's liability for deduction of tax u/s.194C of the Income Tax Act which is in respect of contract work and deduction of tax in pursuance of any contract between the contractor and specified person. In the appellant's case, it has clearly been pointed out that the payment was made for hiring of machinery, cranes, etc. by the appellant and such payments could not be covered u/s.194C as the same was for hire charges of the Machineries, cranes, etc. Furthermore, as has been held by the Madras High Court in the case of CIT-I, Trichirapalli -vs- D.Rathinam, the provisions of Sec.194I providing for TDS even in respect of Machinery/Equipments were introduced with effect from 01-06- 2007 and were therefore not applicable for A.Yr. 2005-06. In the case of appellant, the assessment year is also 2005-06. Therefore, the payments cannot be considered as covered under provisions of Sec.194I. It is accordingly held that the AO was provisions of TDS not justified in considering these payments to be covered by provisions of TDS and disallowance of the same made u/s 40(a)(ia) is deleted. 6. Aggrieved by the order of CIT(A) the revenue has preferred the present appeal before the Tribunal.
The ld. DR submitted that since the assessee was engaged in the business of earth moving contract, it has to be verified as to whether the payment for hiring of equipments, machinery were made as part of the composite contract for carrying out work of earth moving. According to him in case it was the payment for composite contract, then the provision of section 194C of the Act would be attracted and the disallowance made by the AO has to be sustained. ITA No.130/Kol/2014- M/s. Vishnu Shiva Infrastructure (P) Ltd. A.Y.2005-06 3
The ld. Counsel for the assessee on the other hand relied on the order of CIT(A) and submissions made before CIT(A). It was further submitted by him that it was nobody’s case that the payment for hiring of machinery and equipment was part of the composite contract to carry out work. In this regard he drew our attention to the copies of various bills raised by the parties which are placed in the paper book filed by the Assessee.
We have given a very careful consideration to the rival submissions. We shall first take a look at the relevant statutory provisions:
Sub-clause (ia) of clause (a) of section 40 was inserted by the Finance (No.2) Act, 2004 with effect from 1st April, 2005 read as under:- “40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computed the income chargeable under the head `Profits and gains of business or profession’—. ….. (ia) any interest, commission or brokerage, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub- contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub- section (1) of section 200 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation. – For the purposes of this sub-clause, - (i) “commission or brokerage” shall have the same meaning as in clause (i) of the Explanation to section 194H; (ii) “fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (iii) “professional services” shall have the same meaning as in clause (a) of the Explanation to section 194J;
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(iv) “work” shall have the same meaning as in Explanation III to section 194C; ”
The Memorandum explaining the provisions in the Finance Bill explained the rationale of the insertion of the new provision in following words :-
“With a view to augment compliance of TDS provisions, it is proposed to extend the provisions of section 40(a)(i) to payments of interest, commission or brokerage, fees for professional services or fees for technical services to residents, and payments to a resident contractor or sub-contractor for carrying out any work (including supply of labour for carrying out any work), on which tax has not been deducted or after deduction, has not been paid before the expiry of the time prescribed under sub- section (1) of section 200 and in accordance with the other provisions of Chapter XVII-B. It is also proposed to provide that where in respect of payment of any sum, tax has been deducted under Chapter XVII-B or paid in any subsequent year, the sum of payment shall be allowed in computing the income of the previous year in which such tax has been paid. The proposed amendment will take effect from 1st day of April, 2005 and will, accordingly, apply in relation to the assessment year 2005- 2006 and subsequent years. [Clause 11]”
Thereafter the Finance Act, 2008 made amendment to clause (a) in sub-clause (ia) in section 40 with retrospective effect from 1st April, 2005. The section as amended by the Finance Act, 2008 read as under:-
“(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been paid,- (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139 ; or (B) in any other case, on or before the last day of the previous year. Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted- (A) during the last month of the previous year but paid after the said due date ; or
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(B) during any other month of the previous year but paid after the end of the said previous year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.” ;
It can be seen from the above provisions that originally in Sec.40(a)(ia) rent was not included and was included only w.e.f. 1.4.2005 by the finance Act, 2008 though w.r.e.f. 1.4.2005. Thus the law maintains a clear distinction between rent and payment for carrying out work in pursuance of a contract.
Sec.194C(1) of the Income Tax Act, 1961 (Act) as it existed prior to its substitution by Finance (No. 2) Act, 2009 (w.e.f. 1-10-2009)provided that any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a person specified in Sec.19C(1) of the Act, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to—
(i) one per cent. where the payment is being made or credit is being given to an individual or a Hindu undivided family; (ii) two per cent. where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family,
of such sum as income-tax on income comprised therein.
Explanation III to Sec.194C provides that for the purposes of this section, the expression “work” shall also include— (a) advertising (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods and passengers by any mode of transport other than by railways; (d) catering
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Sec.194I of the Act as it existed on 1.4.2005 provided that any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident] any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of— (a) two per cent. for the use of any machinery or plant or equipment; and (b) ten per cent. for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings: 16. For the purpose of Sec.194I, rent was defined to mean any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee.
By the Taxation Laws (Amendment) Act, 2006 (w.e.f. 13-7-2006), the definition of rent for the purpose of Sec.194I was amended and the following definition was substituted :
“Explanation.—For the purposes of this section,— (i) “rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any, — (a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings, whether or not any or all of the above are owned by the payee” 18. It can be seen from the aforesaid amended definition of rent for the purpose of Sec.194I that payment for use of machinery, plant or equipment was considered as “rent” for the purpose of Sec.194I only w.e.f. 13.7.2006. Prior to such amendment any payment of rent for use of machinery, plant or equipment was not considered as
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“Rent” for the purpose of Sec.194I. The payment of rent for use of any plant, machinery or equipment cannot fall within the ambit of Sec.194C also as it does not fall within the definition of the term “Work” as laid down in Sec.194C of the Act.
In the light of the aforesaid statutory provision we are of the view that the disallowance u/s 40(a)(ia) of the Act was rightly deleted by CIT(A) as the payment towards hire charges do not require deduction of tax at source at the relevant point of time when it was paid or credited to the account of the payee.
With regard to the argument of the ld. DR that the payment in question, if it is a composite payment for carrying out work as well as hiring of machinery, then the provision of section 194C of the Act would be attracted, we are of the view that it is neither the case made out by the AO nor the case made out in the grounds of appeal before the Tribunal. Nevertheless a perusal of the relevant bills evidencing the payment of hiring charges shows that these were payments made independently of any contract for carrying out work and was hiring simpliciter. There is no material on record to show that the payment in question was part of a composite payment for carrying out a work as a part of which machinery was also hired. We are therefore of the view that the provision of section 194C of the Act are not attracted.
For the reasons given above we do not find any merits in this appeal by the revenue and the same is dismissed.
In the result, the appeal by the revenue is dismissed.
Order pronounced in the Court on 19.10.2016.
Sd/- Sd/- [P.M.Jagtap] [ N.V.Vasudevan ] Accountant Member Judicial Member
Dated : 19.10.2016. [RG PS] ITA No.130/Kol/2014- M/s. Vishnu Shiva Infrastructure (P) Ltd. A.Y.2005-06 8
Copy of the order forwarded to:
1.M/s Vishnu Shiva Infrastructure (P) Ltd., C/o K.N.Choudhury, “Dacca House “ Room No.15, 41, Zakaria Street, Kolkata-700073. 2. D.C.I.T., Circle-3, Kolkata. 3. CIT(A)-I, Kolkata 4. C.I.T.-I, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.