ITO 24(2)(4), MUMBAI vs. ZAIBUNISSA A IMARATWALE, MUMBAI

The solitary issue arising for consideration in the present appeal relates to deletion of addition for an amount of ` 34,95,612, under Smt. Zaibunissa A. Imaratwale 2 section 40(a)(ia) of the Income Tax Act, 1961 (for short "the Act") for non deduction of tax at source on car hire charges.

Briefly stated the facts are, the assessee an individual filed her return of income on 16th September 2008, declaring total income of ` 7,94,032. During the assessment proceedings, it was noticed by the Assessing Officer that assessee has paid car hire charges of ` 34,95,612, to various persons without deducting tax at source. He, therefore, called upon the assessee to explain why the said amount should not be disallowed under section 40(a)(ia) of the Act. Though the assessee objected to such disallowance, the Assessing Officer rejecting the submissions of the assessee disallowed the amount of ` 34,95,612, paid towards car hiring charges by invoking section 40(a)(ia) of the Act. While doing so, he observed that the amount paid by the assessee having exceeded the prescribed limit as provided under section 194C of the Act, the assessee was liable to deduct tax. Being aggrieved, the assessee preferred appeal before the first appellate authority.

Before the first appellate authority, it was submitted by the assessee that she is into the business of car hiring. As per the business practice, the customers contact the assessee for hiring car. Though the assessee owns some cars of her own but when the demand of vehicle is more, she arranges vehicle from other owners and supplies to the Smt. Zaibunissa A. Imaratwale 3 customers. Therefore, as the hiring of vehicle from other is not on regular basis, depending upon the requirement and not for a fixed period, the arrangement is not in the nature of a contract as envisaged in section 194C of the Act. Therefore, provisions of section 40(a)(ia) will not apply. It was further submitted, the payment made by the assessee to a particular owner cannot be considered to be single contract as they are for hiring done on different dates and different time. Further, the payment made on each occasion to the car owner never exceeded ` 20,000. The learned Commissioner (Appeals) after considering the submissions of the assessee and following the principle laid down in a number of judicial precedent finally concluded that as payment made to car owners did not exceed the prescribed limit as per the provisions of the Act, there was no requirement to deduct tax at source. He also held that even otherwise also, the transaction is not in the nature of a contract requiring deduction of tax at source. Accordingly, he deleted the addition.

While the learned Departmental Representative relied upon the reasoning of the Assessing Officer, the learned Counsel for the assessee apart from relying upon the reasoning of the learned Commissioner (Appeals) also submitted that no disallowance under section 40(a)(ia) can be made as the entire amount relating to car hire charges is paid during the relevant previous year and nothing

We have considered the submissions of the parties and perused the material available on record. On a perusal of the orders passed by the learned Commissioner (Appeals), it is seen that he has given a factual finding that in no individual case car hiring payment to car owner exceeds the prescribed limit. The aforesaid factual finding has not been controverted by the Department by bringing any material on record. Therefore, in our view, no disallowance under section 40(a)(ia) can be made. Even otherwise also, it is evident from the observations of the Assessing Officer in the assessment order as well as the written submission filed before the learned Commissioner (Appeals) by the assessee, the entire amount on account of car hiring charges was paid during the relevant previous year and nothing remained payable at the end of the year. That being the case, no disallowance, in our view, can be made under section 40(a)(ia) in view of the principles laid down in the case laws cited by the learned Counsel. Accordingly, we do not see any reason to interfere with the order of the learned Commissioner

In the result, Revenue’s appeal stands dismissed. Order pronounced in the open Court on 30.10.2015