2005 (8) TMI 658 - HC - Income Tax

Summary

Issues:
1. Whether the assessee was liable to deduct tax under Section 194-I of the Income Tax Act for the rent paid.
2. Whether the assessee used the factory land and building or only the plant and machinery for which rent was paid.

Analysis:
Issue 1:
The Assessing Officer found that the assessee had debited a sum under "manufacturing and other expenses" as equipment hire charges, which was actually paid as rent for factory premises. The Assessing Officer held the assessee liable to deduct tax under Section 194-I of the Act. The Tribunal, however, allowed the appeal, stating that the assessee was not obligated to deduct tax at source under Section 194-I. The High Court analyzed the agreement between the assessee and the premises owner, which specified payment for plant and machinery only, not for land and building use. Referring to Section 194-I, the Court concluded that the agreement related to plant and machinery, not land and building, and hence, the assessee was not liable to deduct tax under Section 194-I.

Issue 2:
The second issue revolved around whether the assessee used the factory land and building along with the plant and machinery for which rent was paid. The Tribunal's finding was that the assessee was only paying for the use of plant and machinery based on monthly production, not for the land and building. The High Court concurred with this finding, emphasizing that the agreement specified payment for plant and machinery usage only, not for land and building. Therefore, the Court held that the assessee was not liable to deduct tax under Section 194-I for the hiring charges on plant and machinery.

In conclusion, the High Court dismissed the appeal filed by the Department, ruling in favor of the assessee on both issues. The Court determined that the assessee was not required to deduct tax under Section 194-I for the rent paid for plant and machinery usage, as the agreement did not encompass payment for land and building use. Thus, no penalty was warranted against the assessee, and the appeal failed.