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2016 (11) TMI 1309 - ITAT KOLKATA

2016 (11) TMI 1309 - ITAT KOLKATA - TMI - TDS u/s 194C - non deduction of tds on payment towards hire charges - disallowance u/s 40(a)(ia) - Held that:- As from 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 “Rent” for the purpose of Sec.194I. The payment .....

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t 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 i .....

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anerjee, JCIT, Sr.DR For the Respondent : Shri Subash Agarwal, Advocate 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. 2. 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 ₹ 72,59,483/- made u/s 40(a)(ia) of the Income Tax Act. 2. The appellant craves leave to amend, modify .....

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s transferred ₹ 3,51,025/- Cr.Varanasi Work Site Closing balances transferred: ₹ 1,00,525/- (iii) Truck & Trailor Hire Charges : Cr.Rana Jitendra Const. (P)Ltd. Being Machinery transportation Bill amount payable (No.123) ₹ 1,08,500/- Cr.Rana Jitendra Const. (P)Ltd. Being Machinery transportation Bill amount payable (No.235) ₹ 70,700/- Cr.Rana Jitendra Const. (P)Ltd. Being Machinery transportation Bill amount payable (No.287) ₹ 27,000/- Cr.Sadbhav Engg. Ltd. (hal .....

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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 . 4. 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 .....

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not include payment made for use of equipment, 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 .....

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e 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 payme .....

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s 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. 7. 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 o .....

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ng 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. 9. We have given a very careful consideration to the rival submissions. We shall first take a look at the relevant statutory provisions: 10. 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 .....

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y 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 subsection (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 .....

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tion III to section 194C; 11. 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 (inc .....

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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] 12. 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 s .....

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her 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 (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. ; 13. It can be seen fro .....

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fter 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 mad .....

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asting; (c) carriage of goods and passengers by any mode of transport other than by railways; (d) catering 15. 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 earlie .....

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(including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee. 17. 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 arrangeme .....

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