Jaiprakash Enterprises Ltd. v. Addl. CIT

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The Tax Publishers2012 TaxPub(DT) 0861 (Luck-Trib) : (2012) 044 (II) ITCL 0330 : (2012) 049 SOT 0001 INCOME TAX ACT, 1961 --TDS--Disallowance under section 40(a)(ia)Machinery and taken on hire--The assessee was a limited company engaged in the business of civil engineering construction, limestone mines and real estate, etc. During the year under consideration, the assessee filed return of income declaring net income of Rs. 9,45,72,139. During the course of assessment proceedings, assessing officer noticed that the assessee was doing most of the activities as a sub-contractor of M/s J. Associates Ltd. and for carrying out the activities like construction of dam, supply of labour, construction of buildings, etc., The terms and conditions of agreement for Hire are: The assessee executed an agreement for hiring of machinery and equipments, etc. 'This agreement shall be valid for a period of three years starting from 1-8-2005 and can be extended on mutually agreed terms and conditions. However, either party can terminate this agreement by giving one-month notice. All payments to Lender shall be subject to deduction of taxes/levies as applicable'. For executing the work the assessee hired from M/s J Associates Ltd. certain construction machinery and equipment such as, Dozers, Excavators, Loaders, Dumpers and Vivratory Compactors, including some trucks, jeeps, buses and pick-ups. The aforesaid hiring was done as per written agreement with effect from 1-8-2005 for a period of three years on mutually agreed terms and conditions as stated in the aforesaid agreement and as per usage based rates specified in the schedule of Machinery and Equipment annexed thereto. As per the terms and conditions of the agreement, the Lender M/s J. Associates Limited, undertook to bear operating and maintenance cost of machinery and equipment given on hire, including salary & wages of driver/operator/helper, the cost of fuel and lubricants, repair & maintenance and the road tax & insurance, etc. The assessing officer asked the assessee to produce various details regarding the payments made in pursuance of the agreement. The assessing officer noticed that the assessee had made total payment of Rs. 20,26,24,890. The payments had been made as per the common agreement for all the above sites. Regarding the position of tax deducted on the above payments, the assessee submitted to the assessing officer that in respect of Tehri Site, tax has been deducted @ 1.12% in respect of all payments and no tax at all had been deducted in respect of other payments. On being asked the reason for the same, the assessee, vide reply dated 15-12-2008, submitted to the assessing officer that the TDS provisions on rent of machinery or equipment was inserted in section 194-I by the Taxation Laws (Amendment) Act, 2006 with effect from 13-7-2006 and as such, the assessee was not required to deduct income-tax against machinery hire charges. It was also stated that the provisions of section 194C were not attracted on such payments. Reliance was placed on Circular No. 681, dated 8-3-94 issued by the CBDT. The assessing officer held that the assessee was liable for deduction of tax at source under section 194C and since it had failed to do so, the addition was warranted under section 40(a)(ia). The assessing officer made the addition of Rs. 13,32,39,725. The Commissioner (Appeals) was of the view that the disallowance under sub-clause (ia) of clause (a) of section 40 should have been invoked only where the liability to deduct tax was clear and unambiguous and the non-deduction was clearly indefensible but that was not so in the assessee's case, therefore, the assessee acted reasonably and in good faith in not deducting tax from payments in question. Accordingly, disallowance made by the assessing officer was deleted. Held: Justified. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 0861 (Luck-Trib) : (2012) 044 (II) ITCL 0330 : (2012) 049 SOT 0001

INCOME TAX ACT, 1961

--TDS--Disallowance under section 40(a)(ia)Machinery and taken on hire--The assessee was a limited company engaged in the business of civil engineering construction, limestone mines and real estate, etc. During the year under consideration, the assessee filed return of income declaring net income of Rs. 9,45,72,139. During the course of assessment proceedings, assessing officer noticed that the assessee was doing most of the activities as a sub-contractor of M/s J. Associates Ltd. and for carrying out the activities like construction of dam, supply of labour, construction of buildings, etc., The terms and conditions of agreement for Hire are: The assessee executed an agreement for hiring of machinery and equipments, etc. 'This agreement shall be valid for a period of three years starting from 1-8-2005 and can be extended on mutually agreed terms and conditions. However, either party can terminate this agreement by giving one-month notice. All payments to Lender shall be subject to deduction of taxes/levies as applicable'. For executing the work the assessee hired from M/s J Associates Ltd. certain construction machinery and equipment such as, Dozers, Excavators, Loaders, Dumpers and Vivratory Compactors, including some trucks, jeeps, buses and pick-ups. The aforesaid hiring was done as per written agreement with effect from 1-8-2005 for a period of three years on mutually agreed terms and conditions as stated in the aforesaid agreement and as per usage based rates specified in the schedule of Machinery and Equipment annexed thereto. As per the terms and conditions of the agreement, the Lender M/s J. Associates Limited, undertook to bear operating and maintenance cost of machinery and equipment given on hire, including salary & wages of driver/operator/helper, the cost of fuel and lubricants, repair & maintenance and the road tax & insurance, etc. The assessing officer asked the assessee to produce various details regarding the payments made in pursuance of the agreement. The assessing officer noticed that the assessee had made total payment of Rs. 20,26,24,890. The payments had been made as per the common agreement for all the above sites. Regarding the position of tax deducted on the above payments, the assessee submitted to the assessing officer that in respect of Tehri Site, tax has been deducted @ 1.12% in respect of all payments and no tax at all had been deducted in respect of other payments. On being asked the reason for the same, the assessee, vide reply dated 15-12-2008, submitted to the assessing officer that the TDS provisions on rent of machinery or equipment was inserted in section 194-I by the Taxation Laws (Amendment) Act, 2006 with effect from 13-7-2006 and as such, the assessee was not required to deduct income-tax against machinery hire charges. It was also stated that the provisions of section 194C were not attracted on such payments. Reliance was placed on Circular No. 681, dated 8-3-94 issued by the CBDT. The assessing officer held that the assessee was liable for deduction of tax at source under section 194C and since it had failed to do so, the addition was warranted under section 40(a)(ia). The assessing officer made the addition of Rs. 13,32,39,725. The Commissioner (Appeals) was of the view that the disallowance under sub-clause (ia) of clause (a) of section 40 should have been invoked only where the liability to deduct tax was clear and unambiguous and the non-deduction was clearly indefensible but that was not so in the assessee's case, therefore, the assessee acted reasonably and in good faith in not deducting tax from payments in question. Accordingly, disallowance made by the assessing officer was deleted. Held: Justified.