No TDS u/s 194C on hiring charges of crane : ITAT

ORDER

Ravish Sood, Judicial Member. – The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals)-2, Jalandhar, dated 17.07.2017, which in turn arises from the assessment order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961(for short ‘I.T. Act’) for A.Y. 2013-14, dated 28.03.2016. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal:—

2. Briefly stated, the assessee firm which is engaged in the business of a civil contractor had filed its return of income for A.Y. 2013-14 on 31.03.2014, declaring total income at Rs. 11,54,100/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the I.T. Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2)

3. During the course of the assessment proceedings it was observed by the A.O that the assessee firm had paid hiring charges aggregating to Rs. 9,50,600/- to the following parties :—

The A.O being of the view that the assessee had defaulted by not deducting tax at source under Sec. 194C of the IT Act on the aforesaid hiring charges aggregating to Rs. 9,50,600/-, thus called upon the assessee to explain as to why the said amount claimed as an expenditure may not be disallowed under Sec. 40(a)(ia) of the IT Act. In reply, it was submitted by the assessee that as the payments to the aforementioned parties were made for the use of crane and were not in the nature of contractual payments, hence no obligation was cast upon it to deduct tax at source under Sec. 194C in respect of the said amounts. However, the aforesaid reply of the assessee did not find favour with the A.O who disallowed the aforesaid amount of Rs. 9,50,600/- under Sec. 40(a)(ia) of the IT Act.

4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The assessee in the course of the appellate proceedings tried to impress upon the CIT(A) that as the payments to the aforementioned parties were not in the nature of a contractual payments, hence there was no requirement on its part to deduct tax at source under Sec. 194C in respect of the said payments. Apart therefrom, it was also submitted by the assessee that as the respective payees were income tax assesses and were regularly filing their returns of income, hence for the said reason also no disallowance of the aforesaid expenditure could be made under Sec. 40(a)(ia) of the IT Act. However, the CIT(A) held a conviction that as the cranes were taken on hire by the assessee, hence it was liable to deduct tax at source under Sec. 194C of the IT Act while making the payments towards the hiring charges to the aforesaid parties. Further, the CIT(A) observed that as the contention of the assessee that the payees had included the aforesaid receipts in their returned income and paid tax on the same was not supported with any evidence, thus the same could not be summarily accepted. On the basis of his aforesaid deliberations the CIT(A) upheld the disallowance of Rs. 9,50,600/- made by the A.O under Sec. 40(a)(ia) and dismissed the appeal.

5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The Learned Authorized Representative (for short ‘A.R’) for the assessee submitted that as the payments made towards hiring charges of cranes did not fall within the realm of the definition of the term “work” as envisaged in Sec. 194C of the IT Act, hence no obligation was cast upon the assessee to deduct tax at source under the said statutory provision. The Ld. A.R in order to buttress his aforesaid contention drew our attention to the definition of the term “work” as contemplated in Explanation (iv) of Sec. 194C of the IT Act. It was vehemently submitted by the Ld. A.R that as the payments made by the assessee towards simpliciter hiring of cranes could not be construed as payments for carrying out any work, hence the same could not be brought within the scope and gamut of the provisions of Sec. 194C of the IT Act. In sum and substance, it was the contention of the Ld. A.R that the lower authorities had erred in disallowing under Sec. 40(a)(ia) the payments made by the assessee towards hiring charges of cranes on the ground that it had failed to deduct tax at source under Sec. 194C in respect of the aforesaid amounts.

6. Per contra, the Ld. Departmental Representative (for short ‘D.R’) relied on the orders of the lower authorities. It was submitted by the Ld. D.R that as the assessee had failed to deduct tax at source under Sec. 194C of the IT Act on the payments made towards hiring charges of cranes, hence the A.O had rightly disallowed the said amount under Sec. 40(a)(ia) of the IT Act.

7. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. The issue involved in the present appeal lies in a narrow compass i.e. as to whether the payments towards hiring charges of cranes would be liable for deduction of tax at source under Sec. 194C of the IT Act, or not. We find that as per the provisions of Sec. 194C any person responsible for paying any sum to any resident (hereafter referred to as ‘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 specified person 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 as therein specified as income tax on income comprised therein. In sum and substance, the obligation to deduct tax at source under Sec. 194C arises only where there is a payment/credit of any sum to a 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 specified person. We find that the term “work” as defined in Explanation (iv) to Sec. 194C, reads as under :

‘(iv) “work” shall included :—

but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.’

We are persuaded to subscribe to the contention advanced by the Ld. A.R that a simpliciter payment towards hiring charges of cranes cannot be brought within the sweep of the definition of the term “work” as envisaged in Sec. 194C of the IT Act. We thus are of the considered view that the lower authorities had erred in concluding that as the assessee had failed to deduct tax at source under Sec. 194C of the IT Act on the payments made towards hiring charges of cranes aggregating to Rs. 9,50,600/-, hence the said amount was liable to be disallowed under Sec. 40(a)(ia) of the IT Act. In our considered view, as the assessee was under no obligation to deduct tax at source under Sec. 194C in respect of the payments made towards hiring charges of cranes, therefore, the lower authorities had erred in disallowing the same for the said reason by invoking the provisions of Sec. 40(a)(ia) of the IT Act. We thus not being in agreement with the view taken by the lower authorities that it was obligatory on the part of the assessee to deduct tax at source under Sec. 194C on the payments made towards simpliciter hiring charges of cranes, set aside the order of the CIT(A) and vacate the disallowance of Rs. 9,50,600/- made by the A.O under Sec. 40(a)(ia) of the IT Act.

8. The appeal of the assessee is allowed.