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of <h1>ITAT Hyderabad: Rent & Payment Disallowance Upheld</h1> <h3>The Income tax Officer, Ward 3 (2), Hyderabad Versus M/s Zorac Technolgies Pvt. Ltd.,</h3> The Income tax Officer, Ward 3 (2), Hyderabad Versus M/s Zorac Technolgies Pvt. Ltd., - TMI Issues Involved:1. Disallowance of rent payment u/s 40(a)(ia) for non-deduction of tax at source.2. Disallowance of payment to M/s Surya Graphics u/s 40(a)(ia) for non-deduction of tax at source.Issue 1: Disallowance of Rent Payment u/s 40(a)(ia):The AO disallowed the expenditure u/s 40(a)(ia) as tax was not deducted at source on rent paid to Smt. B. Poorna. The CIT(A) directed the AO to verify the payable amount as on a specific date and restrict the disallowance accordingly.Issue 2: Disallowance of Payment to M/s Surya Graphics u/s 40(a)(ia):The AO disallowed the amount paid to M/s Surya Graphics u/s 40(a)(ia) for 'contract work' due to non-deduction of tax at source u/s 194C. The CIT(A) analyzed the nature of the transaction and held that it was a purchase transaction, not a contract for work, based on the principal to principal relationship and the passing of property upon delivery. Citing the decision of the Bombay High Court, the CIT(A) deleted the disallowance.In the appeal before the ITAT Hyderabad, the revenue challenged the CIT(A)'s decision on both issues. After considering the arguments and examining the orders of the lower authorities, the ITAT upheld the CIT(A)'s decision. It was noted that in the case of printing educational material, the printer procured materials independently, worked in their establishment, and collected sales tax, indicating a sale of goods transaction. Referring to the Glenmark Pharmaceuticals case, it was established that the transaction was a sale, not a contract for work, as property passed upon delivery and materials were sourced independently. Therefore, the provisions of section 194C were deemed inapplicable. The ITAT dismissed the revenue's appeal, confirming the CIT(A)'s order based on the principles laid down by the Bombay High Court.Conclusion:The ITAT Hyderabad upheld the CIT(A)'s decision, dismissing the revenue's appeal regarding the disallowance of rent payment and payment to M/s Surya Graphics, based on the nature of the transactions and the applicability of tax deduction provisions.
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