2016 (4) TMI 426 - AT - Income Tax

Tribunal affirms tax deduction for machinery hire charges under section 194C, emphasizing contractual terms

The Tribunal affirmed the Commissioner's decision that tax deduction under section 194C was appropriate for machinery hire charges, dismissing the ... TDS u/s 194C - Whether on the payments made for hiring of machinery, cranes etc., the tax at source is to be deducted under the provisions of section 194C or section 194I? - Held that:- Tribunal in the case of Bharat Forge Ltd. Vs. Addl. CIT (2013 (11) TMI 1263 - ITAT PUNE ) in a similar case has held that on the payments made for hiring of cranes, the provisions of section 194C would apply. In the said case contractor was to bear the expenses for petrol, operator day to day repair and maintenance of the cranes. CIT(A) was correct in holding that the provisions of section 194I are not applicable in respect of crane hire charges - Decided against revenue Issues Involved:Interpretation of Sections 194C and 194I of the Income Tax Act regarding tax deduction on machinery hire charges.Detailed Analysis:Issue 1: Interpretation of Sections 194C and 194IThe Revenue appealed against the order of the Commissioner of Income Tax (Appeals) regarding tax deductions under Sections 194C and 194I of the Income Tax Act for the assessment year 2009-10. The Revenue argued that the provisions of section 194I should apply to crane hire charges as per the amended provisions, while the assessee contended that tax was rightly deducted under section 194C for hiring machinery on a contractual basis.Issue 2: Assessment of Nature of ContractA survey revealed TDS violations by the assessee for short deduction of tax on payments made for hiring cranes and machinery. The Assessing Officer demanded tax under section 201(1) and 201(1A) of the Act. The Commissioner of Income Tax (Appeals) ruled in favor of the assessee, citing a Gujarat High Court judgment and concluding that tax was correctly deducted under section 194C for machinery hired on contract.Issue 3: Arguments by the PartiesThe Revenue contended that the payments were for machinery use on a monthly basis without a written contract, thus tax should have been deducted under section 194I. The assessee argued that the supplier bore maintenance costs, operator salaries, and fuel expenses, making it a case of composite contract under section 194C. The case was compared to a previous Tribunal decision for support.Issue 4: Tribunal's Analysis and DecisionThe Tribunal examined the absence of a written agreement and the responsibilities of the parties. It noted that the machinery was used on a composite contract basis where the supplier bore maintenance and repair costs, supporting the assessee's position. Citing a similar case precedent, the Tribunal upheld the Commissioner's order, confirming that section 194C applied to the payments made for hiring machinery and cranes. The appeal by the Revenue was dismissed for lacking merit.In conclusion, the Tribunal affirmed the Commissioner's decision that tax deduction under section 194C was appropriate for the machinery hire charges, dismissing the Revenue's appeal. The judgment highlighted the importance of contractual terms, responsibilities, and previous legal interpretations in determining the applicable tax deduction provisions under the Income Tax Act.