TaxTMI 
TaxTMI 
2013 (2) TMI 606
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....eopened the assessment and completed it u/s. 143(3) r.w.s. 147 of the Act determining the total income of the assessee firm at Rs. 59,42,901 by making addition of Rs. 44,50,421 under section 40(a)(ia) of the Act. The fact is that the assessee debited the aforementioned amount under the head "machinery hire charges". TDS was not deducted. The Assessing Officer observed that provisions of section 194-1 of the Act, even though applicable from 13.7.2006 did not imply that section 194C of the Act was not applicable. Therefore, the case of the assessee shall be within the purview of section 194C of the Act and the addition was made. 4. On appeal, the CIT(A) given the finding that section 194-I of the Act has been in existence since 1994. However, the assessee was not under legal obligation to deduct taxes on the hire charges of machinery. Prior to the amendment w.e.f. 13.7.2006, the Explanation read as under: "rent" means any payment, by whatever name called. Under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building). together with furniture, fittings and the land appurtenant thereto, whether or not....
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.... 40(a)(ia). 9. The learned AR submitted that the assessee is not liable to deduct TDS u/s. 194C of the Act. Only after the amendment w.e.f. 13.7.2006 machinery hire charges are liable for TDS u/s. 194-I of the Act. Being so, he contended that the assessee is not liable for TDS. He relied on the judgement of Madras High Court in the case of CIT v. D. Rathinam [2011] 335 ITR 101 wherein held that hire charges on miller and roller are liable for TDS u/s. 194-I of the Act w.e.f. 1.6.2007. Being so for the A.Y. 2005-06 the assessee is not liable for TDS. 10. We have heard both the parties and perused the material on record. The question here is as to whether the addition made by the AO has rightly been deleted by the learned CIT(A), holding that the provisions of s. 194C of the Act are not attracted. Undisputedly, the transaction herein is taking of machinery on hire by the assessee. As per the AO, Expln. III to s. 194C of the Act is squarely applicable to such a transaction. Expln. III to sub-s. (3)(c) to s. 194C of the Act reads as under : "For the purpose of this section, the expression 'work' shall also include- &nbs....
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....riod, on payment of hire charges. The hired machinery were utilised by the assessee in its business of civil construction. There was no agreement for carrying out any work or to transport any goods or passengers from one place to another. The assessee simply hired the machinery on payment of hire charges. Like in Poompuhar Shipping Corpn. Ltd. (supra), here also, it is not the case of the Department that the assessee entered into any contract with the plant and machinery owners for transportation of goods or passengers from one place to another. Thus, the hiring of machinery for the purpose of using them in the assessee's business would not amount to a contract for carrying out any work, as contemplated in s. 194C of the Act, as held in Poompuhar Shipping Corpn. Ltd. (supra). 14. For carrying out any work, manpower is the sine qua non and without manpower, it cannot be said that work has been carried out. Under s. 194C of the Act "carrying out any work" is the substance for making a payment relating to such work, liable for deduction tax at source. The provisions of s. 194C are attracted only where any sum is paid for carrying out any work including supply of labour for carrying....
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....equipment. However, the AO invoked the provisions of s. 194C of the Act and was of the view that the tax was deductible under the said section from the payments made by the assessee to the lender. While doing so the AO observed that the said agreement was not a pure and simple machinery hire agreement and the lender besides giving machines also supplied labour and helpers for carrying out the work. Now we have to see as to whether the provision of s. 194C of the Act were applicable to the facts of the present case. The relevant provisions contained in the said section i.e. 194C of the Act read as under: "194C. (1) Any person responsible for paying any sum to any resident (hereafter 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 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 equal to- (i) one per cent where the payment is being made or credit is being gi....
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....nd use of property other than money for payment of compensation and the latter agrees to return the property after the expiry of the agreed period." 19. It has further been held as under: "The hiring of ships for the purpose of using them in the assessee's business did not amount to a contract for carrying out any work as contemplated in s. 194C." 20. In the instant case also the assessee took the machinery and equipment on hire for carrying out the specific work so the hiring of machinery and equipment did not amount to contract for carrying out any work as contemplated in s. 194C of the Act as per the ratio laid down by the Hon'ble Madras High Court in the aforesaid referred to case. 21. Furthermore, the CBDT vide Circular No. 681, dt. 8th March, 1994 vide cl. 7(iii) clarified that the provisions of s. 194C of the Act would not apply in relation to payments made for hiring or renting of equipments etc. 22. As in the present case the contract was a machinery hire contract and not a contract for carrying out any work, therefore, the provisions of s. 194C of the Act were not applicable to the facts of the present case and since the provision of s. 40(a) (ia) comes int....