PER I. P. BANSAL, JM : This is an appeal filed by the Revenue. It is directed against the order passed by the ld. CIT (Appeals) dated 16th November, 2009 for assessment year 2006-07.
2. Grounds of appeal read as under :-
1. Whether on the facts and circumstances of the case the ld. CIT (Appeals) has erred in deleting the addition of Rs.55,67,964/- for non deduction of TDS ignoring the provisions of section 194C read with 40a(ia) of I. T. Act, 1961;
I. T. Appeal No. 584 (Del) of 2010
2. Whether on the facts and circumstances of the case the ld. CIT (Appeals) has erred in deleting the addition made on account of expenses ignoring the fact that the relevant vouchers were not produced and hence the same remained totally unverified and unproved. 3.1 The assessee is an Individual and he is proprietor of M/s. Tyagi Associates and is engaged in the business of installation of Sugar Mill / Paper Mill / Power Plants on job work basis. During the course of assessment proceedings it was noticed by assessing officer that a sum of Rs.55,67,964/- was debited by the assessee in the profit and loss account under the head lease rent for crane. According to assessing officer such payments made by the assessee for cranes were in the nature of payments made to contractors, hence liable for deduction of tax under the provisions of section 194C of the Income-tax Act, 1961 [Act]. He requires assessee to explain as to why such amount should not be disallowed as assessee failed to deduct tax at source under the provisions of section 194C of the Act. In response it was submitted that assessee is hiring cranes of different sizes. Those cranes were given on time basis say monthly. The cranes are provided with an operator, who operates the cranes. No work is decided to be undertaken by the crane owners. Whether the crane is used or not the payment has to be made on daily basis and such hiring of cranes does not come within the purview of work contract as envisaged in section 194C of the Act. Reference was made to the decision of Honble Supreme Court in the case of Associated Cement Company Ltd. Vs. CIT 201 ITR 435 (SC) wherein guide-lines were issued regarding the applicability of section 194C. The assessing officer having considered all these submissions have come to the conclusion that the arrangement of the assessee with the crane owners as per quotations obtained by him from various crane owners was in the nature of contract and more specifically service contract. He has drawn out the peculiarities of the submissions of the assessee as well as the crane owners on the basis of quotations received from them in following manner :-
1. An operator cum driver is also made available to the assessee by these parties for operating the cranes of different capacities;
2. Payment is made for the duration of use of the crane, days or months;
I. T. Appeal No. 584 (Del) of 2010
3. From the copies of quotations for crane lease filed by the assessee, it is seen that Subash Transport Corporation (crane owner) has specified in the quotation that work as per work load chart and work order are required to mobilize the crane;
4. Further terms and conditions have been laid in the quotation like 10 hrs. duty and 26 days in a month shall be provided. It shows that it is provision of service and not merely crane / equipment;
5. Rates are inclusive of the salary of the driver;
6. Quotation of Pandit Crane and Janak Crane mentions that contract shall be minimum 3 months i.e. from the date of Crane reaching the site for completion of your jobs. 3.2 The ld. assessing officer distinguished the decision relied upon by the assessee and referred to the Circular issued by the C.B.D.T. No. 558 dated 28th March, 1990 and also to the provisions of section 40(a)(ia) and has come to the conclusion that assessee is not entitled to deduction of the crane lease rent paid by the assessee from the income chargeable under the head business. For non-deduction of tax at source under section 194C, the assessing officer made disallowance of Rs.55,67,964/-.
4. Apropos ground No. 2 the assessing officer made certain additions which were partly reduced by the ld. CIT (Appeals). Against such reduction the Department is aggrieved. The position is summarized as follows :- E x p e n s e s Claimed at Disallowed by Reduced / deleted (Rs.) AO @ 20% (Rs.) by CIT (A) (Rs.) Business Promotion Expenses 1,90,395 38,079 Reduced to 15,000 Labour welfare 9,59,700 1,91,940 Reduced to 50,000 Telephone expenses 1,91,422 38,284 Reduced to 12,000 Vehicle running expenses 5,08,230 1,01,646 Reduced to 30,000 Medical expenses 2,57,561 51,512 Fully deleted.
I. T. Appeal No. 584 (Del) of 2010 5.1 In appeal filed before the ld. CIT (Appeals) the submissions made before assessing officer were re-iterated. It was submitted that it was only a case of hiring of equipment. The work was to be carried on by the assessee himself and it was not in the nature of contract. Reference was also made to the following decisions of the Tribunal to contend that on hiring of machinery no tax was deductible :-
(i) DCIT Vs. Satish Aggarwal & Co. (2009)
27 DTR (Asr.) (Trib.) 34; &
(ii) Mythri Transport Corporation Vs. ACIT (2009)
124 TTJ (Vishakha) 970. 5.2 Upon these submissions the ld. CIT (Appeals) has observed that perusal of quotations will reveal that the payment of rental was made for the use of cranes with operators on the basis of time of use and there was no co-relation between the payment of hire charges with the output of the work done by the said cranes. As per quotation the rental was to be increased on pro-rata basis with reference to the period of utilization. In general every machine is taken on hire to carry out some manufacturing or other work / job carried on cannot be said to be a work contract covered by section 194C unless the payment is co-related with the output of the work. Therefore, the said amount was paid by the assessee for the services rendered by the crane owners which cannot qualify the application of section 194C. The payment is in the nature of hiring / rendering of machinery which is allowable as an expenditure and cannot be disallowed under section 40(a)(ia). No TDS was required to be deducted and in this manner the ld. CIT (Appeals) has deleted the disallowance. 6.1 In second ground the ld. CIT (Appeals) after considering the facts of the case has found that the disallowance made by assessing officer was on the higher side and accordingly he has deleted the addition and sustained part addition except disallowance made on account of medical expenses which he found that has been made on ad-hoc basis and was incurred as per requirement of the business of the assessee.
I. T. Appeal No. 584 (Del) of 2010 6.2 The Department is aggrieved with these findings of the ld. CIT (Appeals) and, hence the aforesaid appeal. 7.1 After narrating the facts it was submitted by the ld. Sr. DR that the rent paid by the assessee for cranes was nothing, but a sort of payment made for work got done by the assessee from the crane owners. Therefore, assessing officer was right in invoking the provisions of section 40(a)(ia) as assessee failed to deduct tax at source from those payments under the provisions of section 194C of the Act. Relying upon the observations of the assessing officer in the assessment order it was vehemently pleaded by the ld. Sr. DR that disallowance was rightly made and the same has wrongly been deleted by the ld. CIT (Appeals). 7.2 With regard to second ground it was the submission of the ld. Sr. DR that the assessing officer had rightly disallowed 20 per cent of the expenditure as the same was not incurred wholly and exclusively for the purpose of business. He pleaded that ld. CIT (Appeals) has wrongly reduced the same and has wrongly deleted the disallowance made on account of medical expenses in their entirety. 8.1 On the other hand, apart from relying upon the submissions made before the ld. CIT (Appeals) and the findings recorded by him, it is the case of the ld. AR that the cranes obtained by the assessee on lease did not amount to any work. Therefore, he pleaded that the ld. CIT (Appeals) has rightly held that the payment made by the assessee in this respect does not require any deduction of tax under section 194C of the Act. He submitted that while holding that the assessee was liable for deduction of tax under section 194C the assessing officer has ignored vital facts relying upon which relief has been given by the ld. CIT (Appeals). He submitted that hiring of cranes does not fall under Explanation (iii) (c) to section 194C as the same speaks of carrying of goods or passengers. The crane on lease has been used for lifting and placement of heavy objects viz. the machinery etc. and were not at all used for carriage of goods and passengers. He submitted that the rent paid by the assessee for hiring of cranes was based on the period of use irrespective of the fact that actually the cranes were used or not and the operative cost of use of crane was to be incurred
I. T. Appeal No. 584 (Del) of 2010 by the assessee. He also relied upon the CBDT Circular No. 681 dated 8th March, 1994, copy of which is placed at pages 43 to 46 of the paper book in which it has been mentioned as under :-
(iii) The provisions of section 194C would not apply in relation to payments made for hiring or renting of equipments, etc. 8.2 He, therefore, pleaded that according to the mandate given by the CBDT also the payment made by the assessee for hiring or rental of equipment does not fall within the scope of section 194C. He submitted that Circulars issued by the Department are binding on the Revenue as per decision of Honble Supreme Court in the case of K. P. Varghese Vs. Income-tax Officer [1981] 131 ITR 597 (SC) and UCO Bank Vs. Commissioner of Income-tax [1999] 237 ITR 889 (SC). He further submitted that section 194-I has been enacted on the statute with effect from 1st June, 2007 wherein 10 per cent TDS is required to be deducted on rent for use of machinery or plant or equipment and prior to insertion thereof no tax whatsoever was required to be deducted. He submitted that amendment is not applicable to the year under consideration. 8.3 He further submitted that the following decisions are in favour of the assessee :-
(i) M/s. Mythri Transport Corporation Vs. ACIT [2009]
124 TTJ (Vishaka) 970;
(ii) DCIT Vs. Satish Aggarwal & Co. [2009]
27 DTR (Asr.) (Trib.) 34; &
(iii) Chandrakant Thackar Vs. ACIT [2010]
129 TTJ (CTK) page 1.
I. T. Appeal No. 584 (Del) of 2010 8.4 In the alternative he pleaded that even if it is assumed that two views of the matter are possible then also the issue has to be decided in favour of the assessee, as per the following decisions :-
(I) CIT Vs. Vegetable Products Ltd.
88 ITR 192 (SC);
(II) CIT Vs. Naga Hills Tea Co. Ltd.
89 ITR 236 (SC);
(III) CIT Vs. Podar Cement Pvt. Ltd.
226 ITR 625 626 (SC);
(IV) Manish Maheshwari Vs. ACIT
289 ITR 341 (SC); &
(V) Union of India Vs. Onkar S. Kanwar & Others
258 ITR 761 (SC). 8.5 So as it relates to issue raised in second ground it has been the case of the ld. AR that details of all these expenses were filed before the assessing officer as well as before the ld. CIT (Appeals) and these details are placed at pages 22 to 37 of the paper book. He submitted that the disallowance has been made by the assessing officer without pointing out any specific disallowable item. He submitted that ad-hoc disallowances are not permissible as per decision of Honble Punjab & Haryana High Court in the case of Jhandu Mal Tara Chand Rice Mills Vs. CIT [1969] 73 ITR 192 (P & H).
9. We have carefully considered the rival submissions in the light of material placed before us. Section 194C (1) casts an obligation upon any person responsible for paying any sum to any resident (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 the authorities and persons specified in clause (a) to (k) of sub section (1) to section 194C, which inter alia, included clause (j) any firm; or clause (k) any individual or Hindu undivided
I. T. Appeal No. 584 (Del) of 2010 family etc. to deduct tax at source at the time credit of such amount 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 mode, whichever is earlier, deduct an amount equal to 1 per cent in the case of advertisement and in any other @ 2 per cent. A plain reading of the said section will reveal that if any person has paid to any resident any amount in respect of carrying out any work which includes supply of labour or for carrying out any work he has to deduct tax @ 2 per cent from the said payment. The work has been defined in explanation (iii) which, inter alia, includes under clause (c) thereof as carries on goods and passengers by any mode etc. other than by way of Railways. The description in clause (a), (b) and (d) is not applicable to the facts of the present case. Thus, it can be seen that the definition as given in explanation (iii) is inclusive definition and in the main sub section (1) of section 194C it is mentioned that any work which includes supply of labour or in carrying out any work. There being inclusive definition given under the Act and no restriction put by the main provisions of the statute, there may be certain doubt that what will constitute work or what will exclude work. Therefore, a doubt was raised before the CBDT which has clarified that what will constitute work and what will not constitute work. It has been mentioned in the afore-mentioned Circular No. 681 of 8th March, 1994 that some of the issues raised in the earlier circulars are needed to be reviewed in the light of the decision of Honble Supreme Court in the case of Associated Cement Co Ltd. Vs. CIT [1993] 201 ITR 435 (SC) and interpreting the word work on the basis of that decision CBDT has opined, inter alia, that the provisions of section 194C would not apply in relation to payments made for hiring or renting of equipments, etc.
10. If the interpretation adopted by the CBDT is considered then in the case of the assessee the lease amount paid for the cranes cannot constitute payment with regard to work as defined in section 194C. A finding has been recorded by the ld. CIT (Appeals) that payment made to the crane owners was not at all related to the work / out-put made by the cranes and it was with reference to the period of lease. The running cost was to be borne by the assessee. Such payment cannot be said to be made for the work contract as covered by section 194C. We find no fault in such findings of the ld. CIT (Appeals). Accordingly we confirm his order
I. T. Appeal No. 584 (Del) of 2010 so as it relates to applicability to section 194C and we uphold the deletion of disallowance. Ground No. 1 of the Revenue is rejected.
11. So as it relates to ground No. 2 we have heard both the parties on this issue and on careful consideration, we decline to interfere as reasonable disallowance has been upheld by the ld. CIT (Appeals). This ground of the Revenue is also dismissed.
12. In the result, the appeal filed by the Revenue is dismissed in the manner aforesaid. The order pronounced in the open court on : 29th July, 2011. Sd/- Sd/- [ G. E. VEERABHADRAPPA ] [ I. P. BANSAL ] VICE PRESIDENT. JUDICIAL MEMBER Dated : 29th July, 2011. *MEHTA* Copy of the order forwarded to : -
1. Appellant.
2. Respondent.
3. CIT,
4. CIT (Appeals),
5. DR, ITAT, NEW DELHI. True Copy. By Order. Assistant Registrar, ITAT.