AFR Court No. 33 Income Tax Appeal No. 87 of 2005 Commissioner of Income Tax-II, ....... Appellant Kanpur Versus M/s R.H.L.Profiles, Ltd. ....... Respondents. Hon.Tarun Agarwala,J. Hon. Dr. Satish Chandra,J. assessee is company engaged in re-rolling of M.S. Structurals. assessee filed return of income for Assessment Year 1998-99, which was scrutinized by Assessing Officer, who found that assessee had debited sum of Rs. 13,86,220/- in profit and loss account under head manufacturing and other expenses as equipment hire charges. Assessing Officer noticed that aforesaid amount was paid as rent for use of factory premises owned by M/s Usha Udyog Ltd., to whom assessee paid amount of Rs. 200/- per ton on manufacturing of steel items, as per terms of agreement dated 06.03.1997. Assessing Officer concluded that assessee company was under obligation to deduct tax under Section 194-I of Income Tax Act, 1961 (hereinafter referred to as Act) and since assessee did not do so, Assessing Officer treated assessee in default and passed order 2 under Section 201 of Act directing assessee to pay income tax of Rs. 2,77,244/- and interest under Section 201 (1A) of Act amounting to Rs. 31,119/-. Being aggrieved, assessee filed appeal, which was dismissed. assessee thereafter filed second appeal before Tribunal, which was allowed and additions were deleted. Tribunal held that assessee was not liable to deduct tax at source under Section 194-I of Act. Department, being aggrieved by order of Tribunal, has filed present appeal under Section 260A of Act, which was admitted on following questions of law: 1. Whether on facts and circumstances of case Hon'ble I.T.A.T. was justified in holding that assessee was not liable to deduct tax at source u/s 194- I of I.T. Act on amount of rent paid by it to M/s Usha Udyog Limited, owner of factory building which was being used by assessee company together with plant and machinery installed therein. 2. Whether on facts and in circumstances of case Hon'ble I.T.A.T. was justified in holding that there was no use of factory land and building by assessee and assessee paid rent for use of only plant and machinery installed in factory premises ignoring fact that plant and machinery being installed in factory building, assessee used land and building also and paid rent accordingly. We have heard Sri Shambhu Chopra, learned counsel for appellant. agreement entered between assessee and M/s Usha Udyog Ltd. indicated that assessee was required to carry on re-rolling work in factory of M/s Usha Udyog Ltd. for which rate was fixed @ Rs. 200/- per metric ton on raw material produced by them and that agreement 3 indicated that assessee would not utilize building along with plant and machinery. On these facts, question is, whether assessee was liable to deduct tax as assessee was not paying any rent to M/s Usha Udyog Ltd. in respect of land and building including factory but assessee was paying hiring charges of plant and machinery only. In this light, we have to see whether Section 194-I of Act is applicable or not. For facility said provision reads as under: 194-I. Any person, not being individual or HUF, who is responsible for paying to any person any income by way of rent, shall, at time of credit of such income to account of payee or at time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at rate of- (a) fifteen percent if payee is individual or HUF; and (b) twenty percent in other cases: Provided................................. Explanation:- For purposes of this section,- (I) rent means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for use of any land or any building (including factory building), together with furniture, fittings and land appurtenant thereto, whether or not such building is owned by payee. In light of aforesaid provision, it is apparently clear that agreement is related to use of plant and machinery and not to use of land and building. Tribunal has given categorical finding that assessee on basis of agreement was not found paying rent in respect of use of land and machinery including factory building but was making payment for use of plant and machinery on monthly production basis. Consequently, for reasons stated aforesaid, we are of 4 opinion that assessee was not liable to deposit tax at source under Section 194-I of Act on amount paid by assessee towards hiring charges on plant and machinery. Consequently, no case for payment of penalty could be made out against assessee. For reasons stated aforesaid, questions of law are answered against Department and in favour of assessee. appeal fails and is dismissed. Dated: 22.08. 2014 MAA/- (Dr.Satish Chandra,J.) (Tarun Agarwala,J.) Commissioner of Income-tax-II, Kanpur v. M/s R.H.L.Profiles, Ltd