IN INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [Before Hon ble Shri P.M.Jagtap, AM & Sri N.V.Vasudevan, JM ] I.T.A No. 130/Kol/2014 Assessment Year : 2005-06 D.C.I.T., Circle-3, -vs.- M/s. Vishnu Shiva Infrastructure (P)Ltd. Kolkata Kolkata [PAN : AABCV 6631 L] (Appellant) (Respondent) For Appellant : Shri Debasis Banerjee, JCIT, Sr.DR For Respondent : Shri Subash Agarwal, Advocate. Date of Hearing : 17.10.2016. Date of Pronouncement : 19.10.2016 ORDER Per N.V.Vasudevan, JM This is appeal by Revenue against order dated 26.08.2013 of CIT(A)-I, Kolkata, relating to AY 2005-06. 2. grounds of appeal raised by revenue reads thus: 1.For that on facts and circumstances of case, Ld. CIT(A) was not justified in deleting addition of Rs.72,59,483/- made u/s 40(a)(ia) of Income Tax Act. 2. appellant craves leave to amend, modify or alter any grounds of appeal during course of hearing of this case. 3. Assessing is company. It derives income from carrying out earth moving contracts. In course of his business assessee hired certain equipments and paid following sums towards hire charges :- (i) Crane Hire Charges: Cr.Mangalwar : Rs. 30,900/- Closing balances transferred (ii) Machinery Hire Charges paid : Cr.Rana Jitendra Const. (P) Ltd. (No.388) : Rs.63,50,000/- Cr.Berhampur (Orissa) Closing balances transferred Rs. 3,51,025/- ITA No.130/Kol/2014- M/s. Vishnu Shiva Infrastructure (P) Ltd. A.Y.2005-06 1 Cr.Varanasi Work Site Closing balances transferred: Rs. 1,00,525/- (iii) Truck & Trailor Hire Charges : Cr.Rana Jitendra Const. (P)Ltd. Being Machinery transportation Bill amount payable (No.123) Rs. 1,08,500/- Cr.Rana Jitendra Const. (P)Ltd. Being Machinery transportation Bill amount payable (No.235) Rs. 70,700/- Cr.Rana Jitendra Const. (P)Ltd. Being Machinery transportation Bill amount payable (No.287) Rs. 27,000/- Cr.Sadbhav Engg. Ltd. (halwad) Truck Hire Charges (No.370) Rs. 71,100/- Cr.Shringar (Kishangarh) Closing balances transferred (No.406) Rs. 46,500/- Cr.Varanasi Work Site Closing balances transferred (No.436) Rs. 1,03,233/- Rs. 72,59,483/- assessee admittedly did not deduct tax at source at time of making aforesaid payment towards hire charges. According to AO payments in question are in nature of payments made to contractor for carrying out work within meaning of section 194C of Income Tax Act, 1961 (Act). Since assessee did not deduct tax at source on aforesaid payment AO invoking provision of section 40(a)(ia) of Act disallowed expenses which were claimed as deduction in computing income of assessee under head Income from Business . 4. Before CIT(A) assessee submitted that payment in question made on account of hire was not in nature of payment made to contractor for carrying out work within meaning of section 194C of Act. assessee further pointed out that payment in question was in nature of rent paid for use of machinery, plant, machinery or equipment. Section 194I of Act provides for obligation for deduction of tax at source when then person paying any income by way of rent. For purpose of section 194I of Act, prior to amendment of said definition of Rent for purpose of Sec.194I of Act, by Taxation Laws (Amendment) Act 2006 w.e.f. 13.07.2006, did not include payment made for use of equipment, ITA No.130/Kol/2014- M/s. Vishnu Shiva Infrastructure (P) Ltd. A.Y.2005-06 2 machinery or plant. Since payment in question was neither covered u/s 194C of Act nor u/s 194I of Act, at time of making payment and in previous year relevant to A.Y.2005-06, there was no obligation to deduct tax at source at time of making payment. Consequently no disallowance u/s 40(a)(ia) of Act could be made by AO. assessee relied on decision of Honb ble Madras High Court in case of CIT vs Rathinam 197 Taxman 486 wherein on identical facts Hon ble Madras High Court held that no disallowance u/s 40(a)(ia) of Act could be made. 5. CIT(A) deleted addition made by AO by observing as follows :- 6. submissions of appellant as well as case laws related upon by it have been considered . It is seen that fact in this case are not in dispute. However, AO has held appellant liable for deduction of TDS in respect of following payments made by it and since TDS have not been deducted, payments have been disallowed u/s 40(a)(ia). It is however, seen that AO has considered appellant's liability for deduction of tax u/s.194C of Income Tax Act which is in respect of contract work and deduction of tax in pursuance of any contract between contractor and specified person. In appellant's case, it has clearly been pointed out that payment was made for hiring of machinery, cranes, etc. by appellant and such payments could not be covered u/s.194C as same was for hire charges of Machineries, cranes, etc. Furthermore, as has been held by Madras High Court in case of CIT-I, Trichirapalli -vs- D.Rathinam, provisions of Sec.194I providing for TDS even in respect of Machinery/Equipments were introduced with effect from 01-06- 2007 and were therefore not applicable for A.Yr. 2005-06. In case of appellant, assessment year is also 2005-06. Therefore, payments cannot be considered as covered under provisions of Sec.194I. It is accordingly held that AO was provisions of TDS not justified in considering these payments to be covered by provisions of TDS and disallowance of same made u/s 40(a)(ia) is deleted. 6. Aggrieved by order of CIT(A) revenue has preferred present appeal before Tribunal. 7. ld. DR submitted that since assessee was engaged in business of earth moving contract, it has to be verified as to whether payment for hiring of equipments, machinery were made as part of composite contract for carrying out work of earth moving. According to him in case it was payment for composite contract, then provision of section 194C of Act would be attracted and disallowance made by AO has to be sustained. ITA No.130/Kol/2014- M/s. Vishnu Shiva Infrastructure (P) Ltd. A.Y.2005-06 3 8. ld. Counsel for assessee on other hand relied on order of CIT(A) and submissions made before CIT(A). It was further submitted by him that it was nobody s case that payment for hiring of machinery and equipment was part of composite contract to carry out work. In this regard he drew our attention to copies of various bills raised by parties which are placed in paper book filed by Assessee. 9. We have given very careful consideration to rival submissions. We shall first take look at relevant statutory provisions: 10. Sub-clause (ia) of clause (a) of section 40 was inserted by Finance (No.2) Act, 2004 with effect from 1st April, 2005 read as under:- 40. Notwithstanding anything to contrary in sections 30 to 38, following amounts shall not be deducted in computed income chargeable under head `Profits and gains of business or profession . .. (ia) any interest, commission or brokerage, fees for professional services or fees for technical services payable to resident, or amounts payable to contractor or sub- contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on or, after deduction, has not been paid during previous year, or in subsequent year before expiry of time prescribed under sub- section (1) of section 200 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in previous year but paid in any subsequent year after expiry of time prescribed under sub-section (1) of section 200, such sum shall be allowed as deduction in computing income of previous year in which such tax has been paid. Explanation. For purposes of this sub-clause, - (i) commission or brokerage shall have same meaning as in clause (i) of Explanation to section 194H; (ii) fees for technical services shall have same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (iii) professional services shall have same meaning as in clause (a) of Explanation to section 194J; ITA No.130/Kol/2014- M/s. Vishnu Shiva Infrastructure (P) Ltd. A.Y.2005-06 4 (iv) work shall have same meaning as in Explanation III to section 194C; 11. Memorandum explaining provisions in Finance Bill explained rationale of insertion of new provision in following words :- With view to augment compliance of TDS provisions, it is proposed to extend provisions of section 40(a)(i) to payments of interest, commission or brokerage, fees for professional services or fees for technical services to residents, and payments to resident contractor or sub-contractor for carrying out any work (including supply of labour for carrying out any work), on which tax has not been deducted or after deduction, has not been paid before expiry of time prescribed under sub- section (1) of section 200 and in accordance with other provisions of Chapter XVII-B. It is also proposed to provide that where in respect of payment of any sum, tax has been deducted under Chapter XVII-B or paid in any subsequent year, sum of payment shall be allowed in computing income of previous year in which such tax has been paid. proposed amendment will take effect from 1st day of April, 2005 and will, accordingly, apply in relation to assessment year 2005- 2006 and subsequent years. [Clause 11] 12. Thereafter Finance Act, 2008 made amendment to clause (a) in sub-clause (ia) in section 40 with retrospective effect from 1st April, 2005. section as amended by Finance Act, 2008 read as under:- (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to resident, or amounts payable to contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been paid,- (A) in case where tax was deductible and was so deducted during last month of previous year, on or before due date specified in sub-section (1) of section 139 ; or (B) in any other case, on or before last day of previous year. Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted- (A) during last month of previous year but paid after said due date ; or ITA No.130/Kol/2014- M/s. Vishnu Shiva Infrastructure (P) Ltd. A.Y.2005-06 5 (B) during any other month of previous year but paid after end of said previous year, such sum shall be allowed as deduction in computing income of previous year in which such tax has been paid. ; 13. It can be seen from above provisions that originally in Sec.40(a)(ia) rent was not included and was included only w.e.f. 1.4.2005 by finance Act, 2008 though w.r.e.f. 1.4.2005. Thus law maintains clear distinction between rent and payment for carrying out work in pursuance of contract. 14. Sec.194C(1) of Income Tax Act, 1961 (Act) as it existed prior to its substitution by Finance (No. 2) Act, 2009 (w.e.f. 1-10-2009)provided that any person responsible for paying any sum to any resident (hereafter in this section referred to as contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of contract between contractor and person specified in Sec.19C(1) of Act, shall, at time of credit of such sum to account of contractor or at time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct amount equal to (i) one per cent. where payment is being made or credit is being given to individual or Hindu undivided family; (ii) two per cent. where payment is being made or credit is being given to person other than individual or Hindu undivided family, of such sum as income-tax on income comprised therein. Explanation III to Sec.194C provides that for purposes of this section, expression work shall also include (a) advertising (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods and passengers by any mode of transport other than by railways; (d) catering ITA No.130/Kol/2014- M/s. Vishnu Shiva Infrastructure (P) Ltd. A.Y.2005-06 6 15. Sec.194I of Act as it existed on 1.4.2005 provided that any person, not being individual or Hindu undivided family, who is responsible for paying to resident] 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) two per cent. for use of any machinery or plant or equipment; and (b) ten per cent. for use of any land or building (including factory building) or land appurtenant to building (including factory building) or furniture or fittings: 16. For purpose of Sec.194I, rent was defined to mean 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. 17. By Taxation Laws (Amendment) Act, 2006 (w.e.f. 13-7-2006), definition of rent for purpose of Sec.194I was amended and following definition was substituted : 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 (either separately or together) any, (a) land; or (b) building (including factory building); or (c) land appurtenant to building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings, whether or not any or all of above are owned by payee 18. It can be seen from aforesaid amended definition of rent for purpose of Sec.194I that payment for use of machinery, plant or equipment was considered as rent for purpose of Sec.194I only w.e.f. 13.7.2006. Prior to such amendment any payment of rent for use of machinery, plant or equipment was not considered as ITA No.130/Kol/2014- M/s. Vishnu Shiva Infrastructure (P) Ltd. A.Y.2005-06 7 Rent for purpose of Sec.194I. payment of rent for use of any plant, machinery or equipment cannot fall within ambit of Sec.194C also as it does not fall within definition of term Work as laid down in Sec.194C of Act. 19. In light of aforesaid statutory provision we are of view that disallowance u/s 40(a)(ia) of Act was rightly deleted by CIT(A) as payment towards hire charges do not require deduction of tax at source at relevant point of time when it was paid or credited to account of payee. 20. With regard to argument of ld. DR that payment in question, if it is composite payment for carrying out work as well as hiring of machinery, then provision of section 194C of Act would be attracted, we are of view that it is neither case made out by AO nor case made out in grounds of appeal before Tribunal. Nevertheless perusal of relevant bills evidencing payment of hiring charges shows that these were payments made independently of any contract for carrying out work and was hiring simpliciter. There is no material on record to show that payment in question was part of composite payment for carrying out work as part of which machinery was also hired. We are therefore of view that provision of section 194C of Act are not attracted. 21. For reasons given above we do not find any merits in this appeal by revenue and same is dismissed. 22. In result, appeal by revenue is dismissed. Order pronounced in Court on 19.10.2016. Sd/- Sd/- [P.M.Jagtap] [ N.V.Vasudevan ] Accountant Member Judicial Member Dated : 19.10.2016. [RG PS] ITA No.130/Kol/2014- M/s. Vishnu Shiva Infrastructure (P) Ltd. A.Y.2005-06 8 Copy of order forwarded to: 1.M/s Vishnu Shiva Infrastructure (P) Ltd., C/o K.N.Choudhury, Dacca House Room No.15, 41, Zakaria Street, Kolkata-700073. 2. D.C.I.T., Circle-3, Kolkata. 3. CIT(A)-I, Kolkata 4. C.I.T.-I, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata. True copy By Order Asstt.Registrar, ITAT, Kolkata Benches ITA No.130/Kol/2014- M/s. Vishnu Shiva Infrastructure (P) Ltd. A.Y.2005-06 9 D.C.I.T., Circle-3, Kolkata v. M/s. Vishnu Shiva Infrastructure (P)Ltd