• As per revenue, hire charges in respect of equipment hired by the assessee contained a portion of labour charges incurred by the owners towards operation of the same. Hence it was a composite contract of hiring of vehicles/machineries along with labour. Consequently, Section 194C would apply.
• CIT (A) took the view that, out of the total hire charges if 10% was treated as charges paid towards labour element involved and TDS had not being deducted as required, the whole sum was to be disallowed
• The Tribunal, on the other hand, found that the total sum paid by the assessee was only by way of hire charges for the equipment taken on hire and therefore, the relevant TDS provision applicable was only Section 194I (section 194I was not applicable in AY 2005-06; the AY under consideration.
• The HC held that neither the AO nor the CIT(A) could assert that there was any material to suggest that there was any contract between the assessee and those individuals, by way of a composite contract for labour as well as hiring of the vehicles
• In the absence of any such acceptable material, the conclusion of the AO in treating the hiring of equipment as one falling under the category of sub-contract for provision of labour or the conclusion of the CIT(A) that at least 10% of the total payment would have been incurred by way of labour charges by the respective owners, cannot be accepted
• Section 194I came to provide for TDS on respect of machinery/ equipments only with effect from 1.6.2007 and not applicable to his case since it relates to AY 2005-06.