Case Law Details

Case Name : CIT­ Vs M/S Jai Prakash Enterprises Ltd. (Allahabad High Court)
Appeal Number : Income Tax Appeal No. ­46 of 2011
Date of Judgement/Order : 28/02/2017
Related Assessment Year : 2006-07
Courts : All High Courts (3666) Allahabad High Court (194)

In the present case, taking of the machinery and equipment on hire would not amount to a contract for carrying out any work as contemplated in section 194C of the Act. The said contract i.e. taking of machinery and equipment on hire also cannot be treated with a contract for supply of labour. Therefore, the provisions of section 194C of the Act were not applicable to the facts of the assessee’s case, as such no disallowance was called for u/s 40(a) (ia) of the I. T. Act.

Please note that this case law is related to Assessment Year 2006-07 and so may not help for cases related to Assessment Year 2007-08 and thereafter as W.e.f. Assessment year 2007-08, the Taxation Laws (Amendment) Act, 2006 have enlarged the scope of rent for the purpose of Sec. 194I, so as to include machinery, plant and equipment, whether rented together with building or separately, irrespective of the fact whether they are owned by the payee or not?

Relevant Extract from the High Court Judgment

1. The appeal was admitted on following substantial question of law:

“Whether on the fact and in the circumstances of the case, the learned Income Tax Appellate Tribunal has erred in law in upholding deletion of disallowances of Rs. 13,32,39,725/­ under Section 40(a) (ia) by holding that the assessee was not liable to deduct any TDS under Section 194C on payment of Rs. 20,26,24,890/­ made by it to M/s Jai Prakash Associates Ltd.?”

2. Agreement of hire, which was subject matter of interpretation in the case in hand, was in regard to machinery and equipment owned by lender, i.e., M/s Jaiprakash Associates Ltd. Since these machineries and equipments are of big size, for the purpose of their operation requisite staff etc. was to be provided by lender but hirer was to make payment of only hire charges. Construing aforesaid agreement Tribunal in para 16.1 has observed as under:

“16.1 From the above provisions it is clear that the said provisions are applicable when the contract is entered into (i) for carrying out any work and (ii) for supply of labour to carry out any work. Therefore, the main condition prescribed in section 194C is that there must be carrying out of any work whether tangible or intangible. In the instant case, the assessee was not under an obligation to carry out the work as it was not under the control of the lender and the possession of the machinery temporarily was passed to the assessee after entering into agreement with the lender. Therefore, in the present case, taking of the machinery and equipment on hire would not amount to a contract for carrying out any work as contemplated in section 194C of the Act. The said contract i.e. taking of machinery and equipment on hire also cannot be treated with a contract for supply of labour. Therefore, the provisions of section 194C of the Act were not applicable to the facts of the assessee’s case, as such no disallowance was called for u/s 40(a) (ia) of the I. T. Act.”

3. It also relied on Madras High Court’s decision in CIT Vs. Poompuhar Shipping Corporation Ltd., 2006(282) ITR 3 wherein Court had said:

“Under section 194C of the Income ­tax Act, 1961, the tax is to be deducted when a contract is entered into for carrying out any work in pursuance of a contract between the contractor and the entities mentioned in sub­section (1) of section 194C. The term ‘hire’ is not defined in the Income ­tax Act. So, we have to take the normal meaning of the work “hire”. Normal hire is a contract by which one gives to another temporary possession and 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.”

“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 section 194C.”

64. In view thereof Tribunal has found that disallowance was not called for under Section 40(a)(ia) of Act, 1961.

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