Case Law Details
Akshatam Construction LLP Vs DCIT (ITAT Ahmedabad)
Admittedly the assessee has paid car hire charges of Rs. 1,21,775/- and the AO was of the view that hiring of car falls under the provision of section 194C of the Act. Thus the assessee was required to deduct the tax as per section 194C of the Act but failed to do so. Therefore the AO invoked the provision of section 40(a)(ia) of the Act and disallowed the deduction of car hire charges which also confirmed by the ld. CIT-A. The case of the learned AR of the assessee is that the transaction of car hire falls under the provision of section 194I of the Act where threshold limit to deduct tax at source is of payment exceeds Rs. 1.8 Lacs, but in the case of the assessee, the same is of Rs. 1,21,775/- only. Therefore question of invoking the provision of section 40(a)(ia) does not arise. In this background we proceed to adjudicate the issue on hand.
There is very thin line between weather hiring of car falls under contract for availing the services or under the category of rental agreement. In our considered view if car is hired for purpose of specific usage and charges paid on the basis of such specific uses without bearing running and maintenance cost then it should fall under the category of contract for services and provision of section 194C will be applicable. On the other hand car is hired not to perform specific services and charges are not paid on the basis of specific uses but the same is hired for availability of car for particular time or period without specification of particular services and charges paid on fixed basis then such hiring should be considered as rental contract under the provision of section 194I of the Act.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax(Appeals)-5, Vadodara, dated 01/08/2019 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Year 2014-15.
2. The assessee has raised the following grounds of appeal:
1. Disallowed labour expenses:
Learned AO has erred in la\v and facts by disallowing labour expenses ofRs. 3,87,500/- without proving Unreasonableness of payment to relative.
- There were quotations called for the work of labour. We chose the lowest quotation which happened to be from my son, who is an experienced labour contractor. (We can attach the details if you will)
- The selection is done through a genuine process and cannot just be viewed as a transaction with a related party.
2. Disallowance of car hiring charges:
Learned AO has erred in law and facts by disallowing car hiring charge ofRs. 1,21,775/- though no TDS liability arise under l. T.Act.
- The car in this case per se was availed on a rental basis and the limit under 1941 was Rs. 1.8L.
- It was not a car facility taken on contractual basis to be charged u/s 194C.
3. The 1st issue raised by the assessee in ground No. 1 is that the learned CIT-A erred in confirming the order of the AO by sustaining the disallowance of ₹ 3,87,500.00 representing the labour charges paid to the related person.
4. The facts in brief are that the assessee in the present case is a limited liability partnership firm and engaged in the business of civil contractor. The assessee in the year under consideration, inter-alia, has incurred labour expense of Rs. 7,75,000.00 which was paid to the son of the partner of the assessee. As per the AO the assessee has already incurred labour expenses of ₹ 30,99,044.00 in its project in addition to the labour expenses paid to the son of the partner amounting to Rs. 7,75,000.00. As per the AO the assessee has paid labour charges to the son of the partner additionally with a view to reduce the taxable profit. Finally the AO treated the payment of the labour expense excessive in pursuance to the provisions of section 40A(2)(b) of the Act. Thus, the AO disallowed the 50% of the labour expenses amounting to ₹ 3,87,500.00 and added to the total income of the assessee.
5. Aggrieved, assessee preferred an appeal to the learned CIT-A.
6. The assessee before the learned CIT-A submitted that the AO has not brought anything on record to establish that the labour expenses paid to the son of the partner was excessive in comparison to the prevailing market rate. Accordingly the disallowance is not warranted.
7. However, the learned CIT-A rejected the contention of the assessee by observing that the assessee has claimed the deduction of labour expenses 2 times. One time the labour expense was claimed for ₹ 30,09,904.00 and another time for the same site i.e. Patan (Gujarat) for Rs. 7,75,000.00. Likewise, the assessee has not given any details demonstrating the bifurcations of the labour expenses to justify the services availed from the son of the partner of the assessee.
7.1 The learned CIT-A also disregarded the quotation filed by the assessee by treating the same as a piece of paper which cannot be relied to infer that the quotation made by the son of the partner of the assessee is the lowest. Thus the learned CIT-A confirmed the order of the AO.
8. Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us.
9. The learned AR before us submitted that the labour expenses of Rs. 7,75,000.00 were incurred based on the quotations received from different parties. As such, the quotations received from the son of the assessee was the lowest in respect of which no dispute has been pointed out by the authorities below based on the documentary evidence.
10. On the other hand, the learned DR vehemently supported the order of the authorities below.
11. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we note that the learned CIT-A has doubted on the genuineness of the expenses claimed by the assessee for ₹7,75,000 on the reasoning that there was no evidence brought on record about the services rendered by the labour contractors i.e. son of the partner of the assessee.
11.1 The finding of the learned CIT-A may be correct but the same cannot be upheld in the given facts and circumstances. It is for the reason that the learned CIT-A has admitted the labour expenses to the tune of 50% of total Labour expenses as genuine. Had the Labour expenses not been genuine then the entire amount should have been disallowed by the learned CIT-A. Thus we are of the view that the action of the learned CIT-A is contrary to his own finding which is not correct to our understanding.
11.2 Now coming to the applicability of the provisions of section 40A(2)(b) of the Act, we are of the view that it was the onus upon the Revenue based on record with the comparative cases before reaching to the conclusion that the assessee has incurred excessive expenditure under the head labour charges by way of making payment to the related person. The assessee has certainly filed the quotations of different parties and found the contention of the son of the partner of the assessee as the lowest and accordingly the labour contractor was awarded to him. Before rejecting those quotations, it was the duty upon the revenue to reject them based on the cogent materials. Those quotations cannot be set aside in a summary manner and without pointing out any defect therein. Accordingly, we are not convinced with the finding of the learned CIT-A. Thus we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed.
12. The issue raised by the assessee in ground No. 2 is that the learned CIT-A erred in confirming the order of the AO by sustaining the disallowance of Rs. 1,21,775/- on account of non-deduction of TDS.
13. The AO during the assessment proceedings found that the assessee has incurred car hiring charges amounting to ₹ 1,21,775/- which was subject to the provisions of TDS under the provisions of section 194C of the Act. But the assessee has not deducted the TDS on such expenses. Therefore the AO disallowed the same and added to the total income of the assessee.
14. Aggrieved assessee preferred an appeal to the learned CIT-A who confirmed the order of the AO by observing as under:
7.1 I have considered the written submission of the AR/appellant. Appellant has failed to produce rent agreement. Admittedly, car was hired for fixed tenure and for its exclusive use. Hiring of car is nothing but a service rendered by agency. In this regard, I take support of rulings of the order of the Hon’ble Allahabad High Court [CIT Vs. Freescale Semiconductor India (P) Ltd. (2015) 54 taxmann.com 191 (All) (2015)-22£4axmann 245 (All)]. It was held that where buses/vehicles were hired for fixed tenure and for its exclusive usage Sec. 194C and not Sec. 194-1 could be attracted. My view is fortified by the order of the Hon’ble IT AT, Delhi [Regional Manager UPSRTC (Ghaziabad Depot) Vs. DCIT (TDS) (2015) 37 ITR (T) 487 (Delhi-Trib.)] wherein it is held as under:-
“Where assessee State Transport Corporation was making payment on kilometer running basis without any responsibility for running cost, maintenance cost, driver cost etc. Said payment would fall within the ambit of Sec. 194C and not under definition of rent as defined in Sec. 194-1. “
7.1.1 The Hon’ble ITAT, Delhi in ITA No. 4875, 4876, 4877/Del/2012 dated 24.05.2013 held as under:-
“Where cranes were hired by the assessee which were operated by the staff of the contractor the case will be hit by Sec. 194C and not 194-1. (ACIT (TDS Vs. Container Corporation of India). “
7.2 Taking support of the above judicial pronouncement. I hold that provision of TDS u/s I94C was violated by the appellant. Thus, such expenses in violation of TDS u/s 194C cannot be allowed. I refuse to interfere with the AO’s view. Appellant fails on Ground No. 2.
15. Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us.
16. The learned AR before us contended that the impugned expenses of car hiring charges does not fall under the provisions of section 194C of the Act. On the contrary, such expenses fall under the provisions of section 194I of the Act where the limit for deducting the TDS is of ₹1.80 Lacs whereas the assessee has incurred an expense of Rs. 1,21,775/-only and therefore no TDS was deducted.
17. On the other hand, the learned DR vehemently supported the order of the authorities below.
18. We heard the rival contentions of both the parties and perused the materials available on records. Admittedly the assessee has paid car hire charges of Rs. 1,21,775/- and the AO was of the view that hiring of car falls under the provision of section 194C of the Act. Thus the assessee was required to deduct the tax as per section 194C of the Act but failed to do so. Therefore the AO invoked the provision of section 40(a)(ia) of the Act and disallowed the deduction of car hire charges which also confirmed by the ld. CIT-A. The case of the learned AR of the assessee is that the transaction of car hire falls under the provision of section 194I of the Act where threshold limit to deduct tax at source is of payment exceeds Rs. 1.8 Lacs, but in the case of the assessee, the same is of Rs. 1,21,775/- only. Therefore question of invoking the provision of section 40(a)(ia) does not arise. In this background we proceed to adjudicate the issue on hand.
18.1 There is very thin line between weather hiring of car falls under contract for availing the services or under the category of rental agreement. In our considered view if car is hired for purpose of specific usage and charges paid on the basis of such specific uses without bearing running and maintenance cost then it should fall under the category of contract for services and provision of section 194C will be applicable. On the other hand car is hired not to perform specific services and charges are not paid on the basis of specific uses but the same is hired for availability of car for particular time or period without specification of particular services and charges paid on fixed basis then such hiring should be considered as rental contract under the provision of section 194I of the Act.
18.2 In the given case, the assessee has claimed that the car was hired from one Shri Manish bhai who made availability of the car at the premises of the assessee without bearing running and maintenance cost and in lieu the assessee paid fixed rental charges of Rs. 12,000/- per month. The authorities below have not brought anything contrary the claim of the assessee that the car was hired for specific services and hiring charges was paid on the basis of such uses. Therefore we are not inclined to uphold the finding of the authorities below. In this regard we find support and guidance from the order of Mumbai Tribunal in case of ITO(TDS) vs. Bharat Sanchar Nigam Ltd reported in 64 SOT 138 where it was held as under:
Our first observation in the matter is that none of the circulars relied upon, which we have perused, are directly on the point. Our second observation in the matter is, as afore-stated, that if the vehicle is hired on a one-off basis, or where a pick and drop facility is provided, what is being availed of or contracted for are essentially services, so that the assessee pays for a specified work, in which case it would without doubt stand to be covered u/s. 194-C, i.e., the section under which tax stands deducted and paid by the assessee. Why, therefore, should there be an insistence on a particular vehicle? The matter is essentially factual, so that it would stand to be decided on the basis of the nature and the parameters of the arrangement. The arrangement in the present case is to make available a car (vehicle) for a designated person or class of persons, for a particular time/user, of course coupled with other facilities. The vehicle is decidedly at the disposal of the user. Stipulations as to distance and time is only toward regulating the said availability and, besides, have a direct implication on the charge/s (to be) raised as well in-as-much as payments for user beyond defined user parameters, viz. as to time (say, 8 or 12 hrs. a day, or from 9 a.m. to 6 p.m.) or mileage (as, say, 1500 kms per month), etc., would attract a higher charge. Why, even where a hire is on a regular basis, the same would assume the nature of ‘rent’, as clarified by the CBDT per its Circular No. 715 (supra), relied upon by the assessee, with reference to the hire of a hotel room (refer Q. No. 20 and answer thereto). A vehicle would only stand to be covered by the definition of ‘plant’ or ‘machinery’, which are both generic terms of wide amplitude, even as, admittedly, the specific definition thereof u/ss. 43, 44BB, etc. may not be applicable for the purposes of s.194-I.
In our clear view, therefore, the arrangement is not toward the provision of carriage services, as understood by the first appellate authority, but for making available cars for the assessee’s personnel. At the same time, clearly, the arrangement also includes making available services of a chauffeur as well as meeting the fuel cost of transportation. The same cannot by any means be considered as toward car rental. Subject to a reasonable deduction in respect of charges in its respect, based on the materials and/or information led by the assessee, which would though stand to be considered as toward contractual services covered by section 194-C, the balance amount would fall to be governed by section 194-I. Our decision, being based on finding/s of fact, the assessee’s reliance on case law would be of no moment, though in fact none was specifically referred to.
18.3 It is also important to highlight that the case laws relied by the ld. CIT-A are distinguishable from the present facts of the case on hand. In those cases car or plant were hired for specific services and charges were paid on the basis of performance of such specific services which not in the case of the assessee on hand.
18.4 In view of the above we hold that the transaction of car hiring charges falls under the provision of section 194I of the Act but the assessee paid hiring/rental charges below the threshold limit of Rs. 1.8 Lacs. Therefore, the assessee was not required to deduct TDS, thus the assessee cannot be held guilty under the provision of section 40(a)(ia) of the Act. Hence, the ground of the appeal of the assessee is hereby allowed.
19. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the Court on 30/03/2022 at Ahmedabad.
