Commissioner of Income Tax (TDS) vs Reliance Engineering Associates (P.) Ltd.

Bhaskar Bhattacharya, ACTG. C.J.

This appeal u/s 260-A of the income tax Act, 1961 is at the instance of the Revenue and is directed against the order dated May 26, 2010 passed by the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot in I.T.A. No. 407/Rjt/2009 for the assessment year 2007-2008. The only question that arises for determination in this appeal is whether the Tribunal below committed substantial error of law in deleting the demand raised by the concerned income tax Authority u/s 201(1) of the Income Tax Act, 1961 (hereinafter referred to as ''the Act'') of Rs. 85,20,210/- and interest charge of Rs. 25,64,593/- u/s 210-A of the Act on the ground that the assessee made deduction in accordance with the provisions contained u/s 194C of the Act.

According to the Revenue, the assessee-company had engaged the services of contractors for rendering transportation services for goods and passengers by buses, cars, Sumos, Utility Vans, etc. According to the Revenue, the assessee-Company had not taken possession of those vehicles from the contractor and the responsibility of operating and maintaining of the vehicles was of the contractor. The only question was whether in such circumstances, the provision of Section 194-I of the Act would apply. There is no dispute that the assessee had deducted in accordance with the provisions contained in Section 194C of the Act. There is no dispute that there was an agreement for carrying out work within the meaning of Section 194C of the Act. There is also no dispute that the rate of deduction u/s 194C is much less than the one prescribed u/s 194-I of the Act and consequently, the Revenue demanded the aforesaid excess amount and the interest.

Mr. M.R. Bhatt, learned Senior Counsel appearing for the Revenue, placed strong reliance upon the explanation added to Section 194-I of the Act, wherein under Clause (d), (e) and (f), the words ''machinery'', ''plant'' and ''equipment'' respectively are indicated. According to Mr. Bhatt, these carriages for the purpose of carrying goods and passengers should be treated to be machinery within the meaning of explanation of Section 194-I of the Act and, therefore, the Tribunal below committed substantial error of law in treating the said agreement as one falling u/s 194C of the Act.

After going through the explanation added to Section 194-C of the Act, we find that under Clause (iv) the ''work'' shall include:

Clause (c): carriage of goods and passengers by any mode of transport other than by railways.

In the case before us, there is no dispute that a contract was entered into for carrying various goods and passengers by trailer, utility vans, water tanker, sumos, etc. and thus, it clearly comes within the meaning of ''work''.

5.1 So far the definition of ''rent'' as provided in Section 194-I of the Act is concerned, according to the same, ''rent'' means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any

(a) Land; or

(b) building (include factory building); or

(c) land appurtenant to a building (include factory building); or

(d) machinery; or

(e) plant; or

(f) equipment; or

(g) furniture; or

(h) fittings,

whether or not any or all of the above are owned by the payee.

On comparison of the two explanations added to Sections 194-I and 194C of the Act, we are of the view that it was never the intention of the legislature to overlap any of the items mentioned within the meaning of ''rent'', by including the same within the meaning of ''work'' u/s 194-C of the Act. Since the agreement for carriage of goods by vehicles other than railways comes within the purview of explanation of ''work'' within the meaning of Section 194C of the Act, it necessarily follows that it was never the intention of the legislature to include the amount taken for hiring of such vehicles within the meaning of word ''rent''.

Moreover, now it is settled law that where two interpretations are possible, the one which is favourable to the assessee should be adopted. If we apply even the aforesaid principle, the Tribunal below was quite justified in adopting the case of the assessee in the facts of the present case.

Moreover, we find that the Supreme Court in the case of Birla Cement Works Vs. Central Board of Direct Taxes, , while deciding similar question of payment to contractor and sub-contractor before amendment of 1995, made the following observations at pages 225 and 226 of the said decision:

The dispute in the present case regarding non-deduction of tax deducted at source relates only for the period with effect from April 1, 1994 to June 30, 1995, i.e., prior to the addition of Explanation III appended to section 194C. After the addition of Explanation III the compliance of section 194C is being made by the petitioner. Explanation III added by the Finance Act of 1995 is merely clarificatory in nature. Even otherwise, without this Explanation III the carrying on of business of transportation of cement from the factory of the petitioner to various destinations, also, comes within the expression "carrying out of any work" and the provisions of section 194C were, also, applicable. Explanation III has been inserted merely in order to remove the doubts and clarifying the position that the provisions of section 194C are applicable in this transaction, also.

Thus, in the facts of the present case, the Tribunal below rightly applied the correct proposition of law in giving benefit to the assessee. We, thus, find that no substantial error of law is involved in this appeal and consequently, the same is summarily dismissed.