[CIT v. D. Rathinam, 197 Taxman 486 (Mad.)]
During the relevant assessment year, the assessee had paid hire charges for having hired millers and rollers for the purpose of carrying out road contract work. According to the Revenue, since the hire charges in respect of both, the millers and rollers, hired by the assessee contained a portion of labour charges incurred by the respective owners of the concerned vehicles/machineries towards operation of the respective vehicles/ machineries, it was a composite contract of hiring of vehicles/ machineries along with labour and, consequently, the provisions of section 194C would be applicable. On that basis, the Assessing Officer took the view that out of the total hire charges if 10 per cent was treated as charges paid towards labour element involved and the TDS not having been deducted, as required u/s.40(a)(ia), the whole of the sum was to be disallowed. The Tribunal found that the amount paid by the assessee was only by way of hire charges for the millers and rollers taken on hire and, therefore, the relevant TDS provision applicable had to be only of section 194-I and not 194C and since section 194-I providing for TDS even in respect of machinery/equipment was brought into the Statute Book with effect from 1-6-2007, the assessee had not committed any violation of section 40(a)( ia) during the relevant assessment year, i.e., 2005-06, and accordingly deleted the addition.
On appeal by the Revenue, the Madras High Court upheld the decision of the Tribunal and held as under:
“(i) Hiring of the millers and rollers as a machinery/ equipment was apparently needed for the purpose of carrying out the contract of laying of the road. Both the equipments, viz., millers and rollers, had to be necessarily operated by the owner of the respective machineries/equipments. Therefore, that, by itself, could not be a ground to state that it was a composite contract for supply of labour in the course of hiring of machineries/ equipments. Inasmuch as the millers and rollers had to be necessarily operated and maintained by the respective owners, the engagement of the service of any person for operating those machineries/equipments was purely an incidental one.
(ii) In fact, there was no material evidence or statement of any one to say in definite terms that the supply of such millers and rollers was along with its respective operators. Therefore, in the absence of any such acceptable material, the conclusion of the Assessing Officer in treating the hiring of millers and rollers as one falling under the category of a sub-contract for provision of labour or the conclusion of the Commissioner (Appeals) and holding that at least 10 per cent of the total payment would have been incurred by way of labour chargers by the respective owners, could not be accepted.
(iii) Viewed in that respect, the conclusion of the Tribunal, in having held that the relevant section, which would be applicable to the case on hand in relation to the sum incurred by the assessee by way of hire charges would be section 194-I, was unassailable. Therefore, when indisputably section 194-I came to provide for making the TDS in respect of machinery/equipments only with effect from 1-6-2007 and the relevant assessment year was 2005-06, there was no scope at all to find fault with the assessee for any violation of section 40(a)(ia).”
