A division bench of the Kerala High Court, on last week held that the hiring of vehicles does not attract Tax deduction at Source ( TDS ) under the provisions of Section 194C of the Income Tax Act.
The bench, while pronouncing a ruling in favour of the assessee, held that such expenses are subject to TDS under Section 194-I of the Income Tax Act after its amendment in the year 2007.
The assessee, in the instant case, had been transporting goods for one M/s.Logos Logistics (P) Ltd. Assessee used to hire vehicles from individual owners whenever the vehicles in their hand are not sufficient. Hire charges were paid to the individual owners, which were reimbursed by the principal M/s. Logos Logistics.
During the relevant assessment year, the Assessing Officer disallowed the expenses claimed by the assessee as a consequence of the non-deduction of TDS and an addition was made, to the extent provided for in Section 40(a)(ia) of the Income Tax Act. He was of the view that the above payments are subject to TDS under section 194C of the Act.
On appeal, both the first appellate authority and the ITAT reversed the original assessment order.
Upholding order of the ITAT, Justice Vinod Chandran and Justice Ashok Menon held that the hiring of vehicles, on the conditions above noticed, does not fall within the ambit of Section 194C of the Act.
The bench further noted that from 01.06.2007 definitely deduction would have to be made at source even for the hiring of vehicles as Section 194-I of the Act stands amended to bring in such transactions also.
The bench said that “Section 194C of the Act speaks of any payment made to any resident, referred to as a contractor, for carrying out any work including supply of labour, in pursuance of a contract between the contractor and a specified person. Here, the contract if at all, is between the assessee and the principal being M/s.Logos Logistics (P) Ltd.”
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