Activity of Mere Hiring of Machineries and Equipments does not attract TDS: Allahabad HC [Read Order]

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In the recent order in CIT v. M/S Jai Prakash Enterprises Ltd, the division bench of the Allahabad High Court held that Tax deduction at Source (TDS) under section 194C of the Income Tax Act does not apply to mere hiring of machineries and equipments.

The assessee entered into an agreement for hiring machineries and equipment. 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. The assessing Officer held that TDS under section 194C of the Income Tax Act is payable since the contract was for supply of labour to carryout work.

The Tribunal, relying upon the Madras High Court decision in CIT Vs. Poompuhar Shipping Corporation Ltd., held that 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 Income Tax Act.

According to the Tribunal, 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 Income Tax Act were not applicable.

On perusal of the agreement also, the division bench comprised of Justice Sudhir Agarwal and Justice Ravindra Nath Mishra convinced that the entire agreement talks of only hiring of machines in running position and hiring charges were for running condition of machines and equipments. Accordingly, the appeal preferred by the Revenue was dismissed.

Read the full text of the order below.