ITAT upholds Disallowance due to Non-Payment of TDS on Hire Charges paid for Leasing Equipments [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore bench has confirmed the disallowance on ground of non-payment of TDS on hire charges paid for the leasing of equipments.

The assessee is a private limited company engaged in the business of development and providing custom e-business application and platforms. During the relevant assessment year, the assessee had paid a sum of Rs.2,36,70,370 to M/s.First Lease Company India Limited towards equipment leasing. The department held that the assessee failed to furnish the details and evidence of TDS if made by the assessee on payment of lease rental of Rs.2,36,70,317/- for the year.

During the relevant assessment year, the assessee had paid a sum of Rs.2,36,70,370 to M/s.First Lease Company India Limited towards equipment leasing. Out of R.2,36,70,317, the principal repayment was Rs.1,77,95,992, the interest and VAT aggregated to Rs.58,74,325. The assessee had claimed Rs.2,36,70,317 as a deduction. While passing the assessment order, the Assessing Officer held that the sum of RS.1,77,95,992 (i.e. Rs.2,36,70,317 – Rs.58,74,325), which was paid towards principal as an expenditure of capital in nature and accordingly added back to the returned income.

Aggrieved, the assessee preferred an appeal before the first appellate authority. The CIT(A) following his order for assessment year 2007-2008 in assessee’s own case, directed the Assessing Officer to verify whether there was violation of TDS provisions under section 194-I of the Income Tax Act and to make necessary disallowance under section 40(a)(ia) of the Income Tax Act.

The Tribunal bench comprising Accountant Member Chandra Poojari and Judicial Member George George K found that the on perusal of the agreement between the assessee and First Leasing, it is clear that the actual owner of the leased asset is the lessor and First Leasing, the lessor, is entitled to claim depreciation.

Upholding the orders of the lower authorities, the Tribunal held that “the assessee-company has merely taken the assets on lease from the owner and it is accordingly eligible to claim actual rental expenses in the return of income. The Hon’ble Rajasthan High Court in the case of Rajshree Roadways v. Union of India reported in (2003) 263 ITR 206 (Raj.) had held that the lessor being the owner of the trucks, would be eligible for the benefit of depreciation. Further, it was held by the Hon’ble Court that the lessee having not the right to transfer or alienate the vehicle to other parties in any form, the lease rent paid by the assessee in that case (lessee) would be revenue expenditure. Further, the Hon’ble Karnataka High Court in the case of Banashankari Medical & Oncology Research Centre Ltd. v. JCIT reported in (2009) 316 ITR 407 (Kar.) had held that when equipments are not owned by the assessee, hire charges paid for leasing of the equipment is a revenue expenditure and is to be allowed as a deduction. As regards the CIT(A)’s directions to the A.O. to verify whether there was TDS made by the assessee while making payment for lease rentals and adding back the depreciation claim, the directions are to protect the interest of revenue.”

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