The ITAT Ahmedabad bench comprising Shri Waseem Ahmed, Accountant Member and Ms Madhumita Roy, Judicial Member observed that car hiring charges falls under the provision of section 194I of the Income Tax Act, 1961 and the TDS is chargeable if the payment exceeds the threshold limit of Rs. 1.8 lakhs.
The facts in brief are that the assessee in the present case is a limited liability partnership firm and engaged in the business of civil contractor.
The AO during the assessment proceedings found that the assessee has incurred car hiring charges amounting to ₹ 1,21,775/- which was subject to the provisions of TDS under the provisions of section 194C of the Act. But the assessee has not deducted the TDS on such expenses. Therefore the AO disallowed the same and added to the total income of the assessee.
Before the Tribunal, the assessee contended that the impugned expenses of car hiring charges does not fall under the provisions of section 194C of the Act. On the contrary, such expenses fall under the provisions of section 194I of the Act where the limit for deducting the TDS is of ₹1.80 Lacs whereas the assessee has incurred an expense of Rs. 1,21,775/-only and therefore no TDS was deducted.
After analysing the facts and the arguments from both sides, the Tribunal held that there is very thin line between weather hiring of car falls under contract for availing the services or under the category of rental agreement.
“In our considered view if car is hired for purpose of specific usage and charges paid on the basis of such specific uses without bearing running and maintenance cost then it should fall under the category of contract for services and provision of section 194C will be applicable. On the other hand car is hired not to perform specific services and charges are not paid on the basis of specific uses but the same is hired for availability of car for particular time or period without specification of particular services and charges paid on fixed basis then such hiring should be considered as rental contract under the provision of section 194I of the Act,” the Tribunal said.
Allowing the appeal of the assessee, the Tribunal held that the transaction of car hiring charges falls under the provision of section 194I of the Act but the assessee paid hiring/rental charges below the threshold limit of Rs. 1.8 Lacs and therefore, the assessee was not required to deduct TDS, thus the assessee cannot be held guilty under the provision of section 40(a)(ia) of the Act.
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