Law:

Section:

Section 194-I, read with section 40(a)(ia), of the Income-tax Act, 1961 - Deduction of tax at source - Rent - Assessment year 2005-06 - During relevant assessment year, assessee had paid hire charges for having hired millers and rollers, for purpose of carrying out road contract work - Assessing Officer held that since said hire charges contained a portion of labour charges incurred by respective owners of concerned vehicles/machineries towards operation of respective vehicles/machineries, it was a composite contract of hiring of vehicles/machineries along with labour and, consequently, section 194C was applicable and assessee having not deducted tax on labour element involved in hire charges, entire amount was to be disallowed under section 40(a)(ia) - Whether inasmuch as millers and rollers had to be necessarily operated and maintained by respective owners, engagement of service of any person for operating those machineries/equipments was purely an incidental one and that, by itself, could not be a ground to state that it was a composite contract for supply of labour in course of hiring of machineries/equipments - Held, yes - Whether since payment was made by assessee by way of hire charges, it would fall under section 194-I which, having come into operation with effect from 1-6-2007 would not be applicable to relevant assessment year, i.e., 2005-06 and, therefore, assessee could not be made liable for any violation of section 40(a)(ia) - Held, yes FACTS 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…

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