Hon. Dr. Satish Chandra,J.
The assessee is a company engaged in re-rolling of M.S. Structurals. The assessee filed a return of income for the Assessment Year 1998-99, which was scrutinized by the Assessing Officer, who found that the assessee had debited a sum of Rs. 13,86,220/- in profit and loss account under the head "manufacturing and other expenses" as equipment hire charges. The Assessing Officer noticed that the aforesaid amount was paid as rent for use of the factory premises owned by M/s Usha Udyog Ltd., to whom the assessee paid an amount of Rs. 200/- per ton on manufacturing of steel items, as per the terms of agreement dated 06.03.1997.
The Assessing Officer concluded that the assessee company was under an obligation to deduct tax under Section 194-I of the Income Tax Act, 1961 (hereinafter referred to as the Act) and since the assessee did not do so, the Assessing Officer treated the assessee in default and passed an order under Section 201 of the Act directing the assessee to pay income tax of Rs. 2,77,244/- and interest under Section 201 (1A) of the Act amounting to Rs. 31,119/-.
Being aggrieved, the assessee filed an appeal, which was dismissed. The assessee thereafter filed a second appeal before the Tribunal, which was allowed and the additions were deleted. The Tribunal held that the assessee was not liable to deduct tax at source under Section 194-I of the Act. The Department, being aggrieved by the order of the Tribunal, has filed the present appeal under Section 260A of the Act, which was admitted on the following questions of law:
"1. Whether on the facts and circumstances of the case the Hon'ble I.T.A.T. was justified in holding that the assessee was not liable to deduct the tax at source u/s 194-I of the I.T. Act on the amount of rent paid by it to M/s Usha Udyog Limited, the owner of the factory building which was being used by the assessee company together with plant and machinery installed therein.
2. Whether on the facts and in the circumstances of the case the Hon'ble I.T.A.T. was justified in holding that there was no use of factory land and building by the assessee and the assessee paid the rent for use of only plant and machinery installed in the factory premises ignoring the fact that the plant and machinery being installed in the factory building, the assessee used land and building also and paid the rent accordingly."
We have heard Sri Shambhu Chopra, the learned counsel for the appellant.
The agreement entered between the assessee and M/s Usha Udyog Ltd. indicated that the assessee was required to carry on re-rolling work in the factory of M/s Usha Udyog Ltd. for which a rate was fixed @ Rs. 200/- per metric ton on the raw material produced by them and that the agreement indicated that the assessee would not utilize the building along with plant and machinery. On these facts, the question is, whether the assessee was liable to deduct tax as the assessee was not paying any rent to M/s Usha Udyog Ltd. in respect of land and building including the factory but the assessee was paying hiring charges of plant and machinery only. In this light, we have to see whether Section 194-I of the Act is applicable or not. For facility the said provision reads as under:
"194-I. Any person, not being an individual or an HUF, who is responsible for paying to any person any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rate of-
(a) fifteen percent if the payee is an individual or an HUF; and
(b) twenty percent in other cases:
Provided.................................
Explanation:- For the purposes of this section,-
(I) "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee."
In the light of the aforesaid provision, it is apparently clear that the agreement is related to the use of plant and machinery and not to the use of land and building. The Tribunal has given a categorical finding that the assessee on the basis of the agreement was not found paying rent in respect of use of land and machinery including factory building but was making payment for use of plant and machinery on monthly production basis.
Consequently, for the reasons stated aforesaid, we are of the opinion that the assessee was not liable to deposit tax at source under Section 194-I of the Act on the amount paid by the assessee towards hiring charges on plant and machinery. Consequently, no case for payment of penalty could be made out against the assessee.
For the reasons stated aforesaid, the questions of law are answered against the Department and in favour of the assessee. The appeal fails and is dismissed.
Dated: 22.08. 2014 MAA/-