S. 194C and S. 194I — Payment made by an assessee for hiring vehicles for transportation of its employees qualifies for TDS u/s.194C.

Part A: Reported Decisions

(2010) TIOL 618 ITAT-Mum.

ACIT v. Accenture Services P. Ltd.

ITA No. 5920, 5921 and 5922/Mum./2009

A.Ys. : 2007-08, 2008-09 and 2009-10

Dated : 20-10-2010

16. S. 194C and S. 194I — Payment made by an assessee for hiring vehicles for transportation of its employees qualifies for TDS u/s.194C.

Facts :

The assessee entered into agreements with various transport service providers. Under the agreements entered into, the service provider was to provide transport service at particular locations for transportation of the assessee’s employees to different destinations and locations mentioned in the agreement. The transport service provider had to provide vehicles along with the requisite staff and relevant facilities, full maintenance and repairs of vehicles, etc.

The assessee deducted income-tax u/s.194C on payments made under the above-referred agreements. The Assessing Officer was of the view that the payments under the above-referred agreements were covered by provisions of S. 194I. The AO held the assessee to be in default as per provisions of S. 201(1) and also charged interest u/s.201(1A) for all the assessment years.

Aggrieved, the assessee preferred an appeal to CIT(A) who held the contract entered by the assessee with the transport service provider to be covered by Explanation 3 to S. 194C. He held the assessee should not be treated as an assessee in default u/s.201(1) as well as also not liable for levy of interest u/s.201(1A).

Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held :

The Tribunal upon going through the agreements entered by the assessee noted that the assessee was not required to provide anything, but was availing the services of the transport for picking up and dropping of its employees from its offices at different locations to the places of its clients. It observed that though as per the agreements, the vehicles provided for the requirements of the assessee were dedicated but it is not a case of hiring of vehicles only without other facilities. It observed that in the case of the assessee, all the facilities along with the vehicles were to be provided by the transport service provider and he was under the obligation to replace the vehicles as well as the driver and other staff after running certain hours. It also noted that each vehicle was provided appropriate number of drivers and time directives to enable the vehicle to be operated 24 hours a day and 7 days per week. The service provider was responsible for ensuring all legal and operational obligations. Thus, it was a kind of wet lease, wherein the assessee was utilising the transport services provided by the service provider without making any arrangement of its own, but all the arrangements were the responsibility and obligation of the service provider.

The Tribunal noted that the CBDT has in para 8(ii) of Circular No. 681, dated 8-3-1994 clarified that transport contract would be in addition to contract for transportation of loading and unloading of goods; also covers contracts for plying buses, ferried, etc. along with the staff. It noted that the Board has also considered this issue in Circular No. 558, dated 28-3-1990 in paragraph 3. It also noted that in Circular No. 715, dated 8-8-1992 the CBDT has in answer to question no. 6 clarified that the provisions of S. 194C shall apply when a plane or a bus or any other mode of transport is chartered by one of the entities mentioned in S. 194C of the Act. It held that the classification of vehicles as Plant for the purposes of claiming depreciation cannot be stretched to determine the nature of services provided which is otherwise clear from the agreement between the parties. It noted the observations of the Bombay High Court in the case of Indian National Ship Owners Association and Others v CIT, (TDS).

Upon going through paragraphs 56.2 and 56.3 of Circular No. 3 of 2008, dated 12-3-2007 dealing with Explanatory notes on provisions of the Finance Act, 2007, it held that the provisions of S. 194I are confined to payment for rent on hiring of land or building including factory building, furniture or fittings, but not for transport vehicle and other mode of transportation, particularly when the same is in the nature of providing and availing transport services. It also held that the expression plant and machinery used in explanation to S. 194I refers to only plant and machinery used by the assessee in the business of hiring them, but not the hiring of transport service.

The appeal filed by the Revenue was dismissed.