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

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.

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.

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.