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2012 (7) TMI 367 - AT - Income TaxDeduction of tax at source on hiring of buses - applicability of section 194C or 194-I? - Held that - Considering the Bulk Petroleum Products Road Transport agreement the arrangement for transportation of petroleum products was essentially a contract for transportation of goods and not an arrangement of hiring of vehicles. Thus tax is required to be deducted at source from the payments to the carrier in terms of provisions of sec. 194C and not u/s 194-I - there is nothing to indicate that the assessee has taken trailers/cranes on rent so as to attract the provisions of section 194-I and assessee had given sub-contracts for transportation of goods, thus the said transactions would fall within the purview of section 194C as the assessee was responsible for paying the amount in question for carrying out work in pursuance of contracts between the assessee and the transporters and as such was required to deduct tax at source at the rate prescribed @ 2% - when the contract agreement is read clause-by-clause, it becomes abundantly clear that there is no transfer of the right to use the vehicle involved in the contract agreement and that the contract agreement is merely for carriage of the petroleum and petroleum products and nothing more - in favour of assessee.
Issues Involved:
1. Applicability of Section 194C vs. Section 194-I of the Income Tax Act, 1961 for tax deduction at source on hiring of buses. Detailed Analysis: 1. Applicability of Section 194C vs. Section 194-I: Facts of the Case: A survey was conducted to verify the proper deduction of tax at source and deposit into the Central Government Account for the financial years 2007-08 and 2008-09. It was observed that the assessee was deducting tax at source at 2% under Section 194C on vehicle hire payments. The Assessing Officer contended that these payments should fall under Section 194-I, requiring a 10% deduction, leading to a calculation of short deduction and interest. CIT(A) Decision: The CIT(A) allowed the appeal of the assessee, observing that the issue was similar to previous cases (Apeejay School and Kothari School), where it was decided in favor of the assessee. The CIT(A) held that payments made to bus owners are covered by Section 194C and not Section 194-I. ITAT Analysis: The ITAT noted that the issue was covered by various orders of the ITAT in similar cases, such as Apeejay School, Lotus Valley Education Society vs. ACIT (TDS), Govind Singh vs. ITO, and DCIT (TDS) vs. UPSRTC, Agra. The ITAT followed its own order in the case of M/s Indian Oil Corporation Limited vs. ITO (TDS), where the issue was thoroughly analyzed. Key Findings: - The ITAT reviewed the terms and conditions of the agreements and found that the arrangement was for transportation services and not for hiring vehicles. - The relevant provisions of Section 194C stipulate deduction of tax at source for carrying out any work, including carriage of goods or passengers by any mode of transport other than railways. - Section 194-I pertains to rent for land, building, furniture, fittings, machinery, plant, or equipment. - The ITAT concluded that the agreements in question were for transportation of goods and not for hiring vehicles, thus falling under Section 194C. Supporting Judgments: - The Hon'ble Gauhati High Court and the Hon'ble Gujarat High Court had similar findings in related cases, emphasizing that contracts for transportation of goods are not equivalent to hiring vehicles. - The ITAT Delhi Bench and Ahmedabad Bench also supported the view that transportation contracts fall under Section 194C, not Section 194-I. Conclusion: The ITAT upheld the CIT(A)'s decision, confirming that payments to bus operators for transportation services are subject to tax deduction under Section 194C at 2%, and not under Section 194-I. The appeals of the Revenue were dismissed, and the appeals of the assessee were allowed. Final Order: The ITAT confirmed the CIT(A)'s order, dismissing the Revenue's appeals and allowing the assessee's appeals for the relevant assessment years. The Assessing Officer was directed to follow the ITAT's findings accordingly.
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