2013 (11) TMI 908 - AT - Income Tax

Section 194C or Section 194I - TDS deducted u/s 194C - Assessee in default under section 201(1) r.w.s. 194C(1) - Cargo handling charges should be treated as rent u/s 194I or as a work contract u/s 194C - Held that - The assessee has carried out freight and transportation works contracts with three transporters who transported the goods belonging to the assessee and its clients to various places through their vehicles - The assessee had not taken the trailers/cranes on hire or rent from the said parties - The assessee has given sub-contracts to the said parties for the transportation of goods and not for renting out of machineries and equipments - In the circumstances, the said transactions would fall within the purview of section 194C of the Act as the assessee was responsible for paying the amount 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 under the said section - Following decision of COMMISSIONER OF INCOME TAX (TDS) Versus SWAYAM SHIPPING SERVICES PVT LTD 2011 (1) TMI 797 - GUJARAT HIGH COURT - Decided against Revenue.

Summary

Issues Involved:
1. Applicability of Section 194-I versus Section 194C for TDS on cargo handling charges.
2. Consistency in treatment of similar payments to different parties under the Income Tax Act.
3. Validity of agreements and supporting evidence for tax deduction claims.
4. Determination of whether payments are for rent or work contracts.

Detailed Analysis:

1. Applicability of Section 194-I versus Section 194C for TDS on cargo handling charges:
The primary issue revolves around whether the payments made by the assessee to various parties for cargo handling services should be subjected to TDS under Section 194-I or Section 194C of the Income Tax Act, 1961. The AO found discrepancies in the TDS deductions, asserting that the payments should have been made under Section 194-I (rent) rather than Section 194C (work contracts). The Tribunal noted that the AO raised a demand based on the short deduction of tax, relying on a previous decision by the Rajkot Bench of the Tribunal.

2. Consistency in treatment of similar payments to different parties under the Income Tax Act:
The CIT(A) upheld the AO's decision regarding payments to M/s Saurashtra Containers Pvt. Ltd., treating them as rent under Section 194-I. However, for payments to M/s Balaji Heavy Lifters (P) Ltd. and M/s Samarth Lifters (P) Ltd., the CIT(A) held them to be work contracts under Section 194C. The Tribunal observed that the CIT(A) provided detailed reasoning for this differentiation, noting that the nature of the contracts with Balaji Heavy Lifters and Samarth Lifters involved labor-oriented work with machinery and equipment, and the possession and control over these did not vest with the assessee company.

3. Validity of agreements and supporting evidence for tax deduction claims:
The CIT(A) noted that the assessee failed to provide supporting evidence such as contracts or bills for the payments made to M/s Saurashtra Containers Pvt. Ltd., leading to the decision to treat these payments as rent. Conversely, for Balaji Heavy Lifters and Samarth Lifters, the assessee provided relevant contracts, which indicated that the work involved was primarily labor-oriented and did not involve the transfer of possession or control of equipment to the assessee.

4. Determination of whether payments are for rent or work contracts:
The Tribunal highlighted that the definition of "rent" under Section 194-I includes payments for the use of land, buildings, machinery, plant, equipment, furniture, and fittings. The CIT(A) concluded that the payments to Balaji Heavy Lifters and Samarth Lifters were based on the volume of cargo handled rather than the time period, indicating a work contract rather than rent. The Tribunal upheld this view, referencing a similar case decided by the Gujarat High Court in M/s Swayam Shipping Services Pvt. Ltd., where control over trailers/cranes did not vest with the company.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision that the payments to Balaji Heavy Lifters (P) Ltd. and Samarth Lifters (P) Ltd. were correctly subjected to TDS under Section 194C, while the payments to M/s Saurashtra Containers Pvt. Ltd. were rightfully treated as rent under Section 194-I due to the lack of supporting evidence. The Tribunal found no merit in the Revenue's contention that the agreements were a colorable device to avoid higher TDS rates.