2014 (7) TMI 247 - AT - Income Tax

Payment made for hiring of buses - Short deduction of TDS u/s 194C of the Act Liability to deduct tax u/s 194I @ 10% - Held that - CIT(A) rightly of the view that the contract entered by the assessee with the transport service provider is primarily in the nature of transport contract/service contract for providing travel facility of school children to and from the School of the assessee and not for hiring the vehicles assessee itself has not utilized the vehicles but they were used by the transport contractors for fulfilling the obligations set out in the agreement - the running and maintenance expenditure is borne by the transport service providers who are also responsible for making all other arrangements, the nature of contract entered cannot be termed as contract for hiring of the vehicles - the provisions of Sec.194I of the Act are not applicable since the expression plant and machinery used in explanation to Sec. 194I refers to plant and machinery used by the assessee in its business by hiring them but not hiring of transport services. As per the transport contracts, the activity of transport contractor will be a simple activity of carriage of its school children by any mode of transport other than by railways - transport contracts would be covered by Sec. 194C and not Sec. 194I Relying upon ACIT (TDS) Versus Delhi Public School 2014 (1) TMI 176 - ITAT DELHI - the provisions of section 194C are applicable - The assessee has deducted TDS as per section 194C of the Act - there was no fault in the order of the CIT (A) Decided against Revenue.

Summary

Issues:
Interpretation of provisions under sections 194C and 194I of the Income-tax Act, 1961 for tax deduction on payments made for hiring vehicles for transportation services.

Analysis:
The appeals by the revenue were based on the contention that tax should have been deducted under section 194I at 10% for hiring buses instead of 2% under section 194C. The Assessing Officer's order under section 201(1)/201(1A) was challenged by the assessee, who had initially deducted tax under section 194C. The CIT (A) granted relief to the assessee, relying on previous ITAT decisions. The main issue was whether the payments made for hiring buses should be subject to tax deduction under section 194I or 194C.

The CIT (A) analyzed the nature of the contracts between the assessee and the transport service providers. It was found that the contracts primarily pertained to transportation services for school children and not hiring of vehicles. The transport service providers were responsible for various aspects such as salaries, maintenance, and other expenses, indicating a service contract rather than a hiring agreement. The CIT (A) emphasized that the running and maintenance costs being borne by the service providers made the contract ineligible for tax deduction under section 194I.

The CIT (A) further highlighted that the definition of "work" under section 194C includes the carriage of goods and passengers by any mode of transport other than railways, which aligned with the nature of the contracts in question. The CIT (A) referenced previous ITAT decisions and circulars to support the conclusion that section 194C was applicable for such transport contracts. The judgment in the case of ACIT Vs. Idea Cellular Limited was crucial in establishing that section 194C, not 194I, should apply in cases of hiring transport vehicles.

Moreover, the ITAT's decision in the case of ACIT (TDS) vs. Delhi Public School reinforced the applicability of section 194C for payments made to transport service providers. The ITAT consistently ruled in favor of the assessee in similar cases, upholding the deduction of TDS under section 194C. Ultimately, the ITAT dismissed the revenue's appeals, affirming the CIT (A)'s decision and relieving the assessee from the alleged shortfall and interest charges under section 201(1) and 201(1A).

In conclusion, the judgment clarified the distinction between hiring of vehicles and transportation contracts, emphasizing the applicability of section 194C for tax deduction on payments made for transportation services. The consistent interpretation by the ITAT and reliance on relevant legal provisions and precedents supported the decision in favor of the assessee.