2014 (12) TMI 924 - AT - Income Tax

Hiring of buses treated as hiring of machinery U/S 194-I or u/s 194C Assessee in default u/s 201 - Hired buses were governed under the contracts and carrying out a work as explained in section 194 C - no fix rental was paid but the payment made to the contractors was on the mileage basis Held that - Following the decision in ITO vs Regional Manager, UPSRTC, Saharanpur 2011 (5) TMI 892 - ITAT DELHI it has been held that the payments made by the assessee would fall under the category of carriage of goods and passengers by any mode of transport other than railways and not under rent - provisions of section 194C of the Act will be applicable - the assessee had taken the buses on hire on payment made on kilometer running basis - The owner was responsible for running cost, maintenance, driver cost and other incidental charges like accident etc. - Therefore, the assessee has not taken the plant or machinery on rent. The definition of word work is clear in Explanation III (c) attached to sub-section (2) of section 194-C of the Act which makes it clear that it includes carriage of goods or passengers by any mode of transport other than by railways - Therefore, payment made by the assessee would certainly fall under the category of carriage of goods and passengers by any mode of transport other than railways and the same does not fall under the definition of rent related to section 194I of the Act - assessee has not taken the plant or machinery on rent but assessee is making payment towards hiring charges paid to the transporter for carriage of goods and passengers by any mode of road transport Decided in favour of assessee. Deletion of penalty u/s 271(1)(c) Held that - Since in the quantum appeal of the assessee for the same assessment years has been decided in favour of assessee, the payment made by the assessee to the transporters for carrying of passengers by road transport falls within the ambit of section 194C of the Act and the assessee was right in deducting the TDS u/s 194C of the Act, therefore, the penalty imposed by the AO on account of lower rate deduction of TDS is certainly not sustainable Decided against revenue.

Summary

Issues Involved:
1. Classification of payments for hiring buses under Section 194C vs. Section 194I of the Income Tax Act, 1961.
2. Principles of Natural Justice in declaring the assessee as "assessee in default" under Section 201 of the Income Tax Act, 1961.
3. Applicability of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for lower rate TDS deduction.

Detailed Analysis:

Issue 1: Classification of Payments for Hiring Buses
The primary issue was whether the payments made for hiring buses should be classified under Section 194C or Section 194I of the Income Tax Act, 1961. The Assessing Officer (AO) treated the hiring of buses as hiring of machinery under Section 194I, which requires TDS at 10%. However, the assessee argued that these payments fall under "carrying out a work" as explained in Section 194C, which mandates a lower TDS rate of 2%.

The Tribunal observed that the payments were made on a mileage basis and included costs such as running, maintenance, and driver expenses, which were borne by the bus owners. Therefore, the Tribunal concluded that the payments were for the carriage of goods and passengers by any mode of transport other than railways, falling under Section 194C and not Section 194I. This decision was supported by similar rulings in ITAT Delhi Bench and the Hon'ble Jurisdictional High Court of Allahabad in the case of ACIT vs Lotus Valley Education Society.

Issue 2: Principles of Natural Justice
The assessee contended that the AO violated the principles of natural justice by not verifying whether the contractors/deductees had paid taxes on their income before declaring the assessee as "assessee in default" under Section 201. The Tribunal noted that the AO did not pass any order under Section 201 as per statutory provisions, which further supported the assessee's argument.

Issue 3: Applicability of Penalty under Section 271(1)(c)
The Revenue appealed against the CIT(A)'s decision to delete the penalty imposed under Section 271(1)(c) for lower TDS deduction. The Tribunal observed that the CIT(A) had relied on various favorable decisions, including those from the Hon'ble Jurisdictional High Court, which supported the view that Section 194C was applicable. The Tribunal agreed with the CIT(A) that the case involved a difference in legal interpretation and did not involve concealment of facts.

The Tribunal upheld the CIT(A)'s decision, stating that since the payments were correctly classified under Section 194C, the penalty for lower TDS deduction was not sustainable. The Tribunal found no ambiguity or perversity in the CIT(A)'s order and dismissed the Revenue's appeal.

Conclusion:
The Tribunal allowed the assessee's appeals, holding that payments for hiring buses fall under Section 194C and not Section 194I. It also dismissed the Revenue's appeals, affirming that the penalty under Section 271(1)(c) was not applicable due to the correct classification of payments under Section 194C. The judgment emphasized adherence to principles of natural justice and supported the assessee's position based on consistent legal interpretations and precedents.