2018 (4) TMI 142 - HC - Income Tax

TDS u/s 194C OR 194I - payment made by assessee to the Carrier under the contracts for transporting the petroleum products in the business in which the respondent assessee is engaged - the contract involved exclusive use of vehicles by the respondent assessee in carrying on its business - Held that - We have noticed the terms of the preamble. We have noticed various clauses. We are in agreement with the view of the Appellate Authority as affirmed by the Tribunal. It is a case, where the Carrier under the contract was undoubtedly obliged to maintain the requisite number of trucks of a particular type subject to various restrictions and conditions, but it was under the obligation to operate the Trucks for the purpose of transporting the goods belonging to the Company. Therefore, we would think that use of the words exclusive right to use the truck found in Clause 1 and also in Clause 6(e) may not by itself be decisive of the matter. We would think that even after the amendment to the Explanation under Section 194-I, the case cannot fall within its scope as it is a case of a contract of the transport of the goods and, therefore, a contract of work within the meaning of Section 194-C and not one which falls within the Explanation of Section 194-I, namely, use of plant by the respondent Company. Thus the contracts in question read as a whole, in our view, will yield the inevitable conclusion that the cases at hand must fall within the four corners of Section 194-C - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Section 194-I vs. Section 194-C of the Income Tax Act, 1961.
2. Interpretation of the contractual terms regarding the use of tank trucks for transporting petroleum products.
3. Determination of whether the payment constitutes "rent" under Section 194-I or is for "carriage of goods" under Section 194-C.

Detailed Analysis:

1. Applicability of Section 194-I vs. Section 194-C of the Income Tax Act, 1961:
The central issue in this case is whether the respondent assessee is required to deduct tax under Section 194-I or Section 194-C of the Income Tax Act, 1961. The appellant department contends that the payment falls under Section 194-I, which deals with "rent" for the use of machinery or plant, including vehicles. Conversely, the respondent assessee argues that the payment should be categorized under Section 194-C, which pertains to payments to contractors for carrying out any work, including the carriage of goods.

2. Interpretation of the Contractual Terms:
The Assessing Officer concluded that the tank trucks provided by the Carrier were hired for exclusive use by the respondent assessee, thus falling under Section 194-I. This conclusion was based on various clauses in the contract, such as the requirement for the trucks to be attached to specific loading locations, the exclusive right of the respondent assessee to use the trucks, and the customization of trucks as per the respondent's requirements.

However, the First Appellate Authority and the Tribunal disagreed with this interpretation. They found that the contract was essentially for the transportation of goods, not for the hiring of trucks. The payment was made for the actual transportation work done, and not for the use of the trucks per se. The contract specified that the Carrier was responsible for the transportation work, including the provision of trained crew, maintenance of trucks, and bearing all operational costs.

3. Determination of Payment as "Rent" or for "Carriage of Goods":
The Assessing Officer's interpretation that the payment constituted "rent" under Section 194-I was based on the exclusive use and control of the trucks by the respondent assessee. However, the Appellate Authority and Tribunal emphasized that the payment was for the transportation of goods, a service provided by the Carrier. The Carrier was responsible for all aspects of the transportation, including loading and unloading, and bore all risks associated with the transportation.

The Tribunal upheld the view that the contract was for the carriage of goods, thus falling under Section 194-C. This conclusion was supported by various judicial precedents, including decisions of the ITAT Delhi Bench and the ITAT Ahmedabad Bench, which held that contracts for the transportation of goods should be categorized under Section 194-C.

Conclusion:
The High Court concluded that the contract in question was for the transportation of goods and not for the hiring of trucks. Therefore, the payment made by the respondent assessee to the Carrier falls under Section 194-C of the Income Tax Act, 1961, which deals with payments to contractors for carrying out any work, including the carriage of goods. The Appeals were dismissed, and the decision of the Appellate Authority and Tribunal was upheld. The substantial questions of law were answered in favor of the respondent assessee.