2012 (9) TMI 763 - AT - Income Tax

Payments made for hiring of buses - applicability of Section 194C or 194I - assessee contended it to be payment for contract of service whereas Revenue contended it to be rent for hiring a plant - Held that - It is observed that assessee has not taken the buses simplicitor on lease as a plant and machinery rather it entered into a work permit whereby buses were taken for transportation of the passengers. The bus owner is responsible for upkeep as well as operation of the bus. He kept his own driver and helper. The buses remained in the possession of the owners. Hence, CIT(A) has rightly held that it was a service contract and hence applicability of Section 194C - Decided against Revenue.

Summary

Issues:
1. Appeal against order of Learned CIT(Appeals) for assessment year 2007-08.
2. Whether TDS should be deducted under sec. 194C or sec. 194(1) for hiring of busses.
3. Interpretation of the contract as a service contract or rent for hiring a plant.

Analysis:

Issue 1:
The present appeals were filed by the revenue against the order of Learned CIT(Appeals) for assessment year 2007-08. The revenue contended that the grounds of appeal were not in line with ITAT's Rules and sought withdrawal of one appeal due to being time-barred. The ITAT dismissed the appeal as withdrawn based on the revenue's request.

Issue 2:
The primary issue revolved around whether TDS should be deducted under sec. 194C or sec. 194(1) for the hiring of busses. The Assessing Officer had treated the assessee in default under sec. 201 for deducting TDS @ 2.5% under sec. 194C instead of 10% under sec. 194(1). However, the Learned CIT(Appeals) quashed the demand raised by the Assessing Officer after analyzing the nature of the contract and relevant CBDT instructions.

Issue 3:
The crux of the matter was the interpretation of the contract as a service contract or rent for hiring a plant. The revenue argued that the buses were akin to a plant on lease, thus TDS should be deducted under sec. 194(1). On the other hand, the assessee contended that it was a service contract for transportation falling under sec. 194C. The ITAT, after considering precedents and the contract details, concluded that the assessee had not taken the buses on lease as plant and machinery but for transportation purposes, similar to a service contract. Therefore, the appeals were dismissed based on this interpretation.

In conclusion, the ITAT upheld the decision of the Learned CIT(Appeals) and dismissed the revenue's appeals, emphasizing that the contract was a service contract for transportation rather than a lease of plant and machinery. The judgment provided a detailed analysis of the contractual nature and relevant legal provisions to arrive at this conclusion.