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TMI Blog2014 (9) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 194-C of the Act. Also in Three Star Granites (P.) Ltd. Vs. Assistant Commissioner of Income Tax [2013 (12) TMI 546 - KERALA HIGH COURT] it has been held that the agreement does not require the owner of the vehicle to do any work at all - It is the assessee who makes use of the vehicles and the equipment - He pays hire charges on the basis of the number of hours of use and thus clearly the appellant is not justified in contending that Section 194C applies - all the work under the contract was required to be done by the assessee itself and no work within the meaning of section 194C was done by the owner of the vehicle - thus, the Tribunal was correct in holding that the liability of the assessee was to deduct tax at source u/s 194C and not u/s 194I – Decided against Revenue. - Income Tax Appeal No. - 314 of 2011 - - - Dated:- 11-8-2014 - Hon'ble Dr. Dhananjaya Yeshwant Chandrachud, CJ And Hon'ble Dilip Gupta,JJ. For the Appellant : Dhananjay Awasthi For the Respondent : A. K. Goyal ORDER The appeal filed by the revenue under Section 260A of the Income Tax Act, 19611 arises from a decision of the Income Tax Appellate Tribunal dated 1 March 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r specified deductions for a default on the part of the contractor in complying with the requirements, as specified, for the services to be provided; (viii) no bus would be allowed to be driven by a driver with less than stipulated experience or who has been challaned on more than the stipulated occasions; and (ix) the driver would be required to possess an identity card with an attested photograph, issued by the employer. The Assessing Officer passed an order under section 201(1)/201(1-A) of the Act on 27 January 2010 and held that the assessee had erred in deducting tax at source under section 194C whereas its obligation was to deduct tax at source under section 194I on the payments made to the contractor. The Assessing Officer held as follows:- I don't agree with the submissions of the assessee that provisions of section 194I are not applicable in assessee's case. Here the nature and terms of the agreement does not make any difference while application (sic) of provisions of the section 194I of the I.T. Act. However, transporters have given the buses for exclusive use of the school with name and route of the buses painted on it. Moreover, now the dispute abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) or under any law corresponding to that Act in force in any part of India; or (h) any trust; or (i) any University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or (j) any firm; or (k) any individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not, other than those falling under any of the preceding clauses, whose total sales, gross receipts or turnover from the business or profession carried out by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to - (i) one per cent in case of advertising, (ii) in any other case two per cent, of such sum as income-tax on inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whatever name called for the use of a 'plant'. Under sub-section (3) of section 43 of the Act, the expression 'plant' is defined to include vehicles. Hence, the assessee was found in default in making a short deduction of tax at source for the relevant period and was held liable to pay interest besides the tax so deducted. Penalty proceedings under section 271-C were directed to be initiated separately. This view has been reversed by the CIT(A) who came to the conclusion that essentially the contract between the transporter and the assessee was for point to point transportation of students and staff; the buses were not under the exclusive control of the assessee; and the main object of the contract was the transportation of passengers within the meaning of Explanation III(c) to section 194C of the Act. The Tribunal concurred with the view. The submission which has been urged on behalf of the revenue is that section 194I is an omnibus provision under which a deduction is liable to be made where any person is responsible for paying to a resident any income by way of rent. It has been urged that the expression 'rent' is defined in broad terms to incorporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 'work', as defined, includes the carriage of goods and passengers by any mode of transport other than by railways. In contradistinction, section 194I contemplates a payment by way of rent. The expression 'rent' is defined so as to include a payment under a lease, sub-lease, tenancy or any other agreement or arrangement for the use of land, building or land appurtenant thereto, machinery, plant, equipment, furniture or fittings. In Assistant Commissioner of Income Tax (TDS), Noida Vs. M/s Lotus Valley Education Society which was decided on 12 September 20132, it was held by a Division Bench of this Court that the expression 'plant' is defined in Section 43(3) for the purposes of computing the profits and gains of business and profession under Sections 28 to 41. Hence, the definition in section 43(3) cannot be incorporated into the recovery and collection provisions of Chapter XVII. For the purpose of the present case, the Court may proceed on the basis, as suggested by the revenue, that independently of section 43(3) the expression 'plant' should not be construed in a narrow sense but in a broader connotation to include vehicles as well which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of a plant within the meaning of section 194I. Several circumstances weighed with the CIT(A) in appeal. The first was that the buses were not for the exclusive use of the assessee. Secondly, the agreement envisaged point to point transportation of the students and staff. Thirdly, the buses were under the control of the operator and not of the assessee. In other words, the main object of the contract was transportation of passengers (in the present case, the staff and students) and not the hiring of a particular vehicle. During the course of the hearing, we have perused the terms of the agreement, which are not in dispute. The agreement envisages that the contractor would provide a stipulated number of buses. The buses would pick up the students and teachers at stipulated points and would depart after school for transporting of students and staff to their homes. The contract naturally contains a stipulation in regard to the time at which the students would be dropped and the time at which the buses would depart and contains provisions for imposition of penalty in default. The conductor and the driver were to be provided by the contractor. The contractor was only entitled to a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to the distance operated during the respective periods; and (vii) The Corporation shall pay the owner at the rate of Rs.............. as fixed cost per day in addition to Rs......... per km. operated as variable cost, etc., etc. A subsequent Circular No.681 dated 8 March 1994 clarified that the term 'transport contract' would in addition to a contract for transportation and loading/unloading of goods also cover a contract for plying of buses, ferries, etc. along with staff (e.g., driver, conductor, cleaner, etc.) and a reference has also been made to the earlier Circular dated 28 March 1990. We have, however, rested this decision independent of the circulars and on a plain construction of the provisions. In a judgment of a Division Bench of this Court in Assistant Commissioner of Income Tax (TDS), Noida Vs. M/s Lotus Valley Education Society, this Court had to deal with the issue as to whether the Tribunal was justified in holding that it was the provisions of section 194C and not of section 194I that would apply to a contract which was entered into by a school with a contractor for the transportation of the students and the staff from their homes to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see itself has not utilized the buses being plants but they were used by the transport contractor for fulfilling the obligations set out in the contract agreement. Therefore, the provisions of Section 194-I could not be applied to the facts of the present case and it has to be held that assessee has rightly deducted tax at source under the provisions of Section 194-C of the Act. Ground Nos. 2 3 raised in both the appeals are allowed. The Division Bench of this Court dismissed the appeal filed by the revenue holding that the Tribunal did not commit any error of law in invoking section 194C which provides under Explanation III that work includes the carriage of goods and passengers by any mode of transport other than by railways. The same view, as has been adopted by the Division Bench of this Court in Lotus Valley Education Society, was taken by a Division Bench of the Gujarat High Court in Commissioner of Income Tax (TDS) Vs. Reliance Engineering Associates (P.) Ltd.3 In that case, the assessee had engaged the service of a contractor for rendering transportation services. The contract was entered into for carriage of goods and passengers by vehicles. The Division Bench hel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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