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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 ..... ducts a school at NOIDA. As an incident of providing a facility for the transportation of students from their homes to the school and return, the assessee entered into a contract with a transporter. The contract envisaged the following salient conditions : (i) the contractor would provide a stipulated number of buses for transportation of students and staff of the assessee from such starting points and routes and in accordance with such timings as would be specified by the assessee; (ii) the buses would exhibit the route number and the name of the school; (iii) the school timings being from 8:00 a.m. to 1:50 p.m. for classes II and above and from 8:40 a.m. to 12:45 p.m. for classes upto class I, it would be the duty of the contractor to ensure that regular, punctual and efficient service was provided. The buses were required to arrive at the bus stop within fifteen minutes of the scheduled time in the morning and twenty minutes of the scheduled departure time in the afternoon, failing which the bus users would be at liberty to travel by taxi or any other mode of transport at the cost of the transporter; (iv) for classes upto class I, the reporting time for the buses in the morn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rarily. (b) After the specified period of use; the buses are kept under the control of the operators and not of the appellant organisation. It is not the case of the department that these buses, vehicles have been given by the transporters, on hire to the appellant, for control and use 24 hours to 365 days. To that extent, this distinction is very important to understand that the buses have been hired by the appellant only for limited/specific purposes of transportation of the students and staff. It implies that the main object is transportation of passengers; and not complete hiring of the particular vehicle." The order of the CIT(A) has been upheld by the Tribunal on 1 March 2011. Section 194C of the Act deals with payments to contractors. Sub-section (1) of section 194C prior to its substitution by Finance Act No.33 of 2009 w.e.f. 1 October 2009, provided as follows:- "(1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and - (a) the Central Government or any State Government; o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of- (a) ten per cent. for the use of any machinery or plant or equipment; (b) fifteen per cent. for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings where the payee is an individual or a Hindu undivided family; and (c) twenty per cent. for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings where the payee is a person other than an individual or a Hindu undivided family." Under the Explanation to section 194I, the expression 'rent' was defined thus: "(i) "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,- (a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory bui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and ought not to have been interfered with by the CIT(A). The Tribunal is according to the Revenue in error in affirming the decision of the CIT(A). On the other hand, it has been urged on behalf of the assessee that the contract in the present case is to provide a service for the transportation of the staff and students. The ownership and control of the buses continues to vest in the service provider, namely the contractor. The assessee does not hire the buses as such since a contractual obligation has been undertaken by the contractor for providing transportation for the staff and students from point to point. The contractor provides the fuel, a conductor and a driver and receives a payment for each student transported per month depending upon the stipulated distance for performing the work. Hence, it has been urged that it was not section 194I but section 194C that would govern. Section 194C, as it stood at the material time, contemplated a deduction at the stipulated rate (2% in a case other than advertising) by any person who is responsible for paying a sum to a resident for carrying out any work including supply of labour for carrying out any work in pursuance of a contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 194I. The basic distinction between section 194C and section 194I is that the contract under the former provision is a contract for carrying out work, whereas the contract under the latter is a contract which envisages the payment of rent for the use of land, building, machinery, plant, equipment, furniture or fittings. Hence, it is necessary in each case to consider the provisions of the contract in relation to which the recovery and collection provisions are sought to be applied. Both section 194C and section 194I form part of Chapter XVII which deals with collection and recovery of tax. Section 190 contemplates that notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction or collection at source in accordance with the provisions of the Chapter. Sections 194C and 194I are, therefore, part of these provisions contained in Chapter XVII for the collection and recovery of tax. In the present case, the contract was not construed at all by the Assessing Officer. In the view of the Assessing Officer, the nature and the terms of the agreement did not make any difference to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not really matter. We may only note that in Circular No.558 dated 28 March 1990, the Board clarified that the provisions of section 194C would have to be examined with reference to the terms and conditions of each contract. Having examined the issue and the terms and conditions governing contracts between the owners of buses and the State Road Transport Corporation, the Board opined that although the contract may appear to be a hiring contract, it was actually a service contract which would be governed by section 194C. The relevant conditions of the contract which were adverted to in the Board's Circular were as follows: "(i) The owner of the bus shall give his bus on hire to the corporation for plying on notified routes; (ii) The owner shall provide a driver, with a valid licence and P.S. Badge for the vehicle supplied by him, who shall follow the instructions of the authorised officials of the Corporation; (iii) The owner shall make available the bus for 14 hours a day and complete the schedules given to him for the day; (iv) The owner shall keep the bus road-worthy in terms of Chapter V of the Motor Vehicles Act, 1939 and rules made thereunder from time to time by carryi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n has to be seen and it has to be decided that under which Section the case of the assessee would fall. If one goes by the logic adopted by the AO, then the same will also be equally applicable in respect of Section 194-C where also under Explanation-III to sub-section (2) of Section 194-C, the "work" has been defined or explained which according to clause (c) thereto includes "carriage of goods and passengers by any mode of transport other than by railways". According to the transport contract entered into by the assessee, the activity of the transport contractor will be a simple activity of carriage of passenger by any mode of transport other than by railways. The object of the assessee to enter into such agreement was a simple activity of carrying its students and staff from their homes to the school and similarly from school to their homes. The assessee has not responsibility whatsoever regarding the buses to be utilized for that purpose, which was the sole responsibility of the transport contractor. The transport contractor only was liable to keep and maintain the required number of buses for such activity at their own expenses with the specified standard therefore, the said c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Star Granites (P.) Ltd. Vs. Assistant Commissioner of Income Tax, Circle-1(1)4. The assesee had entered into a contract for loading/unloading and transportation of granites within the mining area and outside. The contract before the Kerala High Court was clearly of a different nature and character than what was envisaged in the contract which came up for consideration before the Gujarat High Court in Reliance Engineering Associates and the Division Bench of this Court in Lotus Valley Education Society. The Kerala High Court held thus on a review of the contract: "................. As correctly found by the tribunal, 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............" The Kerala High Court, in other words, found that 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. It was in these circumstances that the Division ..... X X X X Extracts X X X X X X X X Extracts X X X X
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