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TMI Blog2018 (4) TMI 142X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. - Income Tax Appeal No. 37 -38 of 2014 - - - Dated:- 6-3-2018 - Hon ble K.M. Joseph, C.J. And Hon ble Sharad Kumar Sharma, J. Mr. H. M. Bhatia, Advocate for the appellant Mr. V. K. Kohli, Senior Advocate assisted by Mr. Kanti Ram, Advocate for the respondent ORDER K.M. Joseph, C.J. (Oral) Since common substantial questions of law have been raised in both the Appeals, we dispose of the Appeals by the following common judgment. 2. Substantially, the questions of law, which arise, relate to the provision, under which, the respondent assessee is obliged to deduct tax on the payment made by it to the Carrier under the contracts for transporting the petroleum products in the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act period. This clause substantively proves that the tank trucks are provided against hiring and not against any specific work / specific quantity of goods to be transported. In other terms, it can be said that had there been a work contract, the deductor company could have asked to make agreement with the carrier for transporting its products of specific quantity to specific distance, whereas in the instant case, the truck tankers have been hired for transportation of the products of the company subject to availability of products. Therefore the agreement is definitely of hiring of assets or vehicle and not a work contract for carrying out specific work. Further, in Clause No 2a, it is specifically agreed upon that the tank trucks would be attached to a particular loading location which again proves that the tank trucks have been hired to ferry the product of the company from one point to another, whereas in a work contract the carrier operator would have been asked to make arrangement for transporting the said product from one specific point to another against a specific contract amount. Here, in the instant case the truck operator is not being paid fixed amount for transpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the carrier will ensure that panels are provided on the tank truck for display of oil company brand as specified by oil company on regular basis. This clearly proves that the contract between the parties is not a simply work contract but of hiring of vehicle which can be modified, according to the wishes of the contractee company. Had there been a work contract, no such clause would have formed the part of agreement. Further as per clause 4a to 4d, it has been made mandatory that tank trucks engaged for hiring will be made available to the company at all time during the agreement period at the loading location, failure to which, the company will be free to use the services of any other tank truck and would recover the difference for transportation charges from the defaulting carrier. It has also been emphasized that in the event of break down or major repair of any tank truck, the company at its sole discretion may or may not accept other tank truck of the carrier. It is also part of agreement that the tank truck offered by the carrier should not be older than fifteen years and even during the period of agreement any tank truck which exceeds the life of fifteen years s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no right to alter the constitution of that firm of which the hired tank truck are part of assets / plant machinery. Had there been a work contract there would have been no necessity of inclusion of such prohibitory clause. This further proves that the agreement is that of hiring and not work contract. As per clause 15, the period of agreement is fixed for two years with option to terminate or extend the same subject to certain terms and condition of the deductor company. In a work contract this type of clause can exist but there would be no clause so as to hire a fixed number of tank trucks with specific designing, modeling, life span, modification etc. Even there would not be any such clause to prohibit the carrier from using tank truck for purpose other than the deductor company when not in service of the deductor company. After going through the contents of the agreement we can very easily make out that tank / trucks operators have no say in the matter and the assessee / deductor company is the boss and in total control of the affairs. It is responsibility of the operator to act according to the needs of the assessee deductor who can at any point of time change the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee has referred to the sample agreement for hiring of transport vehicles and has claimed that it is a contract for transport of bulk petroleum products (and not one for hiring of trucks). Refernce has also been made to section 194C of the I.T. Act as per which he expression work includes carriage of goods and passengers by any other mode other than railways and to the Memorandum explaining the amendment to provision of 194C of the I.T. Act (contained in the Finance Bill 1995, as per which the scope of the expression work was expanded in order to apply TDS requirement to payment in respect of transport contracts). Reference has also been made to the CBDT circulars referred to above. In addition, reference has been made to the following decisions: i) Birla Cement Works vs. CBDT 248 ITR 216. ii) Indian Oil Corporation Ltd. vs. Trade Commissioner (Trade-tax) and others CR 2997/1998 Guwahati. 1.7 It is interesting to note that the same sample agreement forms the AO s belief that it is a hiring arrangement and the assessee s contrary belief that it is a transportation contract. Both of them have referred to specific clauses of the same in support of their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Authority. In doing so, the Tribunal has placed reliance on the decisions of the ITAT Delhi Bench C reported in [2011][15 taxmann.com 210] [Delhi ITAT], as also, the decision of the ITAT, Agra Bench in the case of Indian Oil Corporation Ltd. vs. ITO (TDS), Mathura in ITA Nos. 14 15 /Agr/2010 Ors. and the decision of the ITAT, Ahmedabad Bench in the case of Ahmedabad Uran Development Authority vs. ACIT, TDS Circle in ITA No. 1637 / Ahd./2010 dated 10.03.2011. 11. We must notice now the substantial questions of law, which have been raised and arise: 1. Whether, on the facts and circumstances of the case, was the ITAT legally correct in holding that the assessee was liable to deduct TDS U/s 194-C and not U/s 194-I of the I.T. Act, 1961, without considering the Explanation to Sec 194-I. 2. Whether, on the facts and circumstances of the case, was the ITAT legally correct in its view that the assessee s case covered by S. 194-C and not by S. 194-I without keeping in mind the Explanation to S. 1941 to the Act which defines rent to mean any payment under any lease, sub-lease, tenancy or any other arrangement for the use or inter alia (d) machinery, (e) plant, or (f) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) ten 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:] 16. However, the Explanation to Section 194-I, which is projected in the substantial questions of law, also reads as follows: Explanation.-For the purposes of this section,-- [(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 building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings whether or not any or all of the above are owned by the payee. 17. It is to be noticed that the Explanation, by which rent has been defined, underwent a substitution and the present version was inserted with effect from 13.07.2006. 18. It is essentially based on the Explanation to Section 194-I of the Act that both the Assessing Officer has reasoned and before us, the learned Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, these Tank Trucks shall remain under exclusive use with the Company throughout the Contract period. 2(a). Each of the Tank Truck would be attached to a particular loading location / storage point of the Company as per LOI / Work order issued by the Oil Company. The Tank Truck would be required to carry bulk petroleum products from the particular loading location (Dispatching location) to Company s customers / other storage points (Receiving location) as would be instructed by the Company from time to time. (b) In the event of resitement / change of loading location of the company Tank Trucks attached to the old supply location would get automatically attached to the resited changed loading location and rate and other terms applicable to the old loading location shall apply to the new loading location. (c) In case of exigency, Company would be entitled to utilize any tank Truck attached to a particular loading location for bringing the petroleum products (bridging) from another loading location to the base loading location, where the Tank Truck is contracted. In such events the rate as detailed in LOI / Work Order issued to the carrier at the base loading lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) In case any of the Tank Trucks is not made available by the Carrier on any day Company would be free to use the services of any other Tank Truck and recover the difference in transportation charges from the Carrier. (c) In the event of breakdown or major repair of any of the Tank Truck Company as its sole discretion, may accept any other Tank Truck of the Carrier for the period of breakdown / major repair. Further, in the event Carrier request for the replacement of Tank Truck/s Company at it is sole discretion may accept the same. 25. The age of the tank truck offered is not to exceed 15 years. There is duty on the part of the Carrier to replace within thirty days the vehicles of the suitable nature. Now, we may advert to Clause 5(a): 5(a) Carrier will be responsible for all taxes, levies and other costs of running the Tank Trucks / transportation business, which shall also include- i) Salary, wages and other benefits and claims of Crew of Tank Trucks and all members of Carrier s staff. ii) Payment of road tax, insurance and any other fees like permit, route fee etc, levied by statutory authorities- iii) Cost of fuel, lubricants, tires repair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. (g) The Company has not guaranteed any minimum billings/mileage or loads for any period whatsoever hence Company will not be responsible for their inability in offering any load on any day or during any particular period and no idle charges etc. would be payable. (h) the Company will endeavor to arrange unloading of the Tank Trucks within responsible time. However, no detention charges etc. are payable if, for any reason, such unloading is delayed at the receiving location. 27. Clauses 8(a) 8(b) are relevant and we advert to the same: 8(a) The Carriers will be responsible for loading and discharging of the Tank Trucks. All the instructions of the Company with regard to the same would be binding on the Carrier. (b) Only the Crew of the Tank Truck and authorized representative of the Carrier shall be allowed entry inside the Company s loading/unloading locations. 28. There are various other restrictions and conditions, which are imposed on the Carrier. They include in particular the obligation to paint the trucks, and various guidelines are there in regard to these matters. 29. The Assessing Officer, as we have already noticed, has relied on some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts. The additional payments are based on the additional distance, which is travelled as provided therein. The tenor of the contract would, therefore, transparently show that the parties to the contract understood this agreement as one where the Carrier would be paid transport charges and that too for the shortest route travelled by it in the course of transporting the goods of the respondent assessee from one point to another. It unambiguously rules out payment of idle charges. It also makes it clear that there is no entitlement to the Carrier to any payment de hors the actual transporting of the goods. On this reasoning, we find that the finding given by the Assessing Officer that the assessee is being paid full time is completely unsustainable. We would think that on the other hand, it is more compatible with it being a contract of work given within the meaning of Section 194-C, which undoubtedly takes within its scope a contract for transporting the goods. In this regard, we are fortified by the words used in the preamble, which we have noticed. In this case, the assessee is engaged in refining crude, storing and selling of petroleum products; they require trucks for road trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer was entirely wrong in thinking that the question to be asked is whether there is a work contract and not whether there is a contract for work. There is a considerable difference between the two and apparently, he has been deflected in his reasoning by this erroneous appreciation of the provisions of Section 194-C. He would further refer to Clauses 2(c) and 2(d), which provide that the services utilized by the company amply proves that the tank trucks are being hired for carrying out the work of transportation. 32. The Officer has not adverted to the definition of the word work in Section 194-C. Likewise, we find misplaced the reliance placed on Clause 2(e). Under Clause 2(e), he reasons that the Company has right to change the basis of loading of a tank truck that is from volume to weight or vice versa for which the transportation rates will also be altered accordingly. According to the Officer, this Clause again shows that the Company has a right to use the vehicle for the transportation of its product depending upon the basis of loading which may be volume wise or weight wise. We fail to understand as to how the change in the right, which is based on volume to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified charges. We have already noticed that, in fact, the Carrier is not paid any idle charges. The Carrier is only paid for actual work of transporting done and the basis for payment is also expressly provided in the contracts. Therefore, the fact that it is specifically identified Trucks cannot, in our view, detract from the Contract from being one which is best dealt with under Section 194-C of the Act. There is reference to the Trucks being painted, parcels and particular specific colour code, band, logos and advertisement of specified brand name. 35. According to the Assessing Officer, therefore, this proves this is not simply a Work Contract but of hiring. We would think that the fact that in keeping with the contract, the painting of the Trucks as specified and various other logos, advertisements as provided therein would not detract from it being a contract of work, which in its amplified definition of the word work takes within it a contract for transportation of the goods. Indeed, we would think that here we must emphasize as found by the First Appellate Authority, the questions would be whether it is a contract of the use of the vehicle (being plant) and whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not have been included, which otherwise would have been in plain text mentioning therein that a minimum of such amount will be paid for transporting a particular quantity of product from a particular location to another within a time frame. This understanding of the payment mechanism evolved by the parties in the Contract betrays lack of understanding of the nature of the rights of the contracting parties to evolve suitable payment mechanism, which is acceptable to both the parties. One thing is clear, what is paid to the assessee is transport charges. The methodology for payment is self evident from the perusal of Clause 6 of the contract. The payment mechanism itself is premised on the rationale that the Carrier will get paid for the shortest route for carrying the goods at the rates, which have been indicated in the contract. 38. It is a clear case of Contract of transport. In fact, we notice that the Assessing Officer has not referred to Clause 6(g), which we have adverted to, which, in fact, would detract against the Contract being one of use of the vehicles by the Company as the Assessing Officer has proceeded on the erroneous basis that irrespective of work done by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a Contract for transport. The Assessing Officer may be correct in reasoning that it is the responsibility of the operator to act as per the needs of the Assessee Company, who can change the location of the operator, and the Company has also reserved the right to use the tank trucks on their return trip based on company s own operational convenience. None of these aspects would have anything to do with the question as to whether what is involved is a contract for transportation of the goods or whether it is a contract for use of the goods. The conditions like maintaining the tank trucks in sound mechanical condition and having all the fittings up to the standards laid down by the Company from time to time would not make it a contract for use. 41. 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. 42. In fact, in the order, the Officer has also referred to Clause 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a recent judgment of the Hon ble Apex Court in the case of Japan Airlines Company Limited vs. Commissioner of Income Tax, New Delhi reported in (2015) 10 SSC 591. The Hon ble Apex Court had before it a case, which involved the substantial question as to whether the payment made by Airlines for use of the land utilizing the services of Airport Authorities in Air Traffic services like landing / take off, parking, ground safety, aeronautical communications and navigational aids, meteorological services, etc. would fall under Section 194-I or under Section 194C. 48. Apparently, the case of the Revenue was that the Airlines were making use of the land and, therefore, it would fall under Section 194-I. The Hon ble Apex Court proceeded to hold, inter alia, as follows : From the reading of Section 194-I, it becomes clear that TDS is to be made on the rent . The expression rent is given much wider meaning under this provision than what is normally known in common parlance. In the first instance, it means any payment which is made under any lease, sub-lease, tenancy. Once the payment is made under lease, sub-lease or tenancy, the nomenclature which is given is inconsequential. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siderations that, in reality, governed the fixation of the charges. Hence, the aforesaid conclusion of the High Court of Madras is justified which is based on sound rationale and reasoning. The charges which are fixed by AAI for landing and take-off services as well as for parking of aircrafts are not for the use of the land . That would be too simplistic an approach, ignoring other relevant details which would amply demonstrate that these charges are for services and facilities offered in connection with the aircraft operation at the airport. To point out at the outset, these services include providing of air traffic services, ground safety services, aeronautical communication facilities, installation and maintenance of navigational aids and meteorological services at the airport. There are various international protocols which mandate all such authorities manning and managing these airports to construct the airports of desired standards which are stipulated in the protocols. The services which are required to be provided by these authorities, like AAI, are aimed at passengers safety as well as on safe landing and parking of the aircrafts. Therefore, it is not mere use of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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