Payment by IOCL to transporters was liable to TDS u/s 194C as works contract and not u/s 194I as hiring as per explanation to section 194I-High Court
ABCAUS Case Law Citation:
ABCAUS 2266 (2018) (03) HC
The Substantial questions of law involved was with respect to the provision, under which, the respondent assessee was obliged to deduct tax on the payment made by it to the Carrier under the contracts for transporting the products in the business in which the respondent assessee was engaged.
As per the appellant Income Tax Department (Revenue), the applicable section was 194-I of the Income Tax Act, 1961 (the Act). On the other hand, the case of the respondent assessee was that its case was covered under Section 194C of the Act.
The Assessing officer (AO) on the basis of the contact between the parties had came to the conclusion that the respondent assessee was obliged to deduct tax under Section 194-I of the Act. The AO observed that the carrier was required to provide a fixed number of tankers/trucks for the use of the assessee company who shall have the exclusive right to use the tankers/trucks throughout the contract period. The tank trucks were attached to a particular loading location. According to the AO the tankers/trucks had been provided against hiring and not against any specific work/specific quantity of goods to be transported, the truck operator is not being paid fixed amount for transporting the product from one place to another but is being hired and paid for full time. The AO observed other terms i.e. the company had the right to change the basis of loading of tank truck that is volume to weight or vice versa for which the transportation rates shall was to be altered accordingly, the carrier was to provide only specifically identified truck, truck were required to be painted in particular specific colour code, band, logos and advertisement of specified brand name as directed by the company from time to time. Right to use the tank trucks on their return trip, restriction on sub-letting or change in ownership, the contract was for a fixed number of trucks with specific designing, modeling, life span, modification etc
According to the AO the contents of the agreement showed that tankers / trucks operators had no say in the matter and the assessee company was the boss and in total control of the affairs. Had there been a work contract there would have been no necessity of inclusion of such prohibitory clause.
After referring to the Explanation to Section 194-I of the Act, the Assessing Officer came to the conclusion that it can easily be made out that the language or terms of the agreement are not important but important is the use of the plant. Rent means payment by whatever name he reasons He then referred to the definition of “plant”. Ships, vehicles, books, specific apparatus and surgical equipment used for the purposes of the business or profession are included in the definition of “plant”.
He held that the payment had been made essentially for hiring of trucks / tankers, which had been given in exclusive possession and use of the assessee for a fixed tenure of two years and the tankers were also customized as per the requirement of the hirer.
The First Appellate Authority opined that even though the trucks used for the transportation work were earmarked and customized and the whole process was regulated and monitored by the assessee, the actual transportation was done by the Carrier and not by the assessee. The loss of material, men and equipments incurred in the process of transportation was of the Carrier. Also, the assessee had not committed any basic minimum payment and the payments were for the actual transportation done by the Carrier.
Thus CIT(A) rejected the view taken by the AO and held that the assessee was liable to deduct TDS U/s 194-C and not U/s 194-I. The Tribunal also upheld the view taken by the First Appellate Authority.
Aggrieved, the Revenue filed the instant appeal before the Hon’ble High Court. The Revenue placed reliance on the Explanation to Section 194I which defines ‘rent’ to mean any payment under any lease, sub-lease, tenancy or any other arrangement for the use of inter alia plant which includes vehicles.
The Hon’ble High Court opined that clauses that the Trucks will be made available at all time during the agreement at the loading stations, would not take it out from the purview of transporting contract. The age of the Truck and the other clauses referred to and all conditions, which the parties had , were to ensure that the assessee’s interest was best protected and it did not detract from it being a Contract for transporting.
The Hon’ble High Court held that the contract in question read as a whole must fall within the four corners of Section 194-C.