U/s 194-I, Income Tax is required to be deducted at source at the time of payment of any income by way of rent @’ 10% for the use of any machinery or plant or equipment. U/s 194C, tax is required to be deducted @’ 2% for carrying out any work which, inter alia, includes carriage of goods and passengers by any mode of transport other than by railways. Though generally speaking all types of machinery, plant and equipment given on hire get covered u/s. 194-I but hiring of transport vehicles get specifically covered u/s. 194-C as far as Tax Deduction at source is concerned. Transport vehicles used for carriage of goods and passengers are to be subjected to TDS provisions as per clause (c) of Explanation III of sub-section (2) of section 194C of the I.T. Act.
INCOME TAX APPELLATE TRIBUNAL, DELHI
ITA No. 4913/Del/2011 – A.Y. : 2008-09
Asstt. Commissioner of Income Tax(TDS),
M/s Idea Cellular Limited
This appeal by the Revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals), Ghaziabad dated 30.8.2011 pertaining to assessment year 2008-09.
2. The grounds of appeal read as under:-
“1.1 The Ld. CIT(A) has erred on facts and in law in cancelling the order dated 31.03.2009 passed by the ITO(TDS), Noida and in directing that provisions contained in section 194C is applicable on the payment made by M/s Idea Cellular Limited for hiring of buses, ignoring the fact of the case that the deductor company is liable to deduct the tax u/s 194 I at the rate of 10% for hiring of buses in view of amendment made u/s 194 I w.e.f. 01.06.2007.
1.2 In directing so, CIT(A) has failed to appreciate the following:-
i) The payment was made essentially for hiring of buses which were given in exclusive possession and use of the assessee for a fixed tenure. The name of the assessee and route printed on buses, clearly establish above fact.
ii) The assessee, being the hirer was not only in exclusive possession of the vehicle, but could also use them in the manner it wanted and no other person could use them during the tenancy period.
iii) Section 194 I (a) (introduced w.e.f. 01.06.2007) is applicable and the Board Circular No. 558 (dated 28.3.1990) is not applicable as it was issued prior to the introduction of section 194 I. The case of the assessee is distinguishable in as much as in the instant case the vehicles had been given on hire for exclusive possession and use of the assessee whereas the Circular No. 558 speaks of cases where part time possession of buses i.e. 14 hour/ day were provided to the transport authorities.
iv) The learned CIT (A) has erred in law and on facts in holding that the AO action in covering such hiring of buses u/s 194-1 has indirectly with the help of section 43 and there is no specific mention in the amended clause of section 194-1, whereas provisions (a) of section 194-I clearly mention ‘ten percent for the use of any machinery or plant or equipment’ and section 43(3) provides inclusion of vehicle under plant. Thus the AO has applied the provisions of section 194-I read with section 43(3) of the Income Tax Act.
v) The Hon’ble Apex Court in the case of M/s Associated Hotels & India Limited Vs. R. N. Kapoor (AIR 1959 S’. L 262) have laid down certain tests for determination for tenancy. The third test therein states that if under the documents, a party gets exclusive possession of the property, prima facie he will be considered as tenant. In the instant case, exclusive possession of the buses were given to the assessee and hence section 194-I is applicable on the entire payments.”
3. In this case order was passed u/s. 201(1) & 201(1A) of the I.T. Act by the Assessing Officer. Assessing Officer held that tax at source has been deducted u/s. 194C on the payment made to travelling agencies for hiring the vehicle while the same was to be deducted u/s. 194 I for F.Y. 2007-08.
4. Upon assessee’s appeal Ld. Commissioner of Income Tax (A) considered the assessee’s submission. In this regard, Ld. Commissioner of Income Tax (A) referred to his decision of M/s APJ School (Appeal No. 130 & 131/2009-10/GZB-Noida dated 24.9.2010). From the above case, Ld. Commissioner of Income Tax (A) quoted as under:-
“5.1. The only issue in this appeal is against the action of the AO in applying the provisions of section 194-I on payment made to the Bus owners for the Buses hired from the said parties as against assessee ‘s claim that the said payment is hit by the provision of section 194-C ofI.T. Act.
5.2. A similar issue was involved in another case of Noida, namely, “Kothari International School, B-279, Sector-SO, Noida for A.Y. 2008-09 and 2009-10, wherein also the AO had applied provisions of section 194-I on payment made to Bus Owners. In appeal, the undersigned, vide orders passed in appeal NO. 132J2009-10/GZB-Noida and 133/200 10/GZB¬Noida dated 08.09.2010, has decided the issue in favour of that assessee. The relevant paras of the appellate order, referred to above, is reproduced hereunder:-
“5.1 Ground No. 1 to 4:-
Ground No. 1 to 4 are against the action of the AO in applying the provisions of section 194-I on payment made to the Bus owners for the Buses hired from the said, parties as against assessee’s claim that the said payment is hit by the provision of section 194-C of l.T. Act.
5.1.1 U/s 194-I, Income Tax is required to be deducted at source at the time of payment of any income by way of rent @’ 10% for the use of any machinery or plant or equipment. U/s 194C, tax is required to be deducted @’ 2% for carrying out any work which, inter alia, includes carriage of goods and passengers by any mode of transport other than by railways. Though generally speaking all types of machinery, plant and equipment given on hire get covered u/s. 194-I but hiring of transport vehicles get specifically covered u/s. 194-C as far as Tax Deduction at source is concerned. Transport vehicles used for carriage of goods and passengers are to be subjected to TDS provisions as per clause (c) of Explanation III of sub-section (2) of section 194C of the I.T. Act, which is reproduced below:-
“Explanation III: For the purpose of this section, the expression “work” shall also include –
(b) Broadcasting and telecasting including production of programmes for such broadcasting or telecasting.
(c) Carriage of goods and passengers by any mode of transport other than by Railways;
It is also worth mentioning that the expression “carriage of goods and passengers by any mode of transport” finds place only in section 194 C and not in section 194-I ofthe Act.
There is no direction that TDS on transport contracts will be made u/s 194-I instead of u/s 194C there is even no omission of clause of Explanation III of sub-section (2) of section 194C, after the aforesaid amendment in section 194-I in Explanatory Notes
(Circular No. 1/2007 dated 17.04.2007) .
5.1.2. According to well established rules of interpretation, specific provisions prevail over general provisions. Section 194C contains specific provisions for deduction oftax in the cases oftransport contracts whereas Sec. 1941 contains general provisions for deduction of tax from rent in respect of hiring of machineries, plants etc. Therefore deduction was rightly made u/s 194C in this case. The following judgments support the case ofthe assessee:-
(i) Commissioner of Income Tax v. Rajasthan Spinning and Weaving Mills Ltd (2004) 27J1TR 460 (Raj)
(ii) C. I.T. vs. Prasar Bharati (Broadcasting Corp. of India) (2007) 292 ITR 580 (Del.).
5.1.3. In its Circular No. 558 dated 28.03.1990, the CBDT has, after deeply examining-the terms of contract between a State Road Transport Corporation and bus owners, held that transport contract between the State RoadTransport Corporation and bus owners are actually service contracts and not hire contract and, therefore, covered u/s 194C. Since, the CBDT has already decided that transport contracts between a State Road Transport Corporation and bus owners are not hire contracts, such contracts are outside the purview of section 194-I.
5. To harmonious is not to destroy any statutory provision or to render it otiose (Sultana Begum v. Prem ChandJain, (1997)1 SCC 373, 381-82
The following case laws delinate the above principles:
1. Gulzari Lal Agarwal v. Accounts Officer (1996) 10 SC 590, 596.
2. State of Rajasthan v. Gopi Kishan Sen AIR (1992) SC 1754, 1756.
3. Jagdish Singh v. Lt. Gave or Delhi ft. (1997) SC 671, 978.
If an interpretation that in this case tax was deductible u/s 194-I is adopted, it will render the provisions of clause of Explanation III of sub-section (2) of section 194C redundant or otiose which will be against the law laid down by the Hon ‘ble Supreme Court in the aforesaid cases. On the other hand, if the interpretation is taken that TDS in respect of contracts is to be made u/s 194C and TDS in respect of contracts relating to other of machineries and plants is to be made u/s 194-I, it will be harmonious constructions and it will not make any part ofthe statute redundant or otiose.
5.1.7 Had it been the intention of the legislature to cover the hiring of transport vehicles u/s 194-I instead of section 194C by making the aforesaid amendment in section 194-I, clause (c) of Explanation III below sub-section (2)Qof section 194C would have been omitted or amended by the same aforesaid amending Act but no amendment has been made in the aforesaid clause which goes to show that TDS from payments under consideration is required to be made u/s 194C and not u/s 194-I.
5.1.8. AMBIGUITY -VIEW IN AVOUR OF ASSESSEETO BE ADOPTED.
There are numerous circulars and judgments in favour of the appellant. If the AO was of the view that TDS was deductible u/s 194-I (in support of which, there is not a single circular, instructing or case law), and the matter was ambiguous for him, a view in favour of assessee only could be adopted on the basis of the following judgements:
(i) Commissioner of Income Tax vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC)
(ii) Commissioner of Income Tax vs. Madho PdJatia (1976) 105 ITR 179 (SC)
(iii) ClT v. Naga Hills Tea Co. Ltd (l973) 89 ITR 236 (SC)
(iv) CED v. R. Kanakasah (1973) 89 ITR 257 (SC)
I am ofthe considered view that judgment in the case of C.I.T. vs. Prasar Bharti (Broadcasting Corpn. Of India). (2007) 292 ITR 580 (Delhi) Squarely applies to the case of the appellant and it deserves a judgment of its favour on the strength ofthis udgment alone.
Apart from the above general principle, following factual observations are also extremely important for this issue to be decided in favour of the appellant.
(a) The Transporters have not given the buses for exclusive use by the appellant; the use is only for point to point transportation to students/staff to and from; only for convenience sake, (he name I of the appellant organization and routes are placed temporarily.
(b) After the specified period of use; the buses are kept under the control of the operators and not of the appellant organization. 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 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 purpose of transportation of the students and staff. It implies that the main object is transportation of passengers and not complete hiring ofthe particular vehicle.
(c) The specific rate ofTDS in respect of the relevant clause of section 194-I has itself been amended w.ef 01.10.2009; the rates are being brought down from 10% to only 2%. Therefore also the ambiguity if at all exists only of a year and half.
(d) The A-‘s action in covering such hiring of buses u/s 194-I is, undisputedly, is only indirectly with the help of section 43; there is no specific mention in the amended clause of section 194-I.
5.1.9. In view of the specific provisions contained in section 194C plethora of case laws, CBDT Circulars and Instructions and their binding nature, intention of the legislature and the ambiguity created by amendment in section 194-I, the issue is decided in favour ofthe appellant. Grounds No. 1 to 4 accordingly succeed. H
5.. 2. From the material brought on record by the learned AR, it is seen that in case of the Regional Manager, UPSRTC, Meerut, wherein identical issue was involved, the Id. CIT(Appeals), Meerut, vide his order in, appeal No.467 & 468/08-09 dated 2.3.2010, has decided the issue in favour ofthat assessee.
5.3. It is also pertinent to note here that as per the clarifications obtained by the assessee from the Income Tax Department under RTI Act, TDS is being deducted by the Income Tax Department on payments made to the contractors from whom cars have been taken on rent/contract basis, @ 2%, as per provisions of section 194C.
5.4. The issue involved in the case of the appellant is similar to the cases discussed in preceding paras. In view of the above and also following the order of the under signed in case of “Kothari International School”, Noida, referred to above, it is held that in appellants case the payment made to the Bus Owners is hit by the provision of” section 194-C of IT Act. Accordingly, the grounds taken by the appellant on this score succeed.”
5. Referring to the above, Ld. Commissioner of Income Tax (A) held that the present case is similar to the above referred case of APJ School. Hence, following his order, Ld. Commissioner of Income Tax (A) held that in assessee’s case also, the payment made to the traveling agencies for vehicle hiring is covered by the provisions of section 194-C of I.T. Act and not by the provision of section 194-I of I.T. Act.
6. Against the above order the revenue is in appeal before me.
7. I have heard the rival contentions in light of the material produced and precedent relied upon.
7.1 Ld. Departmental Representative relied upon the order of the Assessing Officer. Ld. Counsel of the assessee submitted that Ld. Commissioner of Income Tax (A) has passed a correct order and pleaded that the same should be upheld.
7.2 I find that Ld. Commissioner of Income Tax (A) has passed a reasonable order. I agree with the Ld. Commissioner of Income Tax (A)’s view that tax has to be deducted at source in contracts of transportation such as the present one u/s. 194C of I.T. Act and not u/s. 194-I of the I.T. Act. It is not the case of the Revenue that decision relied upon by him has been appealed against by the department. Under the circumstances, I do not find any infirmity in the order of the Ld. Commissioner of Income Tax (A), accordingly, I uphold the same.
8. In the result, the appeal filed by the Revenue stands dismissed
Order pronounced in the open court on 26/7/2012.