Section 194C defines “work” to include “carriage of goods and passengers by any mode of transport other than railways” while Section 194-I defines “rent” to mean payment for use of “plant” (which is defined in Section 43 to include vehicles). As the cars were owned and maintained by the contractor and all expenditure was borne by the contractor, the contract was for “carriage of passengers” for which the assessee paid a fixed amount. Therefore, the payment of vehicle hire charges fell within the scope of Section 194C and was not “rent” for Section 194-I.
Ahmedabad Urban Development Authority Vs. ACIT (ITAT Ahmedabad)
ITA No. 1637/Ahd/2010 (A. Y.: 2009- 10)
O R D E R
PER BHAVNESH SAINI:
This appeal by the assessee is directed against order of the learned CIT(A)-VI, Ahmedabad dated 23-02-2010 for assessment year 2009-2010, challenging the order of the learned CIT(A) in confirming the demand for short deduction of tax u/s 201 (1) of the IT Act and confirming the demand of interest charged u/s 201 (1A) of the IT Act.
2. Briefly, the facts of the case are that the assessee is a local authority and is engaged in development of areas in and around Ahmedabad outside municipal limits. It was seen that the assessee had hired cars on fixed rent payments but TDS was deducted @ 2% treating the same as contract. Since the cars are one type of machinery, and rent is paid at fixed monthly rate, according to the AO, TDS is applicable at the rate prescribed u/s 194 -I of the IT Act.Explanation of the assessee was called for. It was explained that for hiring of cars the provisions of section 194-I of the IT Act are not applicable. The payment is made towards the work contract executed and not towards hiring of vehicles. As per the explanation to section 194-I of the IT Act, the rent does not include motor cars. Moreover, as per section 194C of the IT Act, the work includes carriage of passengers. Accordingly, tax has been correctly collected u/s 194 C of the IT Act. The AO on consideration of the reply of the assessee noted that the assessee had made payment for vehicle hire charges in connection with plying of employees from one place to another. The vehicles are owned and maintained by the contractor. The assessee is making fixed payment of an amount. All other expenses of diesel, repair and insurance etc. are paid by the contractor. After considering the provisions of section 194-I of the IT Act which provides for rent, the AO noted that it included payment of use of machinery, land and rent for hire of any vehicle which is forming part of machinery for the period in use. The AO noted that in the present case vehicles are owned and operated by contractor which are used for carrying employees from one place to another or such services would fall within the scope of section 194-I of the IT Act and not u/s 194C of the IT Act. The AO relied upon Board Circular No.715 dated 8-8-1995 which clarify deduction of the tax and section 1 94C of the IT Act is applicable when a plane or bus or any other mode of transport is chartered by one of the entities mentioned in section 1 94C of the IT Act and work in section 1 94C of the IT Act continuously remain in the statute book and such interpretation of the provision would not controvert or the general provisions contained in the section. The AO, therefore, noted that if the assessee paid the rent for hiring out any machinery then he has to deduct tax at sources u/s 194-I of the Act. In the case of the assessee it paid rent and vehicles had to ply for transporting employees from one place to another, therefore, the assessee was required to deduct tax @ 10%, however, the assessee had deducted TDS @ 2% u/s 194C of the IT Act. Therefore, the difference was calculated @ 8% and the assessee was held to be in default of payment of TDS in a sum of Rs.1 ,75,506/- and interest u/s 201 (1A) in a sum of Rs.26,537/-. Order was accordingly passed, raising the demand against the assessee. Same submissions were reiterated before the learned CIT(A). The learned CIT(A) however, dismissed the appeal of the assessee holding that the assessee had hired cars on fixed rent payment and deducted tax @ 2% of the contract but in fact cars are one type of machinery and rent for the same is paid. Therefore, provisions of section 194-I of the IT Act have been rightly invoked. The appeal of the assessee was accordingly dismissed.
