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 business in which the respondent assessee is engaged. On the one hand, it is the case of the appellant Department that the case of the respondent assessee falls under Section 194-I of the Income Tax Act, 1961 . On the other hand, the case of the respondent assessee is that its case falls under Section 1 94C of the Act.
3. The Assessing officer, on a conspectus of the terms of the contract as he understood it, came to the conclusion that the respondent assessee is obliged to deduct tax under Section 194-I of the Act. This view of the Assessing Officer did not find favour with the first Appellate Authority, who came to the conclusion, on his understanding of the contract, that the tax must be deductible under Section 1 94C and not under Section 194-I. The decision of the first Appellate Authority has found favour with the Appellate Tribunal and hence, the present Appeals.
4. We heard Mr. H.M. Bhatia, learned counsel for the Revenue and Mr. V.K. Kohli, learned Senior Counsel assisted by Mr. Kanti Ram, learned counsel appearing on behalf of the respondent.
5. H.M. Bhatia, learned counsel for the Revenue, who took us through the order of the Assessing Officer, would submit that the Assessing Authority has correctly appreciated the provisions in the contract and has rightly come to the conclusion that the provisions of Section 194-I would apply. He would emphasize that in this case, the contract involved exclusive use of vehicles by the respondent assessee in carrying on its business. Various provisions of the contract would, according to him, lead unerringly to the said conclusion. Since we intend to elaborately advert to the clauses in the contract, we need not say anything more.
6. On the other hand, Mr. V.K. Kohli, learned Senior Counsel for the assessee would submit that it is clear case, where what is involved in terms of the contract is only transporting of goods. It is not as if the amounts are paid for the use of the vehicles as such, and what is involved is only the transportation as per the contract.
7. First we must refer to the findings of the Assessing Officer:
“As per the first clause of the sample agreement, the carrier is required to provide a fixed number of tank trucks for the use of the contractee / assessee company who shall have the exclusive right to use the tank trucks throughout the contract 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 transporting the product from one place to another but is being hired and paid for full time.
Clause 2b, specifically mentions about automatic reattachment of the tank truck to a new location in the event of change of loading location, which means that an agreement has been drawn between the two parties to transport the products of the first partly irrespective of its location / loading site whereas in a work contract the work is defined for completing a task with specific amount of goods and services.
Similarly in clause 2c & 2d, the services utilized by the company amply proves that the tank trucks are being hired for carrying out the work of transportation from different loading locations.
As per Clause 2e, the company has right to change the basis of loading of tank truck that is volume to weight or vice versa for which the transportation rates shall also be altered accordingly. This clause of agreement again shows that the contractor company has the 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, whereas in work contract the contractor company could have asked the carrier to provide to transport a fixed quantity of product from one point to another against fixed charges payable to him.
The clause No. 3 of the agreement emphasizes upon identification of particular trucks which will be listed in the LOI/ work order, meaning thereby, that only the identified trucks are being engaged for transportation of petroleum products. Thus, it is beyond doubt established that the carrier was to provide only specifically identified truck for the services of the company, which definitely forms the part of hiring of specific identified tank trucks. Contrary to this, in a work contract there cannot be such specific requirement of specifically identified truck and the carrier could have been asked to just transport the product of the company with in specific time from one place to another on specific charges payable for such services.
In clause 3b, the operational norms have been specifically mentioned, according to which the particularly listed tank truck will have to be painted in particular specific colour code, band, logos and advertisement of specified brand name as directed by the oil company from time to time. Further, it has also being specifically mentioned 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 shall be removed. All the above clauses of agreement clearly establish that the tank trucks are being engaged purely for hiring and not for a particular work s as to fall under the definition of work contract. In other words, it can be firmly said that the particularly specified plant and machinery belonging to the carrier is being hired for a particular period which clearly falls within the purview of section 194 I of the I.T. Act.
In clause 5a to 5e, the agreement has been drawn fixing responsibility of the carrier for salary to crew members, taxes, insurance, cost of fuel, lubricant etc. and also any loss or damage to the tank truck during the period of agreement. This type of clause is prevalent in almost all types of hiring agreement so such clause does not prove that the carrier services had not been taken as work contract whereas it further proves that the agreement is drawn for hiring of vehicle and not for executing a particular type of work.
Clause 6 of the agreement defines billing cycle, route, rate etc, which also shows that the agreement is of hiring. In a work contract such type of clause 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.
Clause 6e further emphasizes that the company reserves the right to use the tank trucks on their return trip based on company requirement meaning thereby that during the period of agreement the carrier has not right to use his vehicle for any purpose other than that of the deductor company which can never be a part of work contract.
In Clause 13a, it has been specifically mentioned that the carrier shall not be titled to / assigned / subrogate / sublet or part with its right, title, interest, agreement for any reason what so ever or change the ownership of their right on the tank truck. This clause further established that the tank trucks are solely deputed for the services of the deductor company during the agreement period and the carrier has no right to change even the ownership of the tank truck during the period of agreement. Even the clause 1 3b, prohibits any change in the constitution of the firm without obtaining previous written consent of the deductor company which shows that the carrier has 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 location of the operators (caluse 2b). The operator cannot attach vehicles with any other party throughout the period of agreement (clause 1). The company reserves the right to use the tank trucks on their return trip based on company’s own operational convenience / requirement for delivery of petroleum product (clause 6e). Maintain in sought mechanical conditions and having all the fittings up to the standards laid down by the company from time to time (clause 3a), meeting requirements of the company as regards safety and operational norms (clause 3b) etc. The operator has simply given vehicles for use of the deductor company i.e. IOC in a manner it wants to use these vehicles as terms and conditions are completely being governed by the IOC.”
8. 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”. It was held that the payment has been made essentially for hiring of trucks / tankers, which have 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. Thereafter, the Assessing Officer found that it is Section 194-I of the Act, which applies.
THE VIEWS OF THE APPELLATE AUTHORITY
9. The Appellate Authority, inter alia, in its reasoning has rejected the contention that Section 194-C of the Act is specific and Section 194-I is general. It has found that the two sections operate in two different situations and also rejected the contention that they do not overlap. It also rejected the contention of the assessee that when two different interpretations are possible, the one beneficial to the assessee is to be applied. The bona fide belief entertained by the assessee was found to not help in advancing the case of the assessee. The fact that the primary liability is on the carrier to pay the tax also in view of the Appellate Authority did not matter. The following findings are to be referred to and noticed:
“1.6 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 respective conclusions. The agreement has been perused by me. It is not a plain-vanilla agreement for transportation or for hiring. It is not unusual that the transportation contract may have strapping of a hiring arrangement and vice versa. Hence, facts of each case have to be examined carefully to decide the real nature of the arrangement.
1.8 One crucial thing to do while determining whether the arrangement is of hiring or for transportation is to see who is doing the transportation work. If the assessee takes the trucks and does the work of transportation himself, it would amount to hiring, on the contrary, transportation is done by the Carrier, it would amount to transportation contract. In the former situation, stray aberration such as the carrier providing for the services of staff and incurring incidental expenses won’t alter the basic nature of arrangement. Similarly, in the latter situation, stray aberrations like the vehicles being specific and even customized and being run under the assessee’s regulation and control won’t alter the basic nature of the contract. The assessee is in the business of refining crude oil and storing, distributing and selling of the petroleum products, which includes / involves transportation of its bulk petroleum products. But, it does not have its own tank-trucks nor does it have the wherewithal for actual transportation work. Hence, it utilizes the services of the Carrier for this purpose. The sample agreement shows that, even though the trucks used for the transportation work are earmarked and customized and the whole process is regulated and monitored by the assessee, the actual transportation is done by the Carrier and not by the assessee. Even though the assessee regulates the transportation work, it does not take any responsibility for the same. The loss of material, men and equipments incurred in the process of transportation is of the Carrier.
1.9 Another important determinant is the basis of payment of the Carrier. In a hiring arrangement, payment is committed irrespective of the use (or lack of it) of the vehicle. In the transportation contract, payment is for actual transportation work done. In this case, the assessee has not committed any basic minimum payment. The payments are for the actual transportation done by the Carrier.”
10. The Tribunal has upheld the view taken by the First Appellate Authority. In doing so, the Tribunal has placed reliance on the decisions of the ITAT Delhi Bench ‘C’ reported in [201 1][15 taxmann.com210] [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) equipment.”
12. Now the time is ripe for us to refer to the statutory provisions involved in these cases.
13. Section 194-C of the Act, after its substitution w.e.f. 01.10.2009, inter alia, reads as follows:
“194C. Payments to contractors.—(1) Any person responsible for paying any sum to any resident (hereinafter 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 specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to—
(i) one per cent, where the payment is being made or credit is being given to an individual or a Hindu undivided family;
(ii) two per cent, where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein.”
14. We may also notice clause (iv) of Sub-section (7), which defines “work”. The same reads as under:
“(iv) “work” shall include—
(b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
(c) carriage of goods or passengers by any mode of transport other than by railways;
(e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer,
but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.’”
15. Next, we may advert to Section 194-I of the Act, without its provisos, insofar as it is relevant for our purpose:
“194-I. Rent.—[Any person, not being an individual or a Hindu undivided family, who is responsible for payment to a resident] any income by way of rent, 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) two per cent, for the use of any machinery or plant or equipment; and
(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
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 for the Revenue Mr. H.M. Bhatia would contend that the consideration involved in the contracts in these cases constitutes “rent” for the use of plant. As we have already noticed, plant will include vehicles. The vehicles, therefore, made available by the Carrier to the respondent assesseee were for the use of the respondent assessee and they would, therefore, fall within the four corners of Section 194-I of the Act, runs the argument.
19. On the other hand, the more appropriate provision or the correct provision, which would embrace within its scope a contract of the nature, which we are dealing with, according to the assessee, is Section 194-C of the Act as it deals with the deduction of tax at source in respect of payment made to a contractor for carrying out any work and “work” has been defined as including carriage of goods or passenger by any mode of transport other than by Railways. Therefore, the question, which we may consider and decide is whether it is a case of a Carrier in these cases doing work as understood in the expanded definition given to “work” in the Section (Section 194-C) namely, carriage of goods in these cases or whether it is a case of use of the vehicles by the respondent assessee. In order to resolve this controversy, we must necessarily advert to the relevant provision of the contract. A sample contract has been produced by the appellant before us and there is no dispute that it can be relied on as the terms of the contract, which we are to consider.
20. The preamble of the contracts reads as follows:
“WHEREAS the Company is engaged in refining Crude oil and storing, distributing and selling of the petroleum products and for this purpose require Tank Trucks for Road transportation of bulk Petroleum products from their various storage points to customers / other storage points.
WHEREAS the Carrier is engaged in the business of operating Tank Trucks and is interested in above transportation job of the Company.”
21. We may notice the following clauses thereafter:
“1. The Carrier will provide the Company with no of Tank Trucks for transporting petroleum products as per LOI / Work Order issued by the Oil Company, Carrier has certified that it is the owner and / or sufficiently entitled to operate these Tank Truck throughout the Agreement period and these Tank Trucks are not under Agreement with any other party. 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 location shall be In case of any disputes arising out of such movements the terms and conditions including Arbitration Clause of this Agreement would be applicable.
(d) In case of exigency, Company Would be entitled to utilisese any Tank Truck attached to a particular loading location for movements of the petroleum products from another loading location to Company’s Retail Outlets / Consumers / other receiving locations which are normally fed from that base loading location, where the Tank truck is contracted. In such event, the rate as detailed in LOI / Work Order issued to the Carrier at the base loading location shall be applicable. In case of any disputes arising out of such movements, the terms and conditions including Arbitration Clause of this Agreement would be applicable.
(e) In case the Company desires to change the basis of loading of Tank Truck i.e. volume to weight or vise-versa, the transportation rates shall be altered considering the standard conversion factors applied by the Company.
(f) Company shall be free to engage one or more additional Carriers either to run concurrently or separately, for transportation Jobs from the same loading ”
22. Clause 3(a), inter alia, provides that the Carrier is to ensure that the tank trucks listed in the LOI / work order are always maintained in proper condition; they confirm to the statutory regulations like Indian Petroleum Act and Motor Vehicles Act, etc, as applicable from time to time and they are properly caliberated / stamped under the Weights & Measures Act; they have adequately trained Crew (driver and cleaner) for efficient operations and the driving licence of the drivers should also be endorsed for transportation of hazardous goods; the trucks are covered by insurance Clause 3 further provides that the official of the Company would be entitled to inspect at any time the tank trucks and / or the documents of the Carrier. Further, it provides that the Carrier shall submit to the Company certified true copies of caliberation certificate and Explosive License and their renewals for every Tank Truck.
23. Clause 4 (a) reads as follows:
“4(a) The Tank Trucks listed in the LOI / Work Order will be made available to the Company at all times during the Agreement period at the loading location.”
24. We must also advert to Clauses 4(b) and 4(c) :
“(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 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
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 etc;
iv)Caliberation fees and other fee payable to Weights & Measures Department.
v) Compensation or any other benefit payable to Tank Truck Crew and its other staff or third party under any statute or regulation both under regular working and arising from accident etc.”
26. Next, we may pass on to Clause 6. Since much may turn on the relevant parts of this Clause, we extract Clause 6(a) upto 6(h):
“6 (a) The Company will pay to the Carrier for the transportation work undertaken from the loading location and at the rates detailed in LOI/Work Order. This rate shall be valid for all roads and weather conditions and are calculated from loading location.
(b) The above rates are subject to escalation/de-escalation as per formula given in Schedule-A&B.
(c)(i) Octroi charges levied on the product would be reimbursed by the Company against production of original receipts.
(ii) Entry/Transit/Bridge/Toll (pathkar) taxes paid by the Carrier for their Tank Trucks while transporting petroleum products under this Contract would be reimbursed by the Company on round-trip basis subject to production of original receipts for payment. Company’s decision whether any charge is reimbursable or not would be final and binding on the Carrier.
(d) The transport charges payable under this Agreement are based on shortest route approved by the Company on round trip basis (called RTKM). A list of current RTKMs applicable to storage points where subject Tank Trucks are based are available with concerned storage point. Company would, however, be entitled to revise these RTKMs from time to time, including retrospectively, which would be binding on the Carrier. Difference in transportation chares arising out of this revision will be recoverable/payable from the date of Agreement or effective date of such revision, whichever is later.
(e) Company reserves the right to use the Tank Trucks on their return trip based on Company’s own operational convenience/requirement for delivery for petroleum products payment in such case would be made only to the extent of any additional distance covered beyond the normal RTKM route for which the movement was undertaken.
(f) The procedure for payment of transport bills and reimbursement of entry/transits bondage/Toll Tax/ octroi charges prevalent in the Company from time to time would be binding on the carrier.
(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
29. The Assessing Officer, as we have already noticed, has relied on some provisions of the contracts. We may pose the question as to whether he was right in his understanding of the contracts. In the first place, he refers to Clause 2(a) and reasons that under the said Clause, it is specifically agreed upon that the tank trucks would be attached to a particular loading location and, according to him, it proves that the tank trucks have been hired to ferry the product of the company from one point to another. According to him, 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 and he ends the said paragraph by stating that in the instant case, 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.
30. We must pause here and pose a question as to whether the aforesaid finding can be supported by the Clauses in the contracts or it betrays non-application of mind to various provisions of the contracts and has resulted in a completely erroneous understanding of the contracts. In this regard, we must first ask ourselves a question as to whether the contract in question involves that the Carrier is being paid full time? In this regard, we have already extracted Clause 6(g). Clause 6(g), in our view, makes it crystal clear that the Company has not guaranteed any minimum billings/ mileage or loads for any period. What is more, the Company is not rendered liable to make any offering for any load on any day or during any particular period and no claim for idle charges is payable. This must be read in conjunction with Clause 6(d). Clause 6(d) unambiguously declares that the consideration for the contracts, in so many words, is what is payable by the respondent assessee as the transport charges. The payment for transport charges are to be made on the basis of shortest route. The shortest route is the one which is approved by the Company. The basis for the said arrangement is the round trip basis (called RTKM). The list of current RTKMs applicable to storage points is referred to as being available with the concerned storage point. They are liable to be revised. Equally, Clause 6(e) gives Company, no doubt, a right to use the tank trucks on their return trip based on Company’s own operational convenience / requirement for delivery of petroleum products. 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 transportation of bulk petroleum products and the Carrier was engaged in the business of transportation and apparently it evinced its interest in the transportation job. We cannot also be oblivious to the profuse use of the word “transport” in various clauses, which we have referred to. They go a long way in assuring us that the view, which we take, is in conformity with the clear intention of the parties.
31. Next, we may consider the further reasoning of the Assessing Officer with reference to Clause 2(b). Clause 2(b), the Officer reasoned, specifically mentions about automatic reattachment of the tank truck to a new location in the event of change of loading location, and then according to the Officer, it means that an agreement has been drawn between the two parties to transport the products of the first party irrespective of its location / loading site, and he contrasts it with a work contract stating that in a work contract the work is defined for completing a task with specific amount of goods and services. Here, we must pose a question as to whether the understanding of the Assessing Officer betrays his appreciation of Section 194-C of the Act as it were a provision, which deals with work contract and not with all kinds of work. This question, in fact, arose before a Bench of the Kerala High Court in the case of Central Board of Direct Taxes vs. Cochin Goods Transport Association reported in 1999(236) ITR 993. There, the Bench had an occasion to consider the similar question. Therein, the Court was considering the question as to whether a transport contract for mere carriage of goods without loading and unloading facility would amount to carrying out “any work” within the meaning of Section 194C(1) of the Act. The Division Bench, after referring to the circulars, which were initially issued, took the view that Section 194-C is concerned with work contract and the subsequent development in the form of fresh circulars being issued when the Authorities understood the law that Section 194-C is not confined to work contract and it also deals with any kind of work as provided in Section 194-C and further by following the judgment of the Hon’ble Apex Court in the case of Associated Cement Co. Ltd. vs. CIT reported in (1993) 201 ITR 435 held that the transport contracts simpliciter fall within the scope of Section 194- C. Therefore, we would think that the Assessing 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 weight has anything to do with the question as to whether it is Section 194-I and Section 194-C, which applies. The modern transportation contracts are fairly complex having regard to various requirements, which fall to be fulfilled by the contracting parties. Here, the goods to be transported are petroleum products. The petroleum products are subject to severe control under various laws both having regard to the nature of the product (being highly inflammable), and imperative necessity for keeping up the even tempo of the nation and it is, therefore, that quite clearly the respondent Company has set various conditions on the transporters. In fact, contract appears to us to be a standard contract and the transporters would necessarily have to fall in line. May be they have to sign on the dotted line and the restrictions, which are put therein, are only to be understood in the said vein.
33. Again, we notice with reference to Clause 2(e), the Assessing Officer uses the words “work contract” and he would reason that the Company could have asked the Carrier to provide a fixed quantity of products from one point to another against fixed charges payable to him. We would think that this amounts to asking the wrong question and there is reference to identification of particular trucks and he reasons, therefore, that only identified trucks are engaged and therefore, it is established that the Carrier was to provide only those trucks and this becomes part of hiring. The fact that such trucks are to be identified and they alone are to be used cannot detract from there being a contract of transporting the goods. The contract indeed contemplates that certain trucks should conform to certain standards. It has to conform with various laws; the trucks which are to be used by the contractor have apparently been appropriated to the contract. This is apparently to ensure that the Company is assured that loading and unloading of the materials is accomplished as decided by it in keeping with the policy which such Companies have, particularly, having regard to the nature of the product, namely, petroleum product.
34. Again, we notice that reference is made to clause 2(e) as if what is required is that it should be a ‘work contract’. The Officer says that had it been a work contract, the Carrier could have asked to just transport the product within the specified time with specified 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 there is use as such by the Company or whether it is a case of goods of the Company being transported in the vehicles, which are made available by the Carrier and most importantly, as to whether who carries out the transport. It is not in dispute that the entire operations are done by the Carrier in terms of the contract. He employs the drivers and other personnel; he pays them. He is responsible in respect of the vehicles. All risks are to be undertaken by the Carrier. He only transports them subject to the restriction that he will not use it for any other purposes during the period of the agreement. By the fact that he exclusively uses it for transporting the goods belonging to the Company, one cannot draw the inference that this is a case, which involves the use of the vehicles as such by the Company. Here, we may contrast with the situation where the vehicles are made available by the owner or the person in possession to a Company like the respondent assessee and it passes to its exclusive control and it employs its own employees and maintains it while it is in exclusive possession and does the act of transporting of its products. While this is certainly legally permissible, this is not the situation, which arises in these cases. On the other hand, it is a case, where it is the Carrier, who carries out the transportation work as found by the First Appellate Authority – the finding, which is found affirmed by the decision of dismissal of the Appeals by the Tribunal.
36. The reference to Clause 4(a) to 4(d), namely, that the Trucks will be made available at all time during the agreement at the loading stations, in our view, 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 have, are to ensure that the assessee’s interest is best protected and it does not detract from it being a Contract for transporting.
37. We notice that Clauses 5(a) to (e), under which the contract Carrier is bound to make payments to its employees have been brushed aside, and due importance has not been given to these clauses in the context of the Contracts in question. Coming to Clause 6, we notice that the Assessing Officer refers to the billing cycle and comes to the conclusion that there is an agreement for hiring. He reasons that in a work contract, such type of clause 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 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 the Carrier, it will get paid, which is not the case. The Assessing Officer has, in fact, not referred to Clause 8. It reveals that the Carrier is responsible for loading and discharging of the tank trucks. No doubt, the instructions of the Company with regards to the sale is binding on the Carrier. We notice this clause for the reason that it is unlike the situation prevailing in the facts, which were considered by the Kerala High Court in the case of Central Board of Direct Taxes vs. Cochin Goods Transport Association reported in 1999(236) ITR 993. Before the Kerala High Court, it was simply a case of transporting and there was no loading and unloading. Therefore, the case of the assessee was that it would not fall under Section 194-C. This argument was repelled. That is to say even an ordinary contract for transport would suffice to bring it within the purview of Section 194-C. In this case, the contract itself provides that the Carrier is saddled with the liability to do the loading and discharging of the tank trucks. Therefore, it goes a step further where it undertakes also to carry out the loading and the unloading of the products, be it from the loading center or the point of delivery.
39. Further, we may notice the fact that in Clause 13(a), it is mentioned that the Carrier shall not be entitled to assign, subrogate, sublet or part with its right title and interest under the Agreement for any reason whatsoever or change the ownership of / their right on the tank trucks. According to the officer, it shows that it was only deputed to the services of the company within the period and there was no right to change ownership of the tank trucks during the period of the agreement. In our view, this is only an additional restriction, which has been put on the Carrier, who is a transporter to ensure that there is no disruption for the reasons which are relevant to Clause 13 in transporting and the supply of the petroleum product, which is an essential commodity. This, in our view, again would not transform what is a contract for transporting goods into one for use. The reference to Clause 13( b) relating to prohibition of change in the constitution of the firm without previous consent has been overemphasized and given importance that it does not deserve.
40. The fixed period of two years under Clause 15, in our view, again will not detract it from being 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. Much has been sought to be made out of Clause 1, as per which, no doubt the Carrier is to make available the trucks and the Company is to have the exclusive right to use the tank trucks throughout the contract period. Therefore, according to the Officer, it is provided against hiring and not against any specific work / specific quantity of goods to be transported.
43. No doubt, the words used are that “the Company is to have the exclusive right to use the truck”.
44. The learned Senior Counsel Mr. V.K. Kohli would point out that what is meant is that the Trucks will be made available. The vehicles are to be maintained by the Carrier. According to the LOI i.e. letter of intent, apparently the Carrier is to make available the Trucks of the requisite quantity, which are identified and appropriated towards the contract for being operated in accordance with the needs and for the purpose of the work. Undoubtedly, in that sense it is for the use of the Company. But the issue is whether it is a use as understood under Section 194-I or whether it is a case of transporting the goods under Section 194-C. We have noticed the terms of the preamble. We have noticed various clauses. We are in agreement with the view of the Appellate Authority as affirmed by the Tribunal. It is a case, where the Carrier under the contract was undoubtedly obliged to maintain the requisite number of trucks of a particular type subject to various restrictions and conditions, but it was under the obligation to operate the Trucks for the purpose of transporting the goods belonging to the Company. Therefore, we would think that use of the words “exclusive right to use the truck” found in Clause 1 and also in Clause 6(e) may not by itself be decisive of the matter.
45. A contention was raised by the learned counsel of the Revenue with reference to Clause 9(b), which reads as follows:
“Carrier will allow representative of Company and the party to whom the products are being sent, to travel with him.”
46. Far from advancing the case of the appellant, in our view, it goes against his case. This is a permission, which is granted through a contract to the Company so that the Carrier will allow its representative to travel with it. Therefore, it detracts the vehicle being in the exclusive use and control of the respondent Company.
47. It is apposite at this juncture only to advert to 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. Such payment under lease, sub-lease and/or tenancy would be treated as “rent”. In the second place, such a payment made even under any other “agreement or arrangement for the use of any land or any building” would also be treated as “rent”. Whether or not such building is owned by the payee is not relevant. The expressions “any payment, by whatever name called” and “any other agreement or arrangement” have the widest import. Likewise, payment made for the “use of any land or any building” widens the scope of the proviso.
A bare reading of the definition of “rent” contained in the Explanation to Section 194-I would make it clear that in the first place, the payment, by whatever name called, under any lease, sub-lease, tenancy, is to be treated as “rent”. That is rent in traditional sense. However, the second part is independent of the first part which gives much wider scope of the term “rent”. As per this, agreement or arrangement, that is also to be treated as “rent”. Once such a payment is made for the use of land or building under any other agreement or arrangement, such agreement or arrangement gives the definition of rent of very wide connotation. To that extent, the High Court of Delhi appears to be correct that the scope of definition of rent under this definition is very wide and not limited to what is understood as rent in common parlance.
However, instead of taking a myopic view taken by the Delhi High Court by only considering use of the land per se, the Madras High Court examined the matter keeping a wider perspective in mind thereby encompassing the utilization of the airport providing the facility of landing and take-off of the airplanes and also parking facility. After taking into consideration these aspects, the Madras High Court came to the conclusion that the facility was not of “use of land” per se but the charges on landing and take –off by AAI from these airlines were in respect of number of facilities provided by AAI which was to be necessarily provided in compliance with the various international protocol. The charges, therefore, were not for land usage or area allotted simpliciter. These were the charges for various services provided. The substance of these charges was ingrained in the various facilities offered to meet the requirement of passengers’ safety and on safe landing and parking of the aircraft and these were the considerations 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 the land”. On the contrary, it is the facilities, that are to be compulsorily offered by AAI in tune with the requirements of the protocol, which is the primary focus. AAI is providing all these facilities for landing and take-off of an aircraft and in this whole process, “use of the land” pails into insignificance. What is important is that the charges payable are for providing of these facilities. In fact, the charges which are taken from the aircrafts for landing and even for parking of the aircrafts are not dependent upon the use of the land. Use of land, in the process, becomes incidental. Once it is held that these charges are not covered by Section 194-I of the Act, it is not necessary to go into the scope of Section 194-C of the Act. The protocol prescribes a detailed methodology of fixing these charges. The charges on air traffic which include landing charges, lighting charges, approach and aerodrome control charges, aircraft parking charges, aerobridge charges, hanger charges, passenger service charges, cargo charges, etc. are to be fixed applying the formulae stated therein. A reading thereof would clearly point out the cost anyalysis which is to be done for fixing these charges. Thus, when the airlines pay for these charges, treating such charges as charges for “use of land” would be adopting a totally naпve and simplistic approach which is far away from the reality. Therefore, it becomes very clear that the charges are not for the use of land per se and, therefore, it cannot be treated as “rent” within the meaning of Section 194-I of the Act.”
49. Therefore, we would think that 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 for the reasons, which we have already given and we are inclined to answer the substantial questions of law, which have been raised against the appellant Revenue and in favour of the assessee and we do
50. The Appeals will stand dismissed without any order as to costs.