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.
3. The learned Counsel for the assessee reiterated the submissions made before the authorities below and submitted the assessee correctly deducted TDS as per provision of section 1 94C of the IT Act. The AO wrongly applied the provisions of section 194-I of the IT Act in which vehicle hire charges have not been mentioned. The learned Counsel for the assessee relied upon the order of ITAT Ahmedabad “B” Bench in the case of M/s. Mukesh Travels Co. Vs ITO in ITA No.2594/Ahd/201 0 dated 25-2-2011 in which the Tribunal considering Explanation (iii) to Section 194C of the IT Act on the identical facts held that the payment of the same nature clearly falls within the scope of section 194C of the IT Act. The learned Counsel for the assessee also raised additional ground of appeal stating therein that the entire amount of tax has been paid by the payee; therefore, there is no loss to the revenue. Copy of the return of the payee is filed on record.
4. On the other hand, the learned DR relied upon the orders of the authorities below.
5. We have considered the rival submissions and the material available on record. The facts noted by the AO are not in dispute that the assessee had hired cars on fixed rent payment and TDS was deducted @ 2% treating the same as contract as per section 1 94C of the IT Act. The AO also noted that the assessee had made vehicle hire charges payment in connection with plying of employees from one place to another. It was also noted by the AO that vehicles are owned and maintained by contractors. The assessee paid fixed payment for use of the hired cars and all the expenses are borne by the contractors. It is also admitted fact that the assessee is a local authority. The provisions of section 1 94C of the IT Act is applicable to the assessment year under appeal provided (a) any person responsible for paying any sum to any resident ((b) any local authority (as the assessee is) referred to as a contractor for carrying out any work in pursuance of the contract between the contractor and the local authorities etc., shall at the time of credit of such sum to the account of the contractor or at any time of payment thereof in cash or issue of a cheque or draft or by any other mode whichever is earlier, deduct an amount equal to, (i) 1% in case of “advertising”, (ii) or in any other case 2%, of such sum as income tax or income comprised therein. The definition of “work” has been provided in Explanation (iii) to Section 1 94C of the IT Act which provides for the purpose of this section, 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 railways,
The AO admitted that the assessee had hired the cars on fixed rent payment owned and maintained by contractor. The assessee paid vehicle hire charges and all the expenditure are borne by the contractor. It is also admitted fact that vehicle charges were paid in connection with plying of employees from one place to another. Thus, it implies that the passengers were transported by the drivers and vehicles of the vehicle owner/contractor and in consideration of that the vehicle owners/contractors were paid by the assessee the fixed amount. Therefore, sub-clause (c) to Explanation (iii) of the provisions of Section 194C of the IT Act would apply in the case of the assessee. In our opinion the above payment of vehicle hire charges clearly falls within the scope of section 194C of the IT Act. The assessee, therefore, correctly deducted tax thereof as per the provisions of section 194C (Explanation (iii) (c)) of the IT Act. Same view is taken by ITAT Ahmedabad “B” Bench in the case of M/s. Mukesh Travels Co. (supra) copy of which is placed on record. The AO however, noted that the provisions of section 194-I of the IT Act would apply in the matter being rent paid to the contractor which provides as under: (prior to amendment w. e. f. 1-10-2009)
“194-I Any person, not being an individual or a Hindu undivided family, who is responsible for paying 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) ten per cent for the use of any machinery or plant or equipment; and
(b) fifteen 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 where the payee is an individual or a Hindu undivided family; and:]]
(c ) twenty percent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings where the payee is a person other than an individual or a Hindu undivided family.”
Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed one hundred and twenty thousand rupees :
[Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section.]
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;]
(ii) where any income is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.]
The above definition of rent does not provide any item for vehicle hire charges. Therefore, provisions of section 194-I has been wrongly applied in the matter by the AO. Considering the above discussions we are of the view that the authorities below have wrongly applied the provisions of section 194-I of the IT Act in the matter. We accordingly, set aside the orders of the authorities below and delete the demand and the interest thereon for shortfall as noted by the AO on this issue.
In view of the above finding, there is no need to admit the additional ground of appeal of the assessee.
6. In the result, the appeal of the assessee is allowed
Order pronounced in the open Court on 10-03-2011