2011 (9) TMI 1038 - AT - Income Tax

Transportation Services Contract: ITAT Rules TDS under sec. 194C, Not 194I

Assistant Commissioner of IT Versus M/s. National Capital Power

The ITAT upheld the CIT(A)'s decision that the assessee's payments to travel agencies for transportation services should have TDS deducted under sec. ... Deduct TDS under sec. 194C or 194I - payments made to the transporters who have plied their busses for transporting the employees and their wards to different destination as per the agreement between the assessee and the transporters - Held that:- It is a simplicitor service contract for transportation of the passengers and it falls within the ambit of clause (c), Sr. No.(IV) of explanation appended to sec. 194C. The assessee has placed on record copy of a letter of award for hiring of busses. It has also placed on record copy of the contract entered on Ist of February 2008. On perusal of these documents, it reveals that assessee has just hired the transportation facilities which is akin to hiring of a taxi though on regular basis for a fixed number of hours. Before the Learned First Appellate Authority, assessee has made a reference to Circular No. 558 dated 28.3.1990 issued by the CBDT. In the circular, board has considered this aspect and was of the view that where a vehicle is given on hire along with provisions of a driver for use of carrying of the passengers for fixed hours than it is a service contract for carrying out the work. It will be covered under sec. 194C of the Act because the vehicle has been made available as a matter of service. Learned First Appellate Authority has considered this aspect while observing that it is a service contract and assessee was to deduct tax under sec. 194 C of the Act. Considering the order of Learned CIT(Appeals) and in view of the above discussion, we do not find any merit in this appeal. It is dismissed. Issues:1. Whether the assessee has to deduct TDS under sec. 194C or 194I of the Income-tax Act, 1961 on payments made to transporters for transporting employees.Analysis:The appeal was filed by the revenue against the order of the Learned CIT(Appeals) for assessment year 2008-09. The Assessing Officer initially observed that TDS should be deducted under sec. 194I for payments made to travel agencies for hiring vehicles. However, the CIT(A) held that the payments fall under sec. 194C, not 194I. The revenue contended that the buses were taken on lease and should be considered as plant, falling under sec. 194I. The assessee argued that it was a service contract for transportation, not a lease of plant. The assessee referred to a similar case before the Delhi High Court to support their position.The ITAT analyzed the nature of the contract between the assessee and the travel agencies. It was found that the assessee had hired transportation services, not leased the buses as plant. The contract required the travel agency to provide buses with drivers for a fixed number of hours, indicating a service contract for transportation. The ITAT considered Circular No. 558 issued by CBDT, which supported the view that such arrangements constitute service contracts falling under sec. 194C. The ITAT upheld the CIT(A)'s decision that TDS should be deducted under sec. 194C, dismissing the revenue's appeal.In conclusion, the ITAT ruled that the payments made by the assessee to travel agencies for transportation services were covered under sec. 194C, not 194I. The nature of the contract and the provision of services by the travel agencies indicated a service contract for transportation, not a lease of plant. The decision was pronounced on 23.09.2011.