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Issues: Whether payments made to transport agencies for buses supplied with drivers for carrying employees and their wards for fixed hours were liable for deduction of tax at source under section 194I as rent, or under section 194C as a contract for carriage of passengers.
Analysis: The arrangement showed that the assessee did not take the buses into its possession as leased plant or machinery. The transport agencies retained control of the vehicles, supplied drivers, maintained the vehicles, and were required to ply them for fixed hours to provide transportation service. The nature of the arrangement was therefore a contract for carriage of passengers and not payment of rent for hiring a plant. The Board's Circular No. 558 dated 28.3.1990 also supported the view that where a vehicle is given on hire with a driver for carrying passengers for fixed hours, the transaction falls under section 194C. Since clause (c) of the relevant explanation to section 194C specifically covers carriage of goods or passengers by any mode of transport other than railways, the more specific provision governed the case.
Conclusion: The payments were covered by section 194C and not by section 194I. The revenue's challenge failed, and the issue was decided in favour of the assessee.
Ratio Decidendi: Where a transport agency merely provides buses with drivers for carrying passengers for fixed hours, without transferring possession or control of the vehicles to the payer, the payment is for a contractual transport service under section 194C and not rent under section 194I.
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