Transport service contract, not rent, governs TDS on bus hiring with drivers and conductors for employee transport.

Payments for hiring buses with drivers and conductors to transport employees were treated as a transport service contract and not as rent for plant or machinery. The buses remained in the possession and control of the transporters, who handled maintenance and supplied the drivers and conductors, with operation confined to fixed hours. On those facts, the arrangement fell within section 194C, which covers carriage of passengers by any mode of transport other than railways, and not section 194I. The conclusion was that tax was deductible under section 194C, and the demand for short deduction under section 201 was not sustainable.

---

---

Issues: Whether payments made for hiring buses with drivers and conductors for transporting employees under a transport arrangement were liable for deduction of tax at source under section 194C of the Income-tax Act, 1961 or under section 194I of the Income-tax Act, 1961.

Analysis: The arrangement showed that the buses remained in the possession and control of the transporters, who were responsible for maintenance and for providing drivers and conductors, and the buses were to be operated for fixed hours. On these facts, the payment was for a transport service and not for taking a bus on lease as plant or machinery. The statutory explanation to section 194C specifically covers carriage of passengers by any mode of transport other than by railways, and the Board's Circular No. 558 dated 28.03.1990 supported the view that such an arrangement is a service contract. Section 194I, which deals with rent, was therefore inapplicable.

Conclusion: The payments fell within section 194C and not section 194I. The demand raised for short deduction of tax under section 201 was not sustainable.

---