2014 (8) TMI 462 - HC - Income Tax

High Court confirms Section 194-C applies to bus hire contracts for assessment years 2008-09 and 2009-10

The High Court upheld the Tribunal's decision, confirming the applicability of Section 194-C in bus hire contracts for the assessment years 2008-09 and ... TDS on hiring of Buses on kilometer running basis - Liability to deduct TDS u/s 194C r.w. Clause (c) of Explanation III – Held that:- The Tribunal has rightly held that the contract would indicate that the assessee has not taken possession of the buses - the Tribunal was correct in coming to the conclusion that the provisions of Section 194-C and not Section 194I of the Act were attracted - the agreement between the assessee and the transporters was not akin to the taking of any 'plant' or 'machinery' on lease or any other similar arrangement - the assessee had correctly deducted tax at source u/s 194C of the Act. The Tribunal has rightly noted that the buses belong to the contractor and were provided on hire to UPSRTC - The payment was to be made on kilometer basis - The contractor was responsible for bearing running cost, maintenance and incidental expenses including the salary of the driver - The contract contained a specific stipulation in respect of the total distance which could be traversed on any given operating day - The contract also provided that the vehicle would run on the route specified by the UPSRTC – Decided against Revenue. Issues:1. Applicability of Section 194-I2. Interpretation of Section 194-C3. Consideration of amendment under Section 194-I4. Definition of plant under Section 43(3)5. AO's order regarding Section 194-I applicabilityApplicability of Section 194-I:The case involved an appeal from a decision of the Income Tax Appellate Tribunal regarding the assessment years 2008-09 and 2009-10. The primary issue was whether the provisions of Section 194-I were applicable. The Tribunal confirmed that tax was correctly deducted under Section 194-C, not Section 194-I. The appellant argued that all the ingredients of Section 194-I were satisfied, but the Tribunal disagreed. The Tribunal held that Section 194-C was attracted based on the terms of the contract between the assessee and the owner of buses.Interpretation of Section 194-C:The Tribunal's decision was based on the contract terms, where the owner provided buses on hire on a kilometer running basis, responsible for running costs, maintenance, and providing a driver. The Tribunal applied Section 194-C with Explanation III, concluding that it was a service contract falling under Section 194-C, not Section 194-I. Circulars issued by the Central Board of Direct Taxes supported this interpretation, stating that Section 194-C applied to transport contracts, including contracts for plying buses.Consideration of Amendment under Section 194-I:The appellant raised the issue of an amendment under Section 194-I from 1.6.2007, arguing that it covered income paid on account of machinery/plant, equipment, and rents. However, the Tribunal's decision was based on the specific terms of the contract for bus hire, leading to the application of Section 194-C. The circulars issued by the Board further supported the Tribunal's interpretation regarding the applicability of Section 194-C to transport contracts.Definition of Plant under Section 43(3):One of the questions raised was about the interpretation of the definition of plant under Section 43(3). However, the judgment did not delve into this specific issue, as the focus was primarily on the applicability of Sections 194-I and 194-C based on the nature of the contract for bus hire.AO's Order Regarding Section 194-I Applicability:The Tribunal's decision to apply Section 194-C was in line with the AO's order, which found that the provisions of Section 194-C were correctly applied in the case of the assessee. The judgment clarified that the Department was bound by the circular interpreting Section 194-C, leading to the negative answer to the questions of law framed against the revenue and in favor of the assessee.In conclusion, the High Court upheld the Tribunal's decision, confirming the applicability of Section 194-C in the case of bus hire contracts, disposing of the appeals with no order as to costs.