Composite warehousing and logistics contracts fall under service TDS, and prior tax payment by deductees bars principal default demand.

Composite warehousing and logistics arrangements were treated as contracts for services, not mere leases of immovable property, because the agreement covered storage, handling, packing, dispatch and allied activities; the related payments were therefore subject to TDS under section 194C and not as rent under section 194I. Where the deductees had filed returns, included the sums in taxable income and paid tax, the deductor could not be treated as an assessee in default for the principal TDS demand, though interest for delayed remittance remained payable under section 201(1A).

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Issues: (i) Whether the payments made for warehousing and allied logistic services were liable for deduction of tax under section 194C or as rent under section 194I of the Income-tax Act, 1961; (ii) whether, in view of the deductees having offered the sums to tax and paid tax thereon, the assessee could be treated as an assessee in default under section 201.

Issue (i): Whether the payments made for warehousing and allied logistic services were liable for deduction of tax under section 194C or as rent under section 194I of the Income-tax Act, 1961.

Analysis: The agreements and supporting bills showed that the arrangement was not a mere lease of premises but a composite contract for warehousing, storage, handling, packing, dispatch and allied services. The income derived from warehousing activity was treated as business income and not income from house property. In such a case, the payments were for contractual services and not mere rent for immovable property.

Conclusion: The payments were correctly subjected to deduction under section 194C and not under section 194I.

Issue (ii): Whether, in view of the deductees having offered the sums to tax and paid tax thereon, the assessee could be treated as an assessee in default under section 201.

Analysis: The deductees had furnished their returns, taken the sums into account and paid tax. Once those conditions were satisfied, the deductor could not again be fastened with the principal tax demand for the same income. The department could, however, pursue interest for any delay in remittance as contemplated by section 201(1A).

Conclusion: The assessee could not be treated as an assessee in default for the principal TDS amount, though interest liability under section 201(1A) would remain permissible.

Final Conclusion: The Revenue's challenge failed because the payments were held to be contractual service payments and the principal TDS demand could not survive once the deductees had discharged tax on the same income.

Ratio Decidendi: A composite warehousing and logistics arrangement constitutes a contract for services rather than a mere lease of premises, and where the deductee has already paid tax on the income, the deductor cannot be treated as an assessee in default for the principal tax demand under section 201.

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