TaxTMI 
TaxTMI 
2018 (4) TMI 142
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.... the other hand, the case of the respondent assessee is that its case falls under Section 194C of the Act. 3. The Assessing officer, on a conspectus of the terms of the contract as he understood it, came to the conclusion that the respondent assessee is obliged to deduct tax under Section 194-I of the Act. This view of the Assessing Officer did not find favour with the first Appellate Authority, who came to the conclusion, on his understanding of the contract, that the tax must be deductible under Section 194C and not under Section 194-I. The decision of the first Appellate Authority has found favour with the Appellate Tribunal and hence, the present Appeals. 4. We heard Mr. H.M. Bhatia, learned counsel for the Revenue and Mr. V.K. Kohli, learned Senior Counsel assisted by Mr. Kanti Ram, learned counsel appearing on behalf of the respondent. 5. Mr. H.M. Bhatia, learned counsel for the Revenue, who took us through the order of the Assessing Officer, would submit that the Assessing Authority has correctly appreciated the provisions in the contract and has rightly come to the conclusion that the provisions of Section 194-I would apply. He would emphasize that in this case, th....
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....n, which means that an agreement has been drawn between the two parties to transport the products of the first partly irrespective of its location / loading site whereas in a work contract the work is defined for completing a task with specific amount of goods and services. Similarly in clause 2c & 2d, the services utilized by the company amply proves that the tank trucks are being hired for carrying out the work of transportation from different loading locations. As per Clause 2e, the company has right to change the basis of loading of tank truck that is volume to weight or vice versa for which the transportation rates shall also be altered accordingly. This clause of agreement again shows that the contractor company has the right to use the vehicle for the transportation of its product depending upon the basis of loading which may be volume wise or weight wise, whereas in work contract the contractor company could have asked the carrier to provide to transport a fixed quantity of product from one point to another against fixed charges payable to him. The clause No. 3 of the agreement emphasizes upon identification of particular trucks which will be list....
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.... other words, it can be firmly said that the particularly specified plant and machinery belonging to the carrier is being hired for a particular period which clearly falls within the purview of section 194 I of the I.T. Act. In clause 5a to 5e, the agreement has been drawn fixing responsibility of the carrier for salary to crew members, taxes, insurance, cost of fuel, lubricant etc. and also any loss or damage to the tank truck during the period of agreement. This type of clause is prevalent in almost all types of hiring agreement so such clause does not prove that the carrier services had not been taken as work contract whereas it further proves that the agreement is drawn for hiring of vehicle and not for executing a particular type of work. Clause 6 of the agreement defines billing cycle, route, rate etc, which also shows that the agreement is of hiring. In a work contract such type of clause could not have been included which otherwise would have been in plain text mentioning therein that a minimum of such amount will be paid for transporting a particular quantity of product from a particular location to another within a time frame. Clause 6e further ....
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....nk trucks on their return trip based on company's own operational convenience / requirement for delivery of petroleum product (clause 6e). Maintain in sought mechanical conditions and having all the fittings up to the standards laid down by the company from time to time (clause 3a), meeting requirements of the company as regards safety and operational norms (clause 3b) etc. The operator has simply given vehicles for use of the deductor company i.e. IOC in a manner it wants to use these vehicles as terms and conditions are completely being governed by the IOC." 8. After referring to the Explanation to Section 194-I of the Act, the Assessing Officer came to the conclusion that it can easily be made out that the language or terms of the agreement are not important but important is the use of the plant. Rent means payment by whatever name he reasons He then referred to the definition of "plant". Ships, vehicles, books, specific apparatus and surgical equipment used for the purposes of the business or profession are included in the definition of "plant". It was held that the payment has been made essentially for hiring of trucks / tankers, which have been given in exclusive possessio....
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....n contract may have strapping of a hiring arrangement and vice versa. Hence, facts of each case have to be examined carefully to decide the real nature of the arrangement. 1.8 One crucial thing to do while determining whether the arrangement is of hiring or for transportation is to see who is doing the transportation work. If the assessee takes the trucks and does the work of transportation himself, it would amount to hiring, on the contrary, transportation is done by the Carrier, it would amount to transportation contract. In the former situation, stray aberration such as the carrier providing for the services of staff and incurring incidental expenses won't alter the basic nature of arrangement. Similarly, in the latter situation, stray aberrations like the vehicles being specific and even customized and being run under the assessee's regulation and control won't alter the basic nature of the contract. The assessee is in the business of refining crude oil and storing, distributing and selling of the petroleum products, which includes / involves transportation of its bulk petroleum products. But, it does not have its own tank-trucks nor does it have the wherewithal for ac....
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....titution w.e.f. 01.10.2009, inter alia, reads as follows: "194C. Payments to contractors.-(1) Any person responsible for paying any sum to any resident (hereinafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- (i) one per cent, where the payment is being made or credit is being given to an individual or a Hindu undivided family; (ii) two per cent, where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein." 14. We may also notice clause (iv) of Sub-section (7), which defines "work". The same reads as under: "(iv) "work" shall include- (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting o....
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....eration involved in the contracts in these cases constitutes "rent" for the use of plant. As we have already noticed, plant will include vehicles. The vehicles, therefore, made available by the Carrier to the respondent assesseee were for the use of the respondent assessee and they would, therefore, fall within the four corners of Section 194-I of the Act, runs the argument. 19. On the other hand, the more appropriate provision or the correct provision, which would embrace within its scope a contract of the nature, which we are dealing with, according to the assessee, is Section 194-C of the Act as it deals with the deduction of tax at source in respect of payment made to a contractor for carrying out any work and "work" has been defined as including carriage of goods or passenger by any mode of transport other than by Railways. Therefore, the question, which we may consider and decide is whether it is a case of a Carrier in these cases doing work as understood in the expanded definition given to "work" in the Section (Section 194-C) namely, carriage of goods in these cases or whether it is a case of use of the vehicles by the respondent assessee. In order to resolve this contro....
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....se of any disputes arising out of such movements the terms and conditions including Arbitration Clause of this Agreement would be applicable. (d) In case of exigency, Company Would be entitled to utilisese any Tank Truck attached to a particular loading location for movements of the petroleum products from another loading location to Company's Retail Outlets / Consumers / other receiving locations which are normally fed from that base loading location, where the Tank truck is contracted. In such event, the rate as detailed in LOI / Work Order issued to the Carrier at the base loading location shall be applicable. In case of any disputes arising out of such movements, the terms and conditions including Arbitration Clause of this Agreement would be applicable. (e) In case the Company desires to change the basis of loading of Tank Truck i.e. volume to weight or vise- versa, the transportation rates shall be altered considering the standard conversion factors applied by the Company. (f) Company shall be free to engage one or more additional Carriers either to run concurrently or separately, for transportation Jobs from the same loading locations." 22. Clau....
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....repair etc; iv) Caliberation fees and other fee payable to Weights & Measures Department. v) Compensation or any other benefit payable to Tank Truck Crew and its other staff or third party under any statute or regulation both under regular working and arising from accident etc." 26. Next, we may pass on to Clause 6. Since much may turn on the relevant parts of this Clause, we extract Clause 6(a) upto 6(h): "6 (a) The Company will pay to the Carrier for the transportation work undertaken from the loading location and at the rates detailed in LOI/Work Order. This rate shall be valid for all roads and weather conditions and are calculated from loading location. (b) The above rates are subject to escalation/de-escalation as per formula given in Schedule-A&B. (c)(i) Octroi charges levied on the product would be reimbursed by the Company against production of original receipts. (ii) Entry/Transit/Bridge/Toll (pathkar) taxes paid by the Carrier for their Tank Trucks while transporting petroleum products under this Contract would be reimbursed by the Company on round-trip basis subject to production of original receipts for payment. ....
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....ng Officer, as we have already noticed, has relied on some provisions of the contracts. We may pose the question as to whether he was right in his understanding of the contracts. In the first place, he refers to Clause 2(a) and reasons that under the said Clause, it is specifically agreed upon that the tank trucks would be attached to a particular loading location and, according to him, it proves that the tank trucks have been hired to ferry the product of the company from one point to another. According to him, in a work contract, the Carrier operator would have been asked to make arrangement for transporting the said product from one specific point to another and he ends the said paragraph by stating that in the instant case, the truck operator is not being paid fixed amount for transporting the product from one place to another but is being hired and paid for full time. 30. We must pause here and pose a question as to whether the aforesaid finding can be supported by the Clauses in the contracts or it betrays non-application of mind to various provisions of the contracts and has resulted in a completely erroneous understanding of the contracts. In this regard, we must first a....
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.... of petroleum products; they require trucks for road transportation of bulk petroleum products and the Carrier was engaged in the business of transportation and apparently it evinced its interest in the transportation job. We cannot also be oblivious to the profuse use of the word "transport" in various clauses, which we have referred to. They go a long way in assuring us that the view, which we take, is in conformity with the clear intention of the parties. 31. Next, we may consider the further reasoning of the Assessing Officer with reference to Clause 2(b). Clause 2(b), the Officer reasoned, specifically mentions about automatic reattachment of the tank truck to a new location in the event of change of loading location, and then according to the Officer, it means that an agreement has been drawn between the two parties to transport the products of the first party irrespective of its location / loading site, and he contrasts it with a work contract stating that in a work contract the work is defined for completing a task with specific amount of goods and services. Here, we must pose a question as to whether the understanding of the Assessing Officer betrays his appreciation of....
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.... how the change in the right, which is based on volume to weight has anything to do with the question as to whether it is Section 194-I and Section 194-C, which applies. The modern transportation contracts are fairly complex having regard to various requirements, which fall to be fulfilled by the contracting parties. Here, the goods to be transported are petroleum products. The petroleum products are subject to severe control under various laws both having regard to the nature of the product (being highly inflammable), and imperative necessity for keeping up the even tempo of the nation and it is, therefore, that quite clearly the respondent Company has set various conditions on the transporters. In fact, contract appears to us to be a standard contract and the transporters would necessarily have to fall in line. May be they have to sign on the dotted line and the restrictions, which are put therein, are only to be understood in the said vein. 33. Again, we notice with reference to Clause 2(e), the Assessing Officer uses the words "work contract" and he would reason that the Company could have asked the Carrier to provide a fixed quantity of products from one point to another ag....
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....tract of the use of the vehicle (being plant) and whether there is use as such by the Company or whether it is a case of goods of the Company being transported in the vehicles, which are made available by the Carrier and most importantly, as to whether who carries out the transport. It is not in dispute that the entire operations are done by the Carrier in terms of the contract. He employs the drivers and other personnel; he pays them. He is responsible in respect of the vehicles. All risks are to be undertaken by the Carrier. He only transports them subject to the restriction that he will not use it for any other purposes during the period of the agreement. By the fact that he exclusively uses it for transporting the goods belonging to the Company, one cannot draw the inference that this is a case, which involves the use of the vehicles as such by the Company. Here, we may contrast with the situation where the vehicles are made available by the owner or the person in possession to a Company like the respondent assessee and it passes to its exclusive control and it employs its own employees and maintains it while it is in exclusive possession and does the act of transporting of its....
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....d on the erroneous basis that irrespective of work done by the Carrier, it will get paid, which is not the case. The Assessing Officer has, in fact, not referred to Clause 8. It reveals that the Carrier is responsible for loading and discharging of the tank trucks. No doubt, the instructions of the Company with regards to the sale is binding on the Carrier. We notice this clause for the reason that it is unlike the situation prevailing in the facts, which were considered by the Kerala High Court in the case of Central Board of Direct Taxes vs. Cochin Goods Transport Association reported in 1999(236) ITR 993. Before the Kerala High Court, it was simply a case of transporting and there was no loading and unloading. Therefore, the case of the assessee was that it would not fall under Section 194-C. This argument was repelled. That is to say even an ordinary contract for transport would suffice to bring it within the purview of Section 194-C. In this case, the contract itself provides that the Carrier is saddled with the liability to do the loading and discharging of the tank trucks. Therefore, it goes a step further where it undertakes also to carry out the loading and the unloading o....
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...., in the order, the Officer has also referred to Clause 1. Much has been sought to be made out of Clause 1, as per which, no doubt the Carrier is to make available the trucks and the Company is to have the exclusive right to use the tank trucks throughout the contract period. Therefore, according to the Officer, it is provided against hiring and not against any specific work / specific quantity of goods to be transported. 43. No doubt, the words used are that "the Company is to have the exclusive right to use the truck". 44. The learned Senior Counsel Mr. V.K. Kohli would point out that what is meant is that the Trucks will be made available. The vehicles are to be maintained by the Carrier. According to the LOI i.e. letter of intent, apparently the Carrier is to make available the Trucks of the requisite quantity, which are identified and appropriated towards the contract for being operated in accordance with the needs and for the purpose of the work. Undoubtedly, in that sense it is for the use of the Company. But the issue is whether it is a use as understood under Section 194-I or whether it is a case of transporting the goods under Section 194-C. We have noticed the term....
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....e or tenancy, the nomenclature which is given is inconsequential. Such payment under lease, sub-lease and/or tenancy would be treated as "rent". In the second place, such a payment made even under any other "agreement or arrangement for the use of any land or any building" would also be treated as "rent". Whether or not such building is owned by the payee is not relevant. The expressions "any payment, by whatever name called" and "any other agreement or arrangement" have the widest import. Likewise, payment made for the "use of any land or any building" widens the scope of the proviso. A bare reading of the definition of "rent" contained in the Explanation to Section 194-I would make it clear that in the first place, the payment, by whatever name called, under any lease, sub-lease, tenancy, is to be treated as "rent". That is rent in traditional sense. However, the second part is independent of the first part which gives much wider scope of the term "rent". As per this, agreement or arrangement, that is also to be treated as "rent". Once such a payment is made for the use of land or building under any other agreement or arrangement, such agreement or arrangement gives the ....