Income Tax Appellate Tribunal - Ahmedabad
Executive Engineer(Rural),, Valsad vs Department Of Income Tax on 30 October, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD
"B" BENCH
Before: Shri D.K. Tyagi, Judicial Member and
Shri T.R. Meena, Accountant Member
I.T.A. No.3176/Ahd/2010
A.Y. 2009-10
The Income Tax Vs. The Executive Engineer (Rural),
Officer (TDS), Dakshin Gujarat Vij Co. Ltd.
Valsad N.H.-8, Near Grid,
Kabilpora, Navsari
Appellant Respondent
Department by : Shri Y.P. Verma, Sr. D.R.
Assessee by : Written submissions
Date of hearing : 30.10.2012
Date of p ronouncement : 23.11.2012
आदे श/ORDER
PER : D.K. TYAGI, JUDICIAL MEMBER
This is Revenue's appeal against the order of ld. CIT(A), Valsad dted 31.08.2010.
2. Revenue has taken following effective grounds of appeal:-
"1. The ld. CIT(A) erred in law as well as facts of the case in deleting the order passed u/s 201(1) of Rs.3,66,488/- & interest charged U/s 201(1A) of the I.T. Act of Rs.41,557/- respectively for A.Y. 2009-10 by the A.O.
2. The ld. CIT(A) erred in not considering the fact that after 13.7.2006 the provision of 1941 is applicable on hiring charges of vehicle which cover uses of plant and machinery and not the provision of 194C of I.T. Act."
3. Brief facts of the case are that during the assessment proceedings the A.O. observed that the assessee has made the payment on account of I.T.A. No.3176/Ahd/2010 A.Y. 2009-10 2 hiring charges of vehicles for the period from 01.04.2008 to 31.01.2009 on which TDS was deducted @ 2% treating the same as contract u/s 194C of the Act. The A.O. was of the view that since the hiring vehicles are coming under the purview of section 194I of the Act, tax was required to be deducted u/s 194I @ 10% plus surcharge & Education Cess applicable. Accordingly, short deduction of tax u/s 194I was worked out for the different wings of the appellants. The A.O. observed that the appellant "assessee in default" for the alleged short deduction of tax at source from vehicle hire charges under section 194I of the I.T. Act and thereby invoked provisions of Sec.201(1) and 201(1A) of the I.T. Act, 1961.
4. In appeal ld. A.R. submitted that assessee is making payment of vehicle hire charges in ters of the contract entered into with the party. In terms of the said contract the party supplies the vehicles as and when required along with the drivers etc. Further, the repairs and maintenance of the vehicle is also the responsibility of the contractor. The copies of the agreement/contracts are enclosed, which are placed on record. Thus, the assessee deducted TDS u/s 194C of the I.T. Act from the payments made to the contractor. However, the learned Assessing Officer has taken the view that the provisions of section 194I are applicable to the payments made. This view has come up because of overlapping appearance of two provisions viz. section 194C and 194I of the I.T. Act. Consequent to the amendment section 194I with effect from 14.6.2006, the explanation regarding meaning of rent was substituted to include payment for use of land, building, machinery, plant, furniture, equipment or fittings. But the attention is drawn to the clarification issued in Circular No.558 dated March 28, 1990(1990)183 ITR I.T.A. No.3176/Ahd/2010 A.Y. 2009-10 3 (St.) 158, wherein, the Board has conceded that where a vehicle is given on hire along with the provision of a driver and a conductor with the remuneration for use being fixed for the number of hours such vehicle is made available, it is a service contract for carrying out the work, so that it will be covered u/s. 194C of the Act. Therefore, although, section 194I, now cover amount of rent or any other payment for the use of any plant, machinery or equipment which will no doubt include vehicles, it should be treated as confined to a case where vehicle alone is given on hire and not where service by running the vehicle is made available. Although, the circular referred to by us is one issued prior to the amendment to section 194I with effect from July 14, 2006, the issue remains whether it is a case of hiring out a vehicle or rendering a service by making available the vehicle. These are two distinct contracts. There is, therefore, justification for our inference that, where the vehicle is made available as a matter of service, the Board's Circular No.558 dated March, 29, 1990(1990) 183 ITR (St.) 158 would continue to have application. The Circular has not been revoked. At any rate, the reasoning in the Circular would indicate that the inference drawn therein does not get superseded by the amendment, which cannot cover which is squarely a service contract for work so that in such cases tax deduction should continue to be governed by section 194C and not under section 194I of the I.T. Act. It may also be noticed that Explanation-III inserted under sec. Sec. 194C(2) deems work to include "carriage of goods and passengers by any mode of transport other than by railways". This amendment made with effect from July 1,1995 which is subsequent to the Circular, supports the Circular. Such transport contract and not mere contract of if vehicle can be understood as I.T.A. No.3176/Ahd/2010 A.Y. 2009-10 4 being governed by Sec. 1940(2) Explanation-III, which being a special clause should override Sec. 194I. It is further submitted that the provision under section 194C is for any kind of work contract whereas the provision under section 194I is for payment for use of things as stated in Explanation under section 194I. This is the fundamental difference between the two provisions.
5. After taking into consideration these submissions, ld. CIT(A) allowed the appeal of the assessee by observing as under:-
"I have considered the submissions of the learned AR and facts of the case carefully. It was also brought to my notice by the Id. AR that similar issues, on appellant's own case, were decided by the Id. CIT(A)-VI, Baroda vide Apeal No. CAB/VI-23/O9-1O dated. 29.10.2009 in favour of the appellant. A copy of the order was submitted before me. The Id. CIT(A)-VI, Baroda held that "The vehicles were hired by the appellant as per the service contract. The contractor provides vehicles with driver. The vehicles were put at the disposal of the appellant and charges were collected as per the usage of the vehicles. The vehicles were never put at the disposal of the appellant but only services, driven by the drivers provided by the contractor. The maintenance, fuel expenses, keeping the vehicles in perfect running conditions etc. were the look out of the contractor, but not that of the appellant. In the Act, car or vehicles were included under the head plant and machinery and as such the AO must have been under the impression that cars or vehicles are plant and machinery for the purpose of deducting the tax at source. As commonly understood, plant or machinery has to produce things or articles as outputs from inputs of raw materials, where as such a thing is not found in hiring of cars or vehicles in the case of the appellant. The cars or vehicles transport employees of the appellant from placed to place, say, from residence to workplace and back as per the time schedule of the contractee. Since, the car or vehicles are placed at the disposal of the appellant, in addition to the transport of employees from residence to workplace ; it may be used for any other business purpose as deemed necessary by the appellant. In view of this factual matrix, there is no hesitation in treating the above contract as one for rendering services, rather than hire for vehicles. As already pointed out, car or vehicle could by I.T.A. No.3176/Ahd/2010 A.Y. 2009-10 5 no stretch of imagination be considered as a plant or machinery as the facts involved in this case suggests. Thus, I am of the opinion that the AO was not justified in applying the provisions of section 194I, instead of the provisions of section 194C, as applied by the appellant".
There is no dispute that the facts and circumstances existed are same. Therefore, respectfully following the said order of the Id. CIT(A)-VI, Baroda, I am of the opinion that the AO was not justified in applying the provisions of section 194I, instead of the provisions of section 194C, as applied by the appellant". Accordingly, the AO is directed to delete the tax and interest charged in these grounds of appeal. Thus, the grounds are allowed.
6. At the time of hearing both the parties agreed that the issue involved in this appeal is covered by the decision of this Tribunal in the case of Ahmedabad Urban Development Authority vs. ACIT in ITA No.1637/Ahd/2010 wherein following was held:-
"We have considered the rival submissions and the material available on record. The facts noted by the AO are not in dispute that the assessee had hired cars on fixed rent payment and TDS was deducted @ 2% treating the same as contract as per section 194C of the IT Act. The AO also noted that the assessee had made vehicle hire charges payment in connection with plying of employees from one place to another. It was also noted by the AO that vehicles are owned and maintained by contractors. The assessee paid fixed payment for use of the hired cars and all the expenses are borne by the contractors. It is also admitted fact that the assessee is a local authority. The provisions of section 194C of the IT Act is applicable to the assessment year under appeal provided (a) any person responsible for paying any sum to any resident ((b) any local authority (as the assessee is) referred to as a contractor for carrying out any work in pursuance of the contract between the contractor and the local authorities etc., shall at the time of credit of such sum to the account of the contractor or at any time of payment thereof in cash or issue of a cheque or draft or by any other mode whichever is earlier, deduct an amount equal to, (i) 1% in case of "advertising", (ii) or in any other case 2%, of such sum as income tax or income comprised therein. The definition of "work" has been provided in Explanation (iii) to I.T.A. No.3176/Ahd/2010 A.Y. 2009-10 6 Section 194C of the IT Act which provides for the purpose of this section, expression "work" shall also include:
(a) Advertising,
(b) Broadcasting and telecasting including production of programmes for such broadcasting or telecasting,
(c) Carriage of goods and passengers by any mode of transport other than railways,
(d) Catering.
The AO admitted that the assessee had hired the cars on fixed rent payment owned and maintained by contractor. The assessee paid vehicle hire charges and all the expenditure are borne by the contractor. It is also admitted fact that vehicle charges were paid in connection with plying of employees from one place to another. Thus, it implies that the passengers were transported by the drivers and vehicles of the vehicle owner/contractor and in consideration of that the vehicle owners/contractors were paid by the assessee the fixed amount. Therefore, sub-clause (c) to Explanation (iii) of the provisions of Section 194C of the IT Act would apply in the case of the assessee. In our opinion the above payment of vehicle hire charges clearly falls within the scope of section 194C of the IT Act. The assessee, therefore, correctly deducted tax thereof as per the provisions of section 194C (Explanation (iii) © of the IT Act. Same view is taken by ITAT Ahmedabad "B" Bench in the case of M/s. Mukesh Travels Co. (supra) copy of which is placed on record. The AO however, noted that the provisions of section 194-1 of the IT Act would apply in the matter being rent paid to the contractor which provides as under: (prior to amendment w. e. f. 1-10-2009) "194-1 Any person, not being an individual or a Hindu undivided family, who is responsible for paying to [a resident] any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, [deduct income-tax thereon at the rate of-- [(a) ten per cent for the use of any machinery or plant or equipment; and
(b) fifteen per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings where the payee is an individual or a Hindu undivided family; and:]]
(c) twenty percent for the use of any land or building (including factory building) or land appurtenant to a building (including I.T.A. No.3176/Ahd/2010 A.Y. 2009-10 7 factory building) or furniture or fittings where the payee is a person other than an individual or a Hindu undivided family." Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed one hundred and twenty thousand rupees:
[Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section.] Explanation.--For the purposes of this section,--
[(i) "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,--
(a) land; or
(b) building (including factory building); or
(c) land appurtenant to a building (including factory building); or
(d) machinery; or
(e) plant; or
(f) equipment; or
(g) furniture; or
(h) fittings, whether or not any or all of the above are owned by the payee;]
(ii) where any income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.] The above definition of rent does not provide any item for vehicle hire charges. Therefore, provisions of section 194-1 has been wrongly applied in the matter by the AO. Considering the above discussions we are of the view that the authorities below have wrongly applied the provisions of section 194-1 of the IT Act in the matter. We accordingly, set aside the orders of the I.T.A. No.3176/Ahd/2010 A.Y. 2009-10 8 authorities below and delete the demand and the interest thereon for shortfall as noted by the AO on this issue. In view of the above finding, there is no need to admit the additional ground of appeal of the assessee."
7. Respectfully following the above, the order passed by ld. CIT(A) is hereby upheld.
8. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in open Court on 23.11.2012
Sd/- Sd/-
(T.R. Meena) (D.K. Tyagi)
Accountant Member Judicial Member
True copy
N.K. Chaudhary, Sr. P.S.
Copy of the Order forwarded to:
1. The applicant
2. The Respondent
3. The CIT Concerned
4. The Ld. CIT (Appeals)
5. The DR, Ahmedabad
6. The Guard File
By order
AR,ITAT,Ahmedabad