IT: Where assessee-school awarded contract to transporter for carrying students to/from school and agreement showed that bus remained in possession of transporter and all costs for running and maintenance had to be incurred by transporter, such transport contract would be covered under section 194C and not section 194-I
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[2013] 37 taxmann.com 211 (Delhi - Trib.)
IN THE ITAT DELHI BENCH 'B'
Assistant Commissioner of Income-tax (TDS)
v.
Delhi Public School*
U.B.S. BEDI, JUDICIAL MEMBER
AND T.S. KAPOOR, ACCOUNTANT MEMBER
AND T.S. KAPOOR, ACCOUNTANT MEMBER
IT APPEAL NOS. 4878 & 4879 (DELHI) OF 2012
[ASSESSMENT YEARS 2008-09 & 2009-10]
[ASSESSMENT YEARS 2008-09 & 2009-10]
MAY 24, 2013
Section 194C, read with section 194-I, of the Income-tax Act, 1961 - Deduction of tax at source - Contractors/sub-contractors, payments to [Transport contract] - Assessment years 2008-09 and 2009-10 - Assessee-school awarded contracts to various transporters for carrying its students from their homes to school and from school to homes - It deducted tax under section 194C for making payments, to bus owners - Assessing Officer relying upon provisions of section 194-I read along with section 43(3) held that hiring of a vehicle will come into provisions of section 194-I and, therefore, assessee should have deducted tax under section 194-I - Commissioner (Appeals) having found that contract was on a per-trip basis for specified route, that buses remained in possession of transporter and all costs incurred for running and maintenance of buses were incurred by transporters, held that contract was in nature of transport agreement and not for hiring of vehicles covered by section 194C and not section 194-I - Whether there was no infirmity in order of Commissioner (Appeals) - Held, yes [Para 6] [In favour of assessee]
CASE REVIEW
Lotus Valley Education Society v. Asstt. CIT (TDS) [2011] 46 SOT 77/10 taxmann.com 46 (Delhi) (para 6) followed.
CASES REFERRED TO
Lotus Valley Education Society v. Asstt. CIT (TDS) [2011] 46 SOT 77/10 taxmann.com 46 (Delhi) (para 5).
Sanjeev Kavatra for the Appellant. Mrs. Y. Kakkar for the Respondent.
ORDER
1. These are two appeals filed by the Revenue against the order of the Commissioner of Income-tax (Appeals), Noida, dated June 14, 2012 for the assessment years 2008-09 and 2009-10. Similar grounds of appeals has been taken in both appeals and main grievance of the Department is that the assessee was required to deduct TDS under the provisions of section 194-I and the Commissioner of Income-tax (Appeals) has wrongly allowed relief to the assessee. For the sake of convenience the grounds of appeal as appearing in the assessment year 2008-09 are reproduced below :
| "1.1 | The Commissioner of Income-tax (Appeals) has erred on facts and in law in cancelling the order dated June 14, 2012 passed by the Assistant Commissioner of Income-tax (TDS), Noida and in directing that the provisions contained in section 194C is applicable on the payment made by M/s. Delhi Public School, Sector-30, Noida for hiring of buses, ignoring the fact of the case that the deductor company is liable to deduct tax under section 194-I with effect from June 1, 2007. | |
| 1.2 | In directing so, the learned Commissioner of Income-tax (Appeals) has failed to appreciate the following : |
| (i) | Section 194-I(a) (introduced with effect from June 1, 2006) is applicable and the Board Circular No. 558 ([1990] 183 ITR (St.) 158) (dated March 28, 1990) is not applicable as it was issued prior to the introduction of section 194-I. | |
| (ii) | Sub-clause (a) of section 194-I clearly mention 'ten per cent. for the use of any machinery of plant or equipment' and section 43(3) provides inclusion of vehicle under plant. Thus the Assessing Officer has applied the provisions of section 194-I read with section 43(3) of the Income-tax Act." |
2. The brief facts of the case are that the assessee is a school. It had taken on hire vehicles, which were used for carrying students from their homes to school and from school to homes. The assessee has deducted tax under section 194C for making payments to bus owners in view of contracts entered into by it with them. The Assessing Officer relying upon the provisions of section 194-I read along with section 43(3) of the Income-tax Act, held that plant includes vehicles and, therefore, with effect from June 1, 2007, the hiring of a vehicle will come into provisions 194-I and, therefore, the assessee should have deducted tax under section 194-I. The assessee pleaded that the payments made by the assessee were on account of specific contracts with the contractors who were awarded the work concerning the transportation of children. Driver and contractor were also appointed by the contractor. It was also submitted that after the school the trips were over the contractors were free to utilise the vehicle for any manner and for any purpose. It was further submitted that in no manner the school was using vehicles other than for or the carrying out transportation of school children. The Assessing Officer however held that the name of the school was written on the buses and buses were in the exclusive possession of the school and the transporter can, in no case ply the buses other than for school purposes. Thus, it was a clear case of payments which were essentially made for hiring of buses. In view of the above, the Assessing Officer calculated the difference in the amount of tax as was required to be deducted under section 194-I and as per the provisions of section 194C.
3. Aggrieved with the order, the assessee filed appeal before the Commissioner of Income-tax (Appeals) and reiterated its submissions before the Commissioner of Income-tax (Appeals). The complete provisions of section 194-I were explained and on the basis of provisions it was argued that the assessee was required to deduct the tax under section 194C which it had deducted correctly and deposited within time. The assessee also relied upon certain case laws, which were in favour of the assessee. After going through the submissions made by the assessee, the learned Commissioner of Income-tax (Appeals) decided the matter in favour of the assessee by holding as under :
| "1. | From a careful perusal of copies of transport contracts entered into by the assessee with the different transporters/contractors and placed on record by the appellant it is found that the contract has been awarded to various transporters for transportation of students to/ from school. The contract is on a per-trip basis for specified route. The rates per trip are frozen for a period of one year. The vehicle, i.e., the school bus remains in possession of the transporter and the staff required to operate the vehicle is also engaged by the transporter. All costs incurred for running and maintenance of buses including the salaries of driver and conductor have to be incurred by the transporter. Once the trips made by these buses for carrying and dropping children from/ to school are complete, the transporter is at liberty to use the vehicle in any manner. | |
| 2. | Based upon the above facts it clearly emerges that the contract between the appellant and the transporter contractor is in the nature of a work contract whereunder services have been rendered by the transport contractor it also needs to be emphasised that the appellant itself has not utilised the buses but they were used by the transport contractors for fulfilling the obligations set out in the contract agreement. | |
| 3. | After carefully considering various clauses of the sample contract agreement it becomes abundantly clear that the arrangement in terms of the aforesaid agreement is of the nature of transport agreement and not one for hiring of vehicles, the agreement being for transportation of students to/from school. | |
| 4. | In view of the above, I am of the considered view that given the facts of the present case, the provisions of section 194-I of the Income-tax Act are not applicable since the expression plant and machinery used in Explanation to section 194-I refers to plant and machinery used by the assessee in its business by hiring them but not hiring of transport services. | |
| 5. | It is also noteworthy that clause (iv) of the Explanation to section 194C of the Act defines "work to include carriage of goods and passengers by any mode of transport other than by railways". As per the transport contracts entered into by the appellant, the activity of transport contractor will be a simple activity of carriage of passengers by any mode of transport other than by railways. Thus such transport contracts would be covered by section 194C and not section 194-I. | |
| 6. | The argument raised by the appellant that buses are not covered by the definition of the term plant and machinery as used in section 194-I is also correct. The reliance placed by the Assessing Officer on the definition of the term plant and machinery in section 43(3) of the Income-tax Act is misplaced since the said definition is only relevant for the purposes of sections 28 to 41. | |
| 7. | The issue involved in the instant appeal is also covered by the following decision of the Income-tax Appellate Tribunal relied upon by the appellant in its written submissions. |
| (a) | Lotus Valley Education Society v. Asstt. CIT (TDS) [2012] 13 ITR (Trib) 61 (Delhi) ; | |
| (b) | Ahmedabad Urban Development Authority v. Asstt. CIT [2012] 13 ITR (Trib) 73 (Ahd) ; | |
| (c) | Asstt. CIT v. Accenture Services P. Ltd. [2012] 13 ITR (Trib) 48 (Mumbai) ; and | |
| (d) | ITO v. Indian Oil Corporation (Marketing Division) [2012] 13 ITR (Trib) 79 (Delhi). |
The identical issue has been decided by the Delhi, Income-tax Appellate Tribunal, in ITA Nos. 3254 and 3255/Del/2010 in the case of Lotus Valley Education Society v. Asst. CIT (TDS) [2012] 13 ITR (Trib) 61 (Delhi) in favour of the assessee by holding that the provisions of section 194-I could not be applied in the case of transportation contracts for transportation of school children.
In the case of Ahmedabad Urban Development Authority v. Asst. CIT [2012] 13 ITR (Trib) 73 (Ahd) (ITA No. 1637/AHD/2010) similar issue concerning rate of TDS to be deducted on hiring of cars was decided. The contention of the Revenue was that the provisions of section 194-I are applicable whereas the assessee argued that it was the contract for hiring of vehicles and therefore TDS was to be deducted under section 194C at 2 per cent. The dispute was decided by the Income-tax Appellate Tribunal in favour of the assessee.
In the case of Asst. CIT v. Accenture Services P. Ltd. [2012] 13 ITR (Trib) 48 (Mumbai) (ITA Nos. 5920, 5921 and 5922/Mumbai/2009) the dispute involved pertained to applicability or otherwise of the provisions of section 194-I on hiring of vehicles for transportation of its employees. The contention of the Revenue was that when all the vehicles provided to the assessee were contracted vehicles and remained with the assessee during the duty and were at the disposal of the assessee then it is not a simple case of hiring of vehicles for transportation but the vehicles were taken on lease by the assessee at the assessee's disposal for all time and not for any particular services or for a particular destination. After considering the rival contentions it was held by the Income-tax Appellate Tribunal that the payment made by the assessee for hiring vehicles for transportation of its employees qualifies for TDS under section 194C while adjudicating the issue the Income-tax Appellate Tribunal also observed as under :
The transport service provider had to provide the vehicle along with requisite staff and relevant facilities, full maintenance and repairs of the vehicles, etc. Thus, the assessee was not required to provide anything but was availing of the services of the transport for picking up and dropping of its employees from its offices at different locations to the places of its clients. Though, as per the agreement the vehicles provided for the requirements of the assessee were dedicated but it was not the case of hiring of vehicles only without other facilities. Thus, it was a kind of wet lease wherein the assessee was utilising the transport services provided by the service provider without making any arrangement of its own but all the arrangement were the responsibility and obligation of services provider.
Classification of vehicles as plant and machinery under the Income-tax Rules for the purpose of depreciation under section 32 does not per se change the nature of services provided by the service provider who is running the vehicle on hire.
The expression plant and machinery used in the Explanation of section 194-I refers to only plant and machinery used by the assessee in its business by hiring them but not the hiring of transport service.
In addition to the above citations, the Delhi, Income-tax Appellate Tribunal, in the case of ITO v. Indian Oil Corporation (Marketing Division)[2012] 13 ITR (Trib) 79 (Delhi) has also taken the same view in as much as that arrangement for transportation of petroleum products was essentially a contract for transportation of goods and not an arrangement of hiring of vehicles, tax was required to be deducted at source from payment to carrier in terms of the provisions of section 194C and not under section 194-I.
In the light of the above and relying on the decisions of case law cited by the appellant and discussed above, I reject the Assessing Officer's action in invoking provisions of section 194-I and hold that in the appellant's case, in respect of the payments made to the transport operators/ constructors, the provisions of section 194C are applicable. Accordingly, the grounds taken by the appellant on this score succeed."
4. Aggrieved, the Revenue is in appeal before us. At the outset, the learned Departmental representative submitted that the case of the Revenue is against them and it is covered by various decision of the Income-tax Appellate Tribunal which were dealt with by the Commissioner of Income-tax (Appeals) in his order. However, he relied upon the order of the Assessing Officer. The learned authorised representative supported the order of the Commissioner of Income-tax (Appeals).
5. We have heard the rival parties and have gone through the material placed on record. We observe that issue is squarely covered against the Revenue in various cases decided by the hon'ble Income-tax Appellate Tribunal. The facts and circumstance of the present cases are similar to the facts and circumstances of the case law in the case of Lotus Valley Education Society v. Asstt. CIT (TDS) [2011] 46 SOT 77/10 taxmann.com 46 (Delhi), which was decided by the Delhi Bench in ITA Nos. 3254 and 3255 /Del/2010. It contents at page 66 of the said order vide para 6 deals the issue as under :
"We have carefully considered the rival submission in the light of material placed before us. A careful consideration of the assessment order would reveal that the Assessing Officer while holding that the assessee is liable for deduction of tax at source under the provisions of section 194-I of the Act has mainly rested his case on the ground that is the 'rent' as defined in Explanation under section 194-I and the assessee has paid rent in respect of buses utilised by him being in the nature of plant. In our opinion, simply for the reason that 'rent' being explained under Explanation given under section 194-I in respect of a plant will not make the relevant payments liable for deduction under section 194-I. The sum and substance of the transaction has to be seen and it has to be decided that under which section the case of the assessee would fall. If one goes by the logic adopted by the Assessing Officer, then the same will also be equally applicable in respect of section 194C where also under Explanation III to sub-section (2) of section 194C, the 'work' has been defined or explained which according to clause (c) thereto includes 'carriage of goods and passengers by any mode of transporter other than by railways'. According to the transport contract entered into by the assessee, the activity of the transport contractor will be a simple activity of carriage of passengers by any mode of transport other than by railways. The object of the assessee to entering into such agreement was a simple activity of carrying its students and staff from their homes to the school and similarly from school to their homes. The assessee has no responsibility whatsoever regarding the buses to be utilised for that purpose which was the sole responsibility of the transport contractor. The transport contractor only was liable to keep and maintain the required number of buses for such activity at their own expenses with the specified standards. Therefore, the said contract is purely in the nature of services rendered by the transport contractor to the assessee. The assessee was not having any responsibility whatsoever regarding the transport vehicles used in such activity. As against that, 'rent' which is defined in Explanation to section 194-I, inter alia, is for the use of 'plant' which according to the Assessing Officer includes buses. Here, according to the facts of the present case, the assessee itself has not utilised the buses being plants but they were used by the transport contractor for fulfilling the obligations set out in the contract agreement. Therefore, the provisions of section 194-I could not be applied to the facts of the present case and it has to be held that the assessee has rightly deducted tax at source under the provisions of section 194C of the Act. Ground Nos. 2 and 3 raised in both the appeals are allowed."
6. The facts and circumstances of the present cases being similar therefore, following the above, we do not see any infirmity in the order of the Commissioner of Income-tax (Appeals). Hence the appeals filed by the Revenue are dismissed.
Regards
Prarthana Jalan
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