TDS on hiring of vehicles. Under which section should you deduct TDS on hiring of vehicles?
Lets understand this through a case study – Assessee entered into an agreement with a contractor for hiring of vehicles to be used for loading and unloading and transportation of products for a fixed period on payment basis – Contractor was not required to carry out any work except making available equipment/vehicle, etc. – Whether since assessee made use of vehicles and equipment and paid hire charges on basis of number of hours of use, clearly appellant was not justified in contending that section 194C would apply; it was a clear case of section 194-I being attracted.
Facts of the case –
- The assessee submitted that it entered into an agreement with one contractor for hiring of vehicles to be used for loading and unloading and transportation of products. According to the assessee, the relevant agreement was a composite agreement. Therefore, the provisions of section 194C were applicable requiring deduction of tax at 2 per cent.
- However, the Assessing Officer found that the assessee was required to deduct tax at source under section 194-I.
- On appeal, the Commissioner (Appeals) confirmed the order of assessment.
- On further appeal, the Tribunal held that it was a clear case of a contract which provided for payment of hire charges. The assessee took the required machineries on lease and paid charges for the same and, therefore, it was a clear case of section 194-I being attracted. Hence, tax had to be deducted at ten per cent under section 194-I.
- On appeal to the High Court, the appellant contended that for attracting section 194-I, there must be a lease or other arrangement relating to immovable property. Unless the machinery assumes the character of immovable property under the Transfer of Property Act, the payment of any rent in respect of machinery which is not immovable property would not bring it within the meaning of ‘rent’ under the Explanation.
Held for the Case –
- Section 194-I, inter alia, provides for deduction of income tax from rent paid for the use of any machinery or plant or equipment.
- Under the agreement, it was stated to be a composite agreement for hire of vehicles and to be used for loading and unloading and transport of the products. The party of the first part (the owner of the vehicles) was to retain the custody, ownership and possession of the vehicles. The vehicles were to be driven and operated by the persons who were to be paid by the owner. Further, clause (17) provides for the hire charges. As correctly found by the Tribunal, the agreement did not require the owner of the vehicle to do any work at all. It was the assessee who made use of the vehicles and the equipment. He paid hire charges on the basis of the number of hours of use and thus clearly the appellant was not justified in contending that section 194C applied. Under section 194C, it is not necessary that there should be a works contract. Section 194C contemplates work being done, including supply of labour for carrying out the work. What the appellant is permitted to do with the vehicles alone is mentioned in the contract. All those works are done by the appellant. No work within the meaning of section 194C is actually done by the owner. No doubt, the drivers, etc. are paid for by the owner.
- Section 194-I specifically contemplates liability with any person paying rent to deduct income tax at the rate of ten per cent for the use of any machinery or plant or equipment. (As far as the assessment year in question is concerned, the rate of tax was increased to ten per cent).
- There was no basis for confining the effect of the words ‘other agreement or arrangement for the use of’ ‘either separately or together’ in regard to the machinery, only if it was part of immovable property. The Legislative intent is clear, in that, it intends liability to deduct tax in respect of ‘any machinery or plant or equipment’. The machinery need not be the machinery annexed or immovable property otherwise under the Transfer of Property Act. There was no reason to dilute the width of the words ‘any machinery’ contained in sub-section (i) with the aid of the Explanation defining the word ‘rent’. The Explanation in the circumstances could not have the effect of confining the words ‘any machinery’ as only machinery which was immovable property. The words “either separately or together” were also taken note of and therefore, the said contention was rejected. Thus, it was a clear case of section 194-I being attracted]
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