TDS on payment to transporter on hired buses

IN THE INCOME TAX APPELLATE TRIBUNAL

(DELHI BENCH “D” New Delhi)

BEFORE SHRI RAJPAL YADAV AND SHRI A.N. PAHUJA

ITA Nos. 4370 to 4372/Del/2012

Asst. Yrs: 2008-09, 2009-10 & 2010-11

Assistant CIT(TDS),

Noida-201301

(UP)

(Appellant)

Vs.

 M/s. LG Electronics India Pvt.

Ltd., Plot No. 51, Udyog Vihar,

Surajpur-Kasna Road,

Gr.Noida, Gautambudhnagar.

(PAN: MRTL00324C)

 (Respondent)

Appellant by: Shri Priscilla Singsit, CIT(DR)

Respondent by: None

ORDER

PER RAJPAL YADAV: JUDICIAL MEMBER

The present three appeals are directed at the instance of the revenue against the orders of even date i.e. 10.05.2012 passed by the Learned CIT(Appeals) for assessment years 2008-09 to 2010 11. The grounds of appeals raised by the revenue are verbatim same except variation of date and quantum. They are not in accordance with Rule 8 of the ITAT Rules, they are descriptive and argumentative in nature. In brief, the solitary issue is whether assessee has to deduct TDS under sec. 194C or 194I of the Incometax Act, 1961 on the payments made to the transporters who have plied their buses for transporting the employees and their wards to different destinations as per the agreement between the assessee and the transporters.

2. The brief facts of the case are that the assessee is a company engaged in the business of manufacture and trade in colour TVs, air-conditioners, refrigerators, microwave oven, washing machine, compressors, vacuum cleaners etc. It emerges out from the order of the Assessing Officer that a survey was conducted. The assessee has hired busses/taxies. It has made payment of hire charges to the concerned company after deducting tax under sec. 194C of the Act @ 2%. Learned Assessing Officer was of the opinion that in view of the amended provisions of sec. 194I of the Act w.e.f. Ist June 2007 to 30th June 2009 TDS ought to have been deducted @ 10%. The assessee had made the following payments of hire charges:

Rs. 4,42,69,310 F.Y. 2009-10

Rs. 103,072,814 F.Y. 2008-09

Rs. 78,924,153 F.Y. 2007-08

Learned Assessing Officer has confronted the assessee as to why TDS @ 10% was not deducted. The assessee filed submissions vide letter dated 25.3.2011 and pointed out that it was just a service contract and on service contract, TDS was to be deducted under sec. 194C of the Act. The assessee has relied upon the Board’s Circular as well as the Order of the ITAT passed in the case of TATA AIG General Insurance Co. Ltd. vs. ITO. Learned Assessing Officer has reproduced the submissions of the assessee but was not satisfied with the explanation. He relied upon the judgment of the Hon'ble Supreme Court in the case of M/s. Associated Hotels & India Ltd. vs. R.N. Kapoor, AIR 1959 page 262. He was of the opinion that Hon'ble Supreme Court has propounded that if under the documents, a party gets exclusive possession of the property, prima facie, he will be considered as a tenant. According to the Assessing Officer, assessee got the possession of the buses and, therefore, it would be construed that the assessee has taken the buses on rent/lease. It is a plant and machinery and on payment of rent a TDS has to be deducted @ 10%. Accordingly, he treated the assessee in default for short deduction of TDS. He raised a demand of Rs.241,11,476  under sec. 201(1)/201(IA) of the Act for assessment years 2008-09 to 2010- 11. He has given the break up on page Nos. 10 & 11 of the impugned order.

3. On appeal, Learned CIT(Appeals) found that assessee had entered into a contract with the owners of the buses for transportation of employees of the company by busses/cab. This agreement was for the facility of transportation. It was the liability of the transporter to maintain the buses, employ a driver. The buses will remain in the possession of the owner. The transporter shall indemnify and keep indemnify the company against any loss, charges, damages and expenses incurred or suffered by the company on account of transporter not having valid license. On an analysis of the agreement, Learned CIT(Appeals) arrived at a conclusion that it is a work contract and the TDS is to be deducted under sec. 194-C of the Act because this work duly falls within the ambit of expression work provided at clause- C Sr. No.IV of Explanation appended to sec. 194C of the Act.

4. In response to the notice of hearing, no one has come present on behalf of the assessee. With the assistance of learned DR, we have gone through the record carefully. On perusal of the Learned CIT(Appeals)’s order, we do not find any merit in these appeals, therefore, we did not explore the other modes of effecting service of notice upon the assessee. We find that Learned CIT(Appeals) has analysised the agreement in the light of ITAT’s order passed in the case of ACIT Vs. Accenture Services Pvt. Ltd. reported in 44 SOT 290 and the order of the ITAT in the case of M/s. APJ School Film City, Sector 16A, NOIDA in ITA No. 5882 & 5888/Del/2010.

Before the learned first appellate authority, learned ACIT has relied upon the decision of Hon'ble Supreme Court in the case of Associate Hotels Vs. R.N. Kapoor (supra). In our opinion, learned Assessing Officer failed o infer correct position of law from this case. It is observed by the Learned CIT(Appeals) that this case contemplates the exclusive possession of a person over a property, if the document suggests such possession. In the present case, the possession over the buses is of the transporter and not of the assessee.

5. We have also come across similar issues in the cases of ACIT vs. National Capital PowerStation, NTPC Ltd., Vidyut Nagar, Dadri, Gautambudhnagar (UP) rendered in ITA No. 5885/Del/2010. The findings of the ITAT including arguments of the Learned DR read as under:

“4. Learned DR while impugning the order of the Learned CIT(Appeals) contended that assessee has taken the busses on hire. It means that the buses were taken on lease and such buses are to be construed as plant. Since the lease payment was made for the hiring of the plant, its case comes within the ambit of explanation appended to sec. 194 I of the Act. It provides that any rent paid for plant or machinery or equipment then TDS is to be deducted at 10%. The learned counsel for the assessee on the other hand, submitted that Assessing Officer has misconstrued the provisions. The assessee has not taken the buses on lease. It had entered into a contract of service whereby the travel agencies were required to supply the buses for transportation of the passengers. The buses were to be plied for a fixed number of hours. The vehicles would remain in the possession of the travel agency. The agency would provide its driver and also maintain the vehicle in good shape. In other words, all responsibility for plying the vehicles is of the transporters. Thus, according to the assessee, it was a service contract of transporting the passengers. It has not taken the buss on lease and used them as plant in business. The learned counsel for the assessee further contended that a similar issue in somewhat different context came up before the Hon'ble Delhi High Court in the case of CIT vs. Prasar Bharti reported in 292 ITR 580. In that case, the facts are that assessee was making certain payment to outside producer for programs under “commissioned category” for which the assessee had been deducting the tax at source under sec. 194C by treating them as contract payment. Assessing Officer alleged that it is fee for professional services or fee for technical service within the ambit of sec. 194J and, therefore, assessee ought to have deducted TDS under sec. 194J of the Act. Learned CIT(Appeals) dismissed the appeal of the assessee. The issue travelled to the ITAT. The ITAT has observed that Explanation 3 of section 194C provides the meaning of expression “work” which includes advertising, broadcasting and telecasting including production of programming for such broadcasting and telecasting. According to the ITAT, a specific provision has been made in sec. 194C which bring within its ambit the contractual work concerning broadcasting and telecasting, therefore, revenue cannot apply section 194J which is more general term. Hon'ble Delhi High Court has upheld this view of the ITAT. The learned counsel for the assessee pointed out in the present case also at Sr. No.4 of the explanation appended to sec. 194C, meaning of expression “work” has been given which provides (a) advertising; (b) broadcasting & telecasting including production of programs for such broadcasting and telecasting; (c) carriage of goods or passengers by any mode of transport other than by railways; (d) x x x, (e) x x x. On the strength of Hon'ble Delhi High Court’s decision, he pointed out that once specific provision has been provided then there is no need to apply section 194 I of the Act which is in relation to deduction of TDS on payment of rent.

5. We have duly considered the rival contentions and gone through the record carefully. The first disputed point is whether it is a payment being contract of service or a rent for hiring a plant. The emphasis of the Learned DR was that assessee has hired a bus which is akin to taking a plant on lease, therefore, the payment made by the assessee to the travel agency has to be construed as a rent paid for the bus. On the other hand, contention of the assessee is that it has availed the facility of transportation from the travel agency. It has not taken the bus in its possession. According to the contract, the travel agency has to ply the bus for a fixed number of hours. Thus, it is a simplicitor service contract for transportation of the passengers and it falls within the ambit of clause (c), Sr. No.(IV) of explanation appended to sec. 194C. The assessee has placed on record copy of a letter of award for hiring of busses. It has also placed on record copy of the contract entered on Ist of February 2008. On perusal of these documents, it reveals that assessee has just hired the transportation facilities which is akin to hiring of a taxi though on regular basis for a fixed number of hours. Before the Learned First Appellate Authority, assessee has made a reference to Circular No. 558 dated 28.3.1990 issued by the CBDT. In the circular, board has considered this aspect and was of the view that where a vehicle is given on hire along with provisions of a driver for use of carrying of the passengers for fixed hours than it is a service contract for carrying out the work. It will be covered under sec. 194C of the Act because the vehicle has been made available as a matter of service. Learned First Appellate Authority has considered this aspect while observing that it is a service contract and assessee was to deduct tax under sec. 194 C of the Act. Considering the order of Learned CIT(Appeals) and in view of the above discussion, we do not find any merit in this appeal. It is dismissed”.

6. ITAT has also examined this issue in the case of ACIT vs. Accenture Services Pvt. Ltd. 44 SOT 209. Respectfully following the order of the Coordinate Benches, we are of the view that hiring of busses for transportation of employees or their wards is not akin to taking of a plant and machinery on lease. It is only a service contract and the TDS is to be deducted under sec. 194C of the Act @ 2%. Learned first appellate authority has rightly held the assessee not in default under sec. 201(1)/201(1A) of the Act. The appeals are de void of any merit, hence dismissed.

Decision pronounced in the open court on 19.10.2012

Sd/- Sd/-

(A.N. PAHUJA) (RAJPAL YADAV)

ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 19/10/2012

Mohan Lal

Copy forwarded to:

1) Appellant

2) Respondent

3) CIT

4) CIT(Appeals)

5) DR:ITAT

ASSISTANT REGISTRAR