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| DATE: | November 18, 2011 (Date of publication) |
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| Click here to download the judgement (ioc_194C_194I_TDS_transportation_contract.pdf) |
S. 194C vs 194-I: Tests to distinguish “transportation contract” from “hire contract”
The assessee entered into contracts with transporters for transporting petroleum products from the plant to various destinations. The assessee deducted TDS u/s 194C at 2% on the basis that the transportation contract was “work”. The AO held that the contract was a “hiring” of vehicles on the basis that (i) the assessee had exclusive possession and usage, (ii) the use was for a fixed tenure, (iii) the tankers were customized to the assessee’s requirements and that TDS ought to have been u/s 194-I at 10%. The assessee was held to be in default u/s 201. On appeal, the CIT (A) reversed the AO. On appeal by the department, HELD dismissing the appeal:
To decide whether a contract is one for “transportation” or for “hiring”, the crucial thing 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. However, if the services of the carrier were used and the payment was for actual transportation work, the contract is for transportation of goods and not an arrangement for hiring of vehicles. On facts, the agreement was of the nature of transport agreement and not one for hiring of vehicles because the tank truck owners did not simply confine themselves to providing vehicles at the disposal of the assessee in lieu of rent but also engaged their drivers in driving such vehicles and thereby in transporting petroleum products from one place to the other. In effect, the truck remained in the possession of the staff of the carrier. Further, the assessee was required to pay for the transportation work on the basis of distance and no idle charges were payable. There was no transfer of the right to use the vehicle involved in the agreement. The agreement was merely for carriage of petroleum products and so s. 194-I was not applicable.
Note: See also Ahmedabad Urban Development Authority vs. ACIT (ITAT Ahmedabad) & The Law of TDS u/s 194C: Controversies & Solutions by K. C. Singhal, VP, ITAT (Retd)
I WILL BE OBLIGED TO KNOW FROM SENIOR PROFESSIONAL COLLEGUES the impact of issuance of certificate of TDS by the transport company in the name of agent of the transporters deducting tax at source from the freight payable to truck operators, where the freight [ after deduction of TDS ] is paid to the transport operators directly by the transport company. An agent arranges trucks for a transport company. He is not paid any remuneration for providing such service to the transport company. The transport company deduct TDS from the transporters as sub contractor on the amount of the freight paid to such transport operators – but issues TDS certificate to the agent who has arranged the trucks . Such issuance of certificate in the name of the agent by the implied consent of the truck operators collecting freight from the transport company after the amount of TDS
It win cause a huge problem because the income is accessable in the hands of the transport operators while the ads certificate is in the names of the agents. The agents will have to file a declaration with the SO.