Hire of vehicle without any work by owner of vehicle will attract TDS under section 194 I and not S,194C.

[CA DEV KUMAR KOTHARI]

Section 194C and 194 I of the Income-tax act, 1961.

Three Star Granites (P.) Ltd. v. Assistant Commissioner of Income-tax, Circle -1(1) [2013 (12) TMI 546 - KERALA HIGH COURT]

Three Star Granites (P.) Ltd. v. Asstt. CIT [2012 (4) TMI 194 - ITAT COCHIN]

Hiring of vehicle (or other plant and machinery or furniture):

In case of hiring of vehicle, when work with vehicle is carried out by the customer, there is no works contract. Hire charges are for allowing use of vehicle by customer. Even if wages of driver and helpers are paid by vehicle owner, there will be no element of works contract. In such cases the payment will be for leasing, hiring or allowing use of vehicle and not for carrying out any work. Therefore, tax will be deductible u/s 194 I.

Even possession of vehicle for few hours by the customer for use of vehicle as per his own requirement and by his workman will tantamount to taking vehicle on hire.

Using vehicles (or other plant and machinery or furniture)in carrying out a works contract:

In case vehicle is used while carrying out a work contract, then S.194 C will be applicable and on composite consideration for hire of vehicle, cost of fuels, labor charges for driver and helpers will be consideration for carrying out work and in that case consideration paid will be subject to tax deduction u/s 194C. In this situation the vehicle owner / vehicle provider is carrying out work and while carrying out the work, he is using vehicle.  

Principal applies to other plant and machinery and furniture also:

The above principals will apply in case of any other plant or machinery or furniture. If they are used by owner / provider while he carries out a work, then the payment will be payment to a contractor. In case the plant or machinery or furniture is just provided to customer for his use, then consideration will be in nature of rent and tax wll be deductible u/s 194 I.

Case before Kerala High Court:

In the case of Three Star Granites (P.) Ltd (supra) the assessee under an agreement with a contractor ( in fact vehicle owner or vehicle provider added by author) made payment for hiring of vehicles which were used by assessee for loading and unloading and transportation of products for a fixed period and amount of payment work out on hourly basis.

The vehicle provider / contractor was not required to carry out any work except making available equipment/vehicle, etc.

The assessee claimed that payment was subject to TDS u/s 194C as it was for a works contract. However, Tribunal held that since assessee made use of vehicles and equipment and paid hire charges on basis of number of hours of use, clearly assessee was not justified in contending that section 194C would apply.

It was a clear case of section 194-I being attracted.

On appeal the High Court affirmed the view of the Tribunal on this aspect.

Authors point of view:

In this case, on reading of the judgment it appears that the assessee in fact took possession and control of vehicles. Assessee engaged his workman for operation of activities through or with help of vehicles. The Vehicle provider was not providing any workman even as a supplier of man power or labor supplier who are popularly called ‘works contractor’. Though the wage of driver was payable by the vehicle owner, but it is clear that the driver was not engaged by the vehicle owner. Mere payment of wages is like reimbursement of wages for particular hours, will not amount to vehicle provider carrying out a work of supplying manpower.

In case S. 194C is to be applied, one must ensure the following conditions:

1. plant or machinery (including vehicles) or furniture remain in possession and control of owner / provider and not in control of customer,  
2. plant or machinery (including vehicles) or furniture are used by provider in execution of a contract in nature of works contract,
3. The persons engaged to operate, maintain and have control over these assets should be either employees of provider or agent or sub-contractor of provider of such assets (contractor who undertaken carrying out work with help of his assets and people).
4. There must be a work contract in real sense, if the contract is in reality a contract to let out or hire out plant or machinery (including vehicles) or furniture, then S. 194 I will apply and not S. 194C.