TMI Blog2011 (10) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... on 194-C or 194 I for the payments made by assessee to the service providers while hiring helicopter/air craft services. The ground raised by assessee in both the years are common and is as under: - On facts circumstances of the case and in law, the learned CIT(A) has erred in holding that the contract for transportation in respect of chartering a helicopter/aircrafts attracts TDS u/s. 194 I of the Income Tax Act, as against Section 194 C of the Income Tax Act. 3. Briefly stated, assessee is a limited company engaged in the business of forming infrastructure ventures. A survey was conducted during which it was found that assessee paid hire charges amounting to Rs.31,54,139/- to various parties under the head hire charges on which TDS at 2% was made under section 194C in A.Y. 2007-08. In A.Y. 2008-09 assessee paid an amount of Rs.40,13,818/-to various parties and deducted tax under section 194C as applicable. It was Assessing Officer s contention that hiring of helicopters/air crafts would come under the definition of Rent under section 194I and tax should have been deducted at 22.44% in A.Y. 2007-08 and 10.3% in A.Y. 2008-09 and accordingly he raised a demand under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 3 Others 4,95,333/- 11,115/- 1,11,152/- Total 40,13,818/- 90,069/- 6,14,196/- 5. It was further submitted that the charges paid are in the nature of transportation contracts and by following the CBDT circular No. 651 dated 08.08.1995 assessee has deducted tax applying the provisions of section 194C of the I.T. Act. Copies of the bills issued and contracts entered into with the parties as listed above were filed before the CIT(A) to submit that these are purely transportation contracts in which operating crew and fuel has been provided by the transport company. Without prejudice to the above it was also submitted that the parties to whom these payments have been effected are parties of repute and they are also assessed to tax and therefore, as per provisions of section 191 assessee cannot be held responsible for default for interest under section 201, relying on the principles established by the Hon'ble Supreme Court in the case of Hindustan Coco Cola Beverage Pvt. Ltd. vs. CIT The CIT(A), after considering the submissions have dismissed assessee s contentions as under, while directing the A.O. to examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly hired the services of transportation. Further the learned counsel relied on the following orders of the ITAT where similar issue was considered: - i. ACIT vs. Accenture Services (P.) Ltd. 44 SOT 290 (Mum) ii. Tata AIG General Insurance Co. Ltd. vs. ITO 43 SOT 215 (Mum) iii. Ahmedabad Urban Development Authority vs. ACIT ITA No.1637/Ahd/2010 dated 10.03.2011 Relying of the above orders it was submitted that assessee has correctly deducted tax under section 194C. 7. The learned D.R., however, submitted that as per provisions of section 194 I as discussed by the A.O. and CIT(A) in the order, assessee s payment of hire charges fall within the definition of Rent as provided in section 194I and accordingly the orders of the CIT(A) are to be upheld. He further submitted that assessee hired helicopter/aircraft, therefore, hiring of machinery comes within the definition of rent under section 194 I. 8. We have considered the rival submissions and examined the invoices placed on record in the paper book. As far as the factual aspect of the matter is concerned the observation of the CIT(A) that assessee has hired helicopter/air craft/vehicle is not correct. Assessee has never ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsport service providers. As per the agreement with Janani Tours and Resorts Pvt. Ltd. and Mahindra and Mahindra Limited, it is to be noted that the terms and conditions of the agreement are identical. As per the clauses (A), (B) and (C) of the agreement, it has been agreed between the parties that the service provider has provided the transport services at a particular locations for transportation of assessee s employees to different destination and at different locations as mentioned in Annexure D . it is clear from the agreement that the transport service provider has to provide the vehicle along with the 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 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 is not a case of hiring of vehicles only without other facilities. In the case in hand all the facilities alongwith the vehicles were to be provided by the transport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence to the terms and conditions of each contract. In a case where the Board had occasion to examine this issue, the terms and conditions governing the contract between the owner of the buses and the State Road Transport Corporation were, inter alia as follows: (i) the owner of the bus shall give his bus on hire to the corporation for plying on notified routes; (ii) the owner shall provide a driver, with a valid licence and PS Badge for the vehicle supplied by him, who shall follow the instructions of the authorized officials of the corporation; (iii) the owner shall make available the bus for 14 hours a day and complete the schedules given to him for the day; (iv) the owner shall keep the bus road worthy in terms of Chapter V of the Motor Vehicles Act, 1939, and rules made thereunder, from time to time by carrying out necessary maintenance and repairs; (v) the corporation shall provide a conductor for the operation of services with necessary equipment for issuing tickets to the passengers as well as luggage; (vi) the owner shall submit his claim twice in a month, once for the period from 1st to 15th and the other for the remaining part of the month, accompanied by a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vehicles used for the business of running them on hire is included in the class of plant and machinery for applying the rate of depreciation as per Appendix-I. These classifications does not per se change the nature of the service provided by the service provider who is running the vehicle on hire. There is no dispute that the service provided by the person who is running the vehicles on hire would claim the depreciation on the vehicle at the rate which is provided under the Appendix for Plant and Machinery. But that classification cannot be stretched to determine the nature of services provided which is otherwise clear from the agreement between the parties. The Hon ble Jurisdictional High Court in the case of Indian National Ship Owners Association (supra) has held that the definition of plant under Rule 5 of the Income-tax Rules appears to be only for the purpose of sections 28 to 41 of the Act. The observations of the Hon ble High Court in paragraphs 13, 14 and 15 are as under: 13. Having heard rival parties, prima facie, it appears that section 194 I is attracted only in respect of rent for land or building (including factory building), furniture, fittings or any other mac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Hindu Undivided Family (HUF), paying rent to a resident to deduct tax at source at the time of credit or payment, whichever is earlier clause (1) of the Explanation to section 194 I gives the meaning of rent to be a payment under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building C including factory building ), together with furniture, fittings and the land appurtenant thereto, whether or no such building is owned by the payee. Thus, rent for the purpose of section 194 I, is essentially a payment for the use of any land or building. In other words, the agreement or arrangement which given rise to the payment of rent, must necessarily be an agreement or arrangement predominantly for the use of land or building. However, where the agreement is not predominantly for the use of land or building, but for something else, then payment under that agreement will not constitute rent even if that something else involves the use of land or building as an integral part of or incidental to the predominant objective of the agreement. Let us consider the facts of the case before us in the light of the basic concept of rent 11. Eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... joy the control over the vehicles of the transport service providers and also the running and maintenance expenditure is borne by the transport service providers, the nature of contract entered cannot be termed as contract for hiring of the vehicles. I do not agree with the observation of the Assessing Officer that use of vehicles on a regular basis renders the arrangement as a contract for hiring of the vehicles. I am of the opinion that mere fact that vehicles are used regularly by the appellant cannot take away the primary nature of agreement entered by the appellant as the agreement has to be considered in its entirely; 6.2 Further, I have gone through the circulars and the judgments which have been brought to my notice by the appellant; 6.3 The nature of arrangement entered by the appellant for transportation of its employees between residence to office is similar to the arrangement mentioned in the circular No. 558, dated 28th March 1990, issued by the CBDT regarding the applicability of the provisions of section l94C of the Act to the hire charges paid to bus owners. Apartment from this, other circulars (i.e., circular number 681 dated March, 8, 1994, circular No. 713 da ..... 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