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TMI Blog2018 (4) TMI 142X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is that its case falls under Section 194C of the Act. 3. The Assessing officer, on a conspectus of the terms of the contract as he understood it, came to the conclusion that the respondent assessee is obliged to deduct tax under Section 194-I of the Act. This view of the Assessing Officer did not find favour with the first Appellate Authority, who came to the conclusion, on his understanding of the contract, that the tax must be deductible under Section 194C and not under Section 194-I. The decision of the first Appellate Authority has found favour with the Appellate Tribunal and hence, the present Appeals. 4. We heard Mr. H.M. Bhatia, learned counsel for the Revenue and Mr. V.K. Kohli, learned Senior Counsel assisted by Mr. Kanti Ram, learned counsel appearing on behalf of the respondent. 5. Mr. H.M. Bhatia, learned counsel for the Revenue, who took us through the order of the Assessing Officer, would submit that the Assessing Authority has correctly appreciated the provisions in the contract and has rightly come to the conclusion that the provisions of Section 194-I would apply. He would emphasize that in this case, the contract involved exclusive use of vehicles by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransport the products of the first partly irrespective of its location / loading site whereas in a work contract the work is defined for completing a task with specific amount of goods and services. Similarly in clause 2c & 2d, the services utilized by the company amply proves that the tank trucks are being hired for carrying out the work of transportation from different loading locations. As per Clause 2e, the company has right to change the basis of loading of tank truck that is volume to weight or vice versa for which the transportation rates shall also be altered accordingly. This clause of agreement again shows that the contractor company has the right to use the vehicle for the transportation of its product depending upon the basis of loading which may be volume wise or weight wise, whereas in work contract the contractor company could have asked the carrier to provide to transport a fixed quantity of product from one point to another against fixed charges payable to him. The clause No. 3 of the agreement emphasizes upon identification of particular trucks which will be listed in the LOI/ work order, meaning thereby, that only the identified trucks are being engaged for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is being hired for a particular period which clearly falls within the purview of section 194 I of the I.T. Act. In clause 5a to 5e, the agreement has been drawn fixing responsibility of the carrier for salary to crew members, taxes, insurance, cost of fuel, lubricant etc. and also any loss or damage to the tank truck during the period of agreement. This type of clause is prevalent in almost all types of hiring agreement so such clause does not prove that the carrier services had not been taken as work contract whereas it further proves that the agreement is drawn for hiring of vehicle and not for executing a particular type of work. Clause 6 of the agreement defines billing cycle, route, rate etc, which also shows that the agreement is of hiring. In a work contract such type of clause could not have been included which otherwise would have been in plain text mentioning therein that a minimum of such amount will be paid for transporting a particular quantity of product from a particular location to another within a time frame. Clause 6e further emphasizes that the company reserves the right to use the tank trucks on their return trip based on company requirement meaning ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught mechanical conditions and having all the fittings up to the standards laid down by the company from time to time (clause 3a), meeting requirements of the company as regards safety and operational norms (clause 3b) etc. The operator has simply given vehicles for use of the deductor company i.e. IOC in a manner it wants to use these vehicles as terms and conditions are completely being governed by the IOC." 8. After referring to the Explanation to Section 194-I of the Act, the Assessing Officer came to the conclusion that it can easily be made out that the language or terms of the agreement are not important but important is the use of the plant. Rent means payment by whatever name he reasons He then referred to the definition of "plant". Ships, vehicles, books, specific apparatus and surgical equipment used for the purposes of the business or profession are included in the definition of "plant". It was held that the payment has been made essentially for hiring of trucks / tankers, which have been given in exclusive possession and use of the assessee for a fixed tenure of two years and the tankers were also customized as per the requirement of the hirer. Thereafter, the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al thing to do while determining whether the arrangement is of hiring or for transportation 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, on the contrary, transportation is done by the Carrier, it would amount to transportation contract. In the former situation, stray aberration such as the carrier providing for the services of staff and incurring incidental expenses won't alter the basic nature of arrangement. Similarly, in the latter situation, stray aberrations like the vehicles being specific and even customized and being run under the assessee's regulation and control won't alter the basic nature of the contract. The assessee is in the business of refining crude oil and storing, distributing and selling of the petroleum products, which includes / involves transportation of its bulk petroleum products. But, it does not have its own tank-trucks nor does it have the wherewithal for actual transportation work. Hence, it utilizes the services of the Carrier for this purpose. The sample agreement shows that, even though the trucks used for the transportation work are earmarked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- (i) one per cent, where the payment is being made or credit is being given to an individual or a Hindu undivided family; (ii) two per cent, where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein." 14. We may also notice clause (iv) of Sub-section (7), which defines "work". The same reads as under: "(iv) "work" shall include- (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods or passengers by any mode of transport other than by railways; (d) catering; (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the more appropriate provision or the correct provision, which would embrace within its scope a contract of the nature, which we are dealing with, according to the assessee, is Section 194-C of the Act as it deals with the deduction of tax at source in respect of payment made to a contractor for carrying out any work and "work" has been defined as including carriage of goods or passenger by any mode of transport other than by Railways. Therefore, the question, which we may consider and decide is whether it is a case of a Carrier in these cases doing work as understood in the expanded definition given to "work" in the Section (Section 194-C) namely, carriage of goods in these cases or whether it is a case of use of the vehicles by the respondent assessee. In order to resolve this controversy, we must necessarily advert to the relevant provision of the contract. A sample contract has been produced by the appellant before us and there is no dispute that it can be relied on as the terms of the contract, which we are to consider. 20. The preamble of the contracts reads as follows: "WHEREAS the Company is engaged in refining Crude oil and storing, distributing and selling of the petr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... location, where the Tank truck is contracted. In such event, the rate as detailed in LOI / Work Order issued to the Carrier at the base loading location shall be applicable. In case of any disputes arising out of such movements, the terms and conditions including Arbitration Clause of this Agreement would be applicable. (e) In case the Company desires to change the basis of loading of Tank Truck i.e. volume to weight or vise- versa, the transportation rates shall be altered considering the standard conversion factors applied by the Company. (f) Company shall be free to engage one or more additional Carriers either to run concurrently or separately, for transportation Jobs from the same loading locations." 22. Clause 3(a), inter alia, provides that the Carrier is to ensure that the tank trucks listed in the LOI / work order are always maintained in proper condition; they confirm to the statutory regulations like Indian Petroleum Act and Motor Vehicles Act, etc, as applicable from time to time and they are properly caliberated / stamped under the Weights & Measures Act; they have adequately trained Crew (driver and cleaner) for efficient operations and the driving licence of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at the rates detailed in LOI/Work Order. This rate shall be valid for all roads and weather conditions and are calculated from loading location. (b) The above rates are subject to escalation/de-escalation as per formula given in Schedule-A&B. (c)(i) Octroi charges levied on the product would be reimbursed by the Company against production of original receipts. (ii) Entry/Transit/Bridge/Toll (pathkar) taxes paid by the Carrier for their Tank Trucks while transporting petroleum products under this Contract would be reimbursed by the Company on round-trip basis subject to production of original receipts for payment. Company's decision whether any charge is reimbursable or not would be final and binding on the Carrier. (d) The transport charges payable under this Agreement are based on shortest route approved by the Company on round trip basis (called RTKM). A list of current RTKMs applicable to storage points where subject Tank Trucks are based are available with concerned storage point. Company would, however, be entitled to revise these RTKMs from time to time, including retrospectively, which would be binding on the Carrier. Difference in transportation chares arising out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... product from one specific point to another and he ends the said paragraph by stating that in the instant case, the truck operator is not being paid fixed amount for transporting the product from one place to another but is being hired and paid for full time. 30. We must pause here and pose a question as to whether the aforesaid finding can be supported by the Clauses in the contracts or it betrays non-application of mind to various provisions of the contracts and has resulted in a completely erroneous understanding of the contracts. In this regard, we must first ask ourselves a question as to whether the contract in question involves that the Carrier is being paid full time? In this regard, we have already extracted Clause 6(g). Clause 6(g), in our view, makes it crystal clear that the Company has not guaranteed any minimum billings/ mileage or loads for any period. What is more, the Company is not rendered liable to make any offering for any load on any day or during any particular period and no claim for idle charges is payable. This must be read in conjunction with Clause 6(d). Clause 6(d) unambiguously declares that the consideration for the contracts, in so many words, is wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut automatic reattachment of the tank truck to a new location in the event of change of loading location, and then according to the Officer, it means that an agreement has been drawn between the two parties to transport the products of the first party irrespective of its location / loading site, and he contrasts it with a work contract stating that in a work contract the work is defined for completing a task with specific amount of goods and services. Here, we must pose a question as to whether the understanding of the Assessing Officer betrays his appreciation of Section 194-C of the Act as it were a provision, which deals with work contract and not with all kinds of work. This question, in fact, arose before a Bench of the Kerala High Court in the case of Central Board of Direct Taxes vs. Cochin Goods Transport Association reported in 1999(236) ITR 993. There, the Bench had an occasion to consider the similar question. Therein, the Court was considering the question as to whether a transport contract for mere carriage of goods without loading and unloading facility would amount to carrying out "any work" within the meaning of Section 194C(1) of the Act. The Division Bench, after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly the respondent Company has set various conditions on the transporters. In fact, contract appears to us to be a standard contract and the transporters would necessarily have to fall in line. May be they have to sign on the dotted line and the restrictions, which are put therein, are only to be understood in the said vein. 33. Again, we notice with reference to Clause 2(e), the Assessing Officer uses the words "work contract" and he would reason that the Company could have asked the Carrier to provide a fixed quantity of products from one point to another against fixed charges payable to him. We would think that this amounts to asking the wrong question and there is reference to identification of particular trucks and he reasons, therefore, that only identified trucks are engaged and therefore, it is established that the Carrier was to provide only those trucks and this becomes part of hiring. The fact that such trucks are to be identified and they alone are to be used cannot detract from there being a contract of transporting the goods. The contract indeed contemplates that certain trucks should conform to certain standards. It has to conform with various laws; the trucks which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period of the agreement. By the fact that he exclusively uses it for transporting the goods belonging to the Company, one cannot draw the inference that this is a case, which involves the use of the vehicles as such by the Company. Here, we may contrast with the situation where the vehicles are made available by the owner or the person in possession to a Company like the respondent assessee and it passes to its exclusive control and it employs its own employees and maintains it while it is in exclusive possession and does the act of transporting of its products. While this is certainly legally permissible, this is not the situation, which arises in these cases. On the other hand, it is a case, where it is the Carrier, who carries out the transportation work as found by the First Appellate Authority - the finding, which is found affirmed by the decision of dismissal of the Appeals by the Tribunal. 36. The reference to Clause 4(a) to 4(d), namely, that the Trucks will be made available at all time during the agreement at the loading stations, in our view, would not take it out from the purview of transporting contract. The age of the Truck and the other clauses referred to and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it was simply a case of transporting and there was no loading and unloading. Therefore, the case of the assessee was that it would not fall under Section 194-C. This argument was repelled. That is to say even an ordinary contract for transport would suffice to bring it within the purview of Section 194-C. In this case, the contract itself provides that the Carrier is saddled with the liability to do the loading and discharging of the tank trucks. Therefore, it goes a step further where it undertakes also to carry out the loading and the unloading of the products, be it from the loading center or the point of delivery. 39. Further, we may notice the fact that in Clause 13(a), it is mentioned that the Carrier shall not be entitled to assign, subrogate, sublet or part with its right title and interest under the Agreement for any reason whatsoever or change the ownership of / their right on the tank trucks. According to the officer, it shows that it was only deputed to the services of the company within the period and there was no right to change ownership of the tank trucks during the period of the agreement. In our view, this is only an additional restriction, which has been put o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The vehicles are to be maintained by the Carrier. According to the LOI i.e. letter of intent, apparently the Carrier is to make available the Trucks of the requisite quantity, which are identified and appropriated towards the contract for being operated in accordance with the needs and for the purpose of the work. Undoubtedly, in that sense it is for the use of the Company. But the issue is whether it is a use as understood under Section 194-I or whether it is a case of transporting the goods under Section 194-C. We have noticed the terms of the preamble. We have noticed various clauses. We are in agreement with the view of the Appellate Authority as affirmed by the Tribunal. It is a case, where the Carrier under the contract was undoubtedly obliged to maintain the requisite number of trucks of a particular type subject to various restrictions and conditions, but it was under the obligation to operate the Trucks for the purpose of transporting the goods belonging to the Company. Therefore, we would think that use of the words "exclusive right to use the truck" found in Clause 1 and also in Clause 6(e) may not by itself be decisive of the matter. 45. A contention was raised by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 194-I would make it clear that in the first place, the payment, by whatever name called, under any lease, sub-lease, tenancy, is to be treated as "rent". That is rent in traditional sense. However, the second part is independent of the first part which gives much wider scope of the term "rent". As per this, agreement or arrangement, that is also to be treated as "rent". Once such a payment is made for the use of land or building under any other agreement or arrangement, such agreement or arrangement gives the definition of rent of very wide connotation. To that extent, the High Court of Delhi appears to be correct that the scope of definition of rent under this definition is very wide and not limited to what is understood as rent in common parlance. However, instead of taking a myopic view taken by the Delhi High Court by only considering use of the land per se, the Madras High Court examined the matter keeping a wider perspective in mind thereby encompassing the utilization of the airport providing the facility of landing and take-off of the airplanes and also parking facility. After taking into consideration these aspects, the Madras High Court came to the conclusion that the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat these charges are not covered by Section 194-I of the Act, it is not necessary to go into the scope of Section 194-C of the Act. The protocol prescribes a detailed methodology of fixing these charges. The charges on air traffic which include landing charges, lighting charges, approach and aerodrome control charges, aircraft parking charges, aerobridge charges, hanger charges, passenger service charges, cargo charges, etc. are to be fixed applying the formulae stated therein. A reading thereof would clearly point out the cost anyalysis which is to be done for fixing these charges. Thus, when the airlines pay for these charges, treating such charges as charges for "use of land" would be adopting a totally naïve and simplistic approach which is far away from the reality. Therefore, it becomes very clear that the charges are not for the use of land per se and, therefore, it cannot be treated as "rent" within the meaning of Section 194-I of the Act." 49. Therefore, we would think that the contracts in question read as a whole, in our view, will yield the inevitable conclusion that the cases at hand must fall within the four corners of Section 194-C for the reasons, which we ha ..... 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