TDS on Payment made to the carrier engaged for road transport

Facts of the case: The assessee-company was engaged in refining crude oil and storing, distributing and selling the petroleum products, The assessee-company required trucks for road transportation of bulk petroleum products from its various storage points to customers or other storage points. It entered into an agreement with another company for the said purpose.

Upon scrutinizing the contract, the Assessing Officer came to the conclusion that her assessee was liable to deduct tax u/s 194-I as the carrier is being hired and being paid for full time unlike in the case of a works contract.

Relevant provision of the Income Tax Act. 1961: Section 194-I provides for deduction of tax at source on payment of rent. As per section 194-I, "rent" means payment, by whatever name called, for inter alia, use of any plant. Section 194-C deals with deduction of tax at source in respect of payment made to a contractor for carrying out any work, Section 194-C defines "work" to include carriage of goods or passengers by any mode of transport other than by railways.

Issue: The issue under consideration is whether the assessee- company is liable to deduct tax u/s 194-C or u/s 194- I on payment made to the carrier engaged for road transport of bulk petroleum products.

High Court's Observation: Upon perusing the terms of the contact, the High Court observed that the parties understood the agreement as one where the carrier would be paid transport charges, and that too, for the shortest route travelled by it in the course of transporting the goods of the assessee. The contract did not require payment of idle charges and it was clear that there was no entitlement to any payment other than the actual transportation of the goods. Hence, the carrier was not being hired for full time. The carrier under the contract was undoubtedly obliged to maintain the requisite number of trucks of a particular type subject to various restriction and conditions. However, the carrier was under the obligation to operate the trucks for the specific purpose of transporting the goods belonging to the assessee.

High Court's Decision: The High Court held that, the contract is one for transportation of goods and, therefore, is a contract of work within the meaning of section 194-C and not section 194-I.