Sec 194c

1. Which Section shall apply?

For deciding whether the payment of hire charges by the Mr. C to the Mr. A attracts TDS under Section 194-I or Section 194C, the terms of the contract between the parties need to be examined.

If the agreement is for leasing of the car per se, the payment would attract tax deduction under Section 194-I.

However, if the agreement is for a service of transportation to be provided by the Mr. A, the payment would attract tax deduction under Section 194C (the definition of the term ‘work’ includes inter alia carriage of goods and passengers by any mode of transport).

2. Who exercises Control over the vehicle?

Another important factor to be considered is "whether the truck is under the control of the Mr. A or Mr. C??"

In the latter case, the payment would generally constitute rent (since control & responsibility is transferred to Mr. C), whereas in the former, the payment would be for carriage of Goods.

The Guidance on the appropriate rate to be applied can also be taken from Circular No. 558 dated March 28, 1990, issued by the CBDT, which deals with TDS  from payments by a State Transport Corporation to private bus owners. Some of the relevant criteria indicated in the Circular are provision of a driver, keeping the bus (in our case, trucks) road worthy, payment based on usage, etc., which indicate that the contract was a service contract and the provisions of Section 194C are applicable.

3. Conclusion:

In sum, if a truck (with driver) is hired for one day (in which case, control stays with Mr.A), Section 194C would be attracted as the payment is essentially for carriage of Goods.

On the other hand, if a truck is leased for, say, a year and is under the control of the Mr. C and it is the Mr.C’s responsibility to run and maintain it, then payment would be in the nature of rent and Section 194-I would be applicable.