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TDS on car hire charges

Prince (40 Points)

10 May 2007

Hi All,

I work in a KPO. Our company provides transport facility(by cars) to the employees from home to office.  Till now we have been deducting TDS u/s 194C from the car hire charges paid to the car owners.
     But now our auditor is taking a view that such payment will fall under section 194 I ,as the word Plant and Machinery used in the section 194I brings within its meaning Cars also (as per section 32 of the act).
                                                  What are the chances of department taking the auditor's view

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24 Replies

Gauravgupta (63 Points)
Replied 10 May 2007

No d views of your auditors does not seems correct.......194C specifically provides for deducting TDS under this section.......refer explation III to Sec194C(2).......... specific section wud prevail over general section

regards
Gaurav Gupta

Rajesh Bajaj (433 Points)
Replied 10 May 2007

Dear friend

As per my view Auditor is correct

TDS — Sections 194I extended: Tax deduction at source will now be required for more items. Section 194-I, which covered only rent from immovable property or movables rented along with such immovable property, now extends to movables, even if hired independently, so as to cover rent or hire charges received for lease, sub-lease, tenancy or any other agreements not only for land, building and appurtenant land as now, but also for machinery, plant, equipments, furniture or fittings under Sec. 194-I.

These new provisions for tax deduction have come into immediate effect from July 14, 2006

It may be noted that Section 194-I was amended with effect from this date to cover within the ambit of the Section rent paid on plant and machinery as well and a car or any other vehicle would be classified as plant and machinery for the purposes of the Act

Other views are welcomed

With Regard
Rajesh Bajaj

Ravi (181 Points)
Replied 10 May 2007

In my view, the Auditors view is correct

Regards,

Ravi Teltia
ACS

Gauravgupta (63 Points)
Replied 10 May 2007

hi friends,

i had discussed the matter with Mr. Girish Ahuja(renouned author of Taxation books) and it seems that i was wrong ........ Mr. Ahuja is of the view that if the car is hired occassionaly 194C will b attracted........ however if its being hired regularly 194I will b attracted

....... it was not that i was not aware of Taxation Laws (Amendment) Act,2006 w.e.f. 13th July 2006........ but i was of the view that specific provisions under 194C cud apply in the above case...........i feell this rate of tds wud b very high for cab providers...... however i will see if i can get some more concrete evidences on d issue

Gaurav Gupta

Prince (40 Points)
Replied 10 May 2007

Hi Gaurav,
Thanks for the reply. Can you confirm from Mr. Ahuja as to on what basis he has arrived at the conclusion that "if the car is hired occassionaly 194C will b attracted........ however if its being hired regularly 194I will b attracted ".

My take on the issue was that Plant and Machinery as is defined in sec.32 is for an entirely different purpose (i.e. just to classify assets to provide depreciation so that convinient blocks are created ) .And that is the reason that assets (e.g. books) which by no strecth of imagination can be treated as Plant and Machinery fall under that category . The Blocks so created is just to reduce the number of rates that otherwise would have been required .

Such weired and specific purpose definition cannot to resorted to in case of term "Plant and Machenery " used in sec.194I which is an alltogether different provision. What I opine is that if the concerned provision doesnt have an expl. to a term ,then one should resort to a general definition (i.e.under section 2) and if there is no such general definition then to definition provided in any other SIMILAR provision .And if there is no similar provision then the Dictionary or general commercial meaning should be taken.

Please advise

Gauravgupta (63 Points)
Replied 10 May 2007

hi prince,

i have been exactly of your view till two days back when i took the view of Mr. Ahuja....... what i understand is that Mr. Ahuja has treated it d same way as tds treatment is given to rooms hired in any hotel............. i have also taken view of my friend who is a tax consultant of a company which gives vehicle on hire to its group companies and the billings r in multi crores....... he has told that the group cos. have been deducted tds under 194I.............. i have not been able to make a 100% clear view till now

........ since Mr. Ahuja is a very busy man i do not prefer to call him for every issue although he welcomes every query............ in case u want to talk to him his no. is 09810015290............... i m a stranger to him, i just have his no. .......... u also take his view and let us know.

regards,
Gaurav Gupta

Balasubramanian A (13 Points)
Replied 10 May 2007

Hi Prince!

A clear reading of Explanation III to section 194C will show that works includes carriage of goods and passengers by any mode of transport other than by railways. Section 194I relates to Rent for Plant & Machinery. However when a particular item is specifically covred under one section, a genaralisation under another section is not possible in my view. Hence Tax is to be deducted only u/s. 194C and not u/s. 194I.

A. Balasubramanian

(Guest)

I agree with Balasubramanium, if there is a specific mention of vehicles in the Act, then the specific provision supersedes the general provision.

Sunil (Student (articled Trainee)) (19 Points)
Replied 16 September 2007

Good Day!! Dear All Here are my views on the topic: I think the view as explained by Mr. Ahuja is correct. The word used in the sec 194I is 'rent' and the dictionary meaning of the word rent is 'a REGULAR payment made for use of some property'. Hence when a car is hired on a regular basis, and payment is made for that, then TDS is to be made u/s.194I otherwise u/s. 194C. Regards, Sunil Keep Smiling

(Guest)

If the company has entered into contract with transport operator for transporting people and charges the co based on the utilisation then it would be covered u/s 194 C. But if only the vehicle is hired and pays monthly rentals / lease then u.s 194I

Neeta Gupta (83 Points)
Replied 25 September 2007

Hi! as per my opinion i 'm also in BPO we also have a staff cab facility and ded.tds u/s 194 C because er have a contract with the vendor for providing the cab facility and we r paying on monthly basis whatever actual bill comes.In my opinion in this case we r not hire his cabs so it is not cover u/s 194I. basically he is providing the cab service to us under which he is agreed the rate per k.m. and we pay him accordingly.

CA Ratan K. Rathi (chartered accountants) (48 Points)
Replied 28 September 2007

Rent includes compensation for concurrent use of an assts. Contract for 194 c includes carriage of goods or trnasport.Contract,a wider term, includes carriage of goods/paasanger as well as rent. Thus rentagreement itself is contract but is specifically covered under 194I.Now rent of plant is also covered under 194 I. Whether car is plant or not is crucial. As car is classified ,though for deprecisation clause,under IT Act it ,in my opinion falls under term plant. Hence car on hire is not a contract falling under 194 c but a contract of rent falling under 194-I. If car is hired for particular instances then it is contract covered under 194-c since it is not a rent payment but contractual payment for that incidence .

CA TRINADHA RAO (PLANT FINANCE HEAD) (21 Points)
Replied 30 September 2007

I agree with Mr. Balasubramanium view because of 194 C is spectific.

CA. RAMESH KUMAR (PRACTICING CHARTERED ACCOUNTAN) (38 Points)
Replied 30 September 2007

hi In my opinion tds should be deducted u/s 194 C if the cab provider is managing the cabs,managing the routes at which the cars to be run and for the client he is only giving a service of picking and droping its employees. for a company which is taking the service of cabs it is not a payment of rent infact it is a arrangement/agreement between the two wherein one (cab owner) has agreed to pick the employees of the company from their home and drop them to the company and vice versa,cab owner is providing the driver,he is managing the routes and he is liable for every wear and tear of the vehicle then where is the question of renting of vehicle. Section 194I will attact in cases where the cab owner give the cab to the company for a fixed amount and then the company is using the cab as per its need whether for its employees or for any other purpose and all wear & tear,driver payments are also borne by the company and in that case cab owner have nothing to do with the vehicle he will be concern for his rent only & nothing else. As per legal position also explanation III to section 194C clearly includes carriage of passanger by any mode of trasnport except railway (as already pointed out by my respected friends) so a specific section will prevail of general section. We are also having a client having 50cr of turnover,who is in business of providng cabs to call centres/companies and till date only two clients are deducting tds u/s 194I & all others are deduction u/s 194C. regards CA. Ramesh Kumar