S. 194C vs 194-I: Tests to distinguish “transportation contract” from “hire contract”

ITO vs. Indian Oil Corporation (ITAT Delhi)

The assessee entered into contracts with transporters for transporting petroleum products from the plant to various destinations. The assessee deducted TDS u/s 194C at 2% on the basis that the transportation contract was “work”. The AO held that the contract was a “hiring” of vehicles on the basis that (i) the assessee had exclusive possession and usage, (ii) the use was for a fixed tenure, (iii) the tankers were customized to the assessee’s requirements and that TDS ought to have been u/s 194-I at 10%. The assessee was held to be in default u/s 201. On appeal, the CIT (A) reversed the AO. On appeal by the department, HELD dismissing the appeal:
To decide whether a contract is one for “transportation” or for “hiring”, the crucial thing 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. However, if the services of the carrier were used and the payment was for actual transportation work, the contract is for transportation of goods and not an arrangement for hiring of vehicles. On facts, the agreement was of the nature of transport agreement and not one for hiring of vehicles because the tank truck owners did not simply confine themselves to providing vehicles at the disposal of the assessee in lieu of rent but also engaged their drivers in driving such vehicles and thereby in transporting petroleum products from one place to the other. In effect, the truck remained in the possession of the staff of the carrier. Further, the assessee was required to pay for the transportation work on the basis of distance and no idle charges were payable. There was no transfer of the right to use the vehicle involved in the agreement. The agreement was merely for carriage of petroleum products and so s. 194-I was not applicable. 


By
Praveen Boda