‘Charges for Facilities provided’ to be considered to determine Rent, Not ‘Payment for Use of Land’: Uttarakhand HC [Read Judgment]

The Uttarakhand High Court while holding in favor of the assessee upheld the order of the Appellate Court to hold that in order to determine whether a payment is made towards ‘ Rent ’ or towards ‘carrying out any work’, the charges for facilities provided by the assessee and not the payment for use of land is to take into consideration.

The primary issue before the Court was that whether the assessee was liable to deduct TDS U/s 194-C (Payment made to Contractor) or U/s 194-I (Rent) of the Income Tax Act, 1961(IT Act) on the payment made by it to the carrier under the contracts for transporting the petroleum products in the respondent’s business and whether the ITAT was legally correct to hold that the assessee was liable to deduct TDS U/s 194-C and not U/s 194-I of the IT act.

It was argued on behalf of the Revenue that the consideration involved in the contracts constitute “rent” for the use of the vehicle. It was of the opinion that what was involved in terms of the contract is only transporting of goods.

The assessing officer while holding in favor of the Revenue made a detailed analysis of the provisions of the contract in order to understand the nature of the transaction. He pointed out that the contract provided for an exclusive right to use the tank trucks throughout the contract period hence is being paid for full time, it provided that the tank trucks would be attached to a particular loading location, mentions that only identified trucks shall be engaged for transportation of petroleum products and other restrictions on the transport of petroleum products would render the payment to be classified as “Rent” and not a “Works Contract”.

The Hon’ble Court constituting Hon’ble K.M. Joseph, C.J. and Hon’ble Sharad Kumar Sharma, J. while considering the Preamble and clauses of the contracts, and referring to judgments of the Apex Court, held against the findings of the Assessing Officer. The Court reasoned that the carrier was not being paid in full. No minimum billing was guaranteed to the Carrier by the Company. The contract hence takes within its scope a contract for the transportation of goods according to the expanded scope of expression ‘work’ in order to apply TDS requirement to payment in respect of transport contracts.

Relying upon a decision of the Supreme Court it was held that the charges on the land, therefore, were not for land usage or area allotted simpliciter. These were the charges for various services provided.

The Court further iterated that “the modern transportation contracts are fairly complex having regard to various requirements, which fall to be fulfilled by the contracting parties.” Further, keeping in mind the nature of the product (being highly inflammable) it is, therefore, quite clear that the respondent company has set various conditions on the transporters.

Adjudicating in favor of the assessee, the Hon’ble Court held that the contracts in question read as a whole would fall within the four corners of Section 194-C.