TDS on Payments made to Transporters

The Finance Act 2015 has madevide amendment, applicable with effect from 01.06.2015, to the section 194C (6), whereby TDS has been made applicable on payments to Transporters, unless the transporter who is engaged in the business of plying, hiring or leasing goods carriage,furnishes a declaration to the Payer to the effect that :-

a)Heownsten or less than ten goods carriages at any time during the previous year, and

b)Furnishes his permanent Account Number

To better understand the impact of new provisions, we need to understand the meaning of word “Owns”. Should the term “owns” be taken essentially to mean registered owner under Motor Vehicles (MV) Act or should it be read to mean the beneficial owner?

The ownershipcan be viewed based on differential requirements ,as per the provisions of law :-

(1)Owner for the purpose of depreciation benefit

Apex court inthe case of Mysore Minerals Ltd v CIT (1999) 239 ITR 775 ha defined the word "owned" in reference to section 32(1), wherein the Court held that the expression ‘Building owned by the assessee’ in section 32(1) means the person who have acquired the possession over the building in his own right and uses the same for the purposes of the business or profession despite the fact that a legal title has not been passed on to him under the requirements of laws such as the Transfer of Property Act and the Registration Act, etc. The Court opined that section 32 of the Act confers a benefit on the assessee, it should be so interpreted to enable the assessee getting the benefit intended to be given by the legislature to the assessee.

(2)Owner for the purpose of charge on House Property

Supreme Court in CIT v Podar Cement Pvt. Ltd.(1997) 226 ITR 625, had interpreted the expression “owner” in view of section 22 of the Income Tax Act (in reference to the taxability of rental Income as “Income from House Property), wherein , the Court held that "owner" is a person who is entitled to receive income from the property in his own right.

(3)TDS Deduction u/s 194-I of the Income Tax Act on payments made for Hotel accommodation

As per the clarification given in Circular 5/2002 dated 30.07.2002, in reference to scope of tds u/s 194I of the Income Tax Act on payment made for Hotel Accommodation, It has been clarified that :-

“The meaning of ‘rent’ in section 194-I is wide in its ambit and scope. For this reason, payment made to hotels for hotel accommodation, whether in the nature of lease or licence agreements are covered, so long as such accommodation has been taken on ‘regular basis’. Where earmarked rooms are let out for a specified rate and specified period, they would be construed to be accommodation made available on ‘regular basis’. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement.”

(4)“Owner” has defined in Explanation (b) to Section 44AE(7) of the Income Tax Act, as:-

(b) an assessee, who is in possession of a goods carriage, whether taken on hire purchase or on installments and for which the whole or part of the amount payable is still due, shall be deemed to be the owner of such goods carriage.]

On combined reference to the aforesaid rulings/clarifications, we may state that vehicles own within the meaning of section 194C(6) may be taken as :-

a)Vehicle registered in the name of Assessee

b)Vehicle Owned by assessee, though not transferred in its name for any reason

c)Whether the Vehicle is on lease or hire Purchase or wholly financed , has no relevancy to the ownership, till the vehicle is in the possession of assessee. It also does’t matter that the whole consideration for purchase of Vehicle is pending for payment.

d)Where the Assessee hires any vehicle on adhok basis, the same can’t be termed as owner, but where the assessee :-

  1. Had executed an agreement to hire a specific vehicle for specific duration, he may be termed as owner of vehicle.
  2. made to Vehicle owner for Vehicle Hire, whether in the nature of lease or licence agreements, so long as such Vehicle has been taken on ‘regular basis, he may be termed as owner of vehicle
  3. gets earmarked Vehicles , let out for a specified rate and specified period, they would be construed to be Vehicles made available on ‘regular basis’
  4. where no Vehicle or set of Vehicle are not earmarked for letting out, but the Vehicle Provider has a legal obligation to provide such types of Vehicle during the currency of the agreement, the Lessee may be termed as owner of vehicle.

Wherever the Transporter owning ten or less than ten goods carriages, at any time during the previous year, he shall furnish a declaration to this effect along with Pan Number to the Payer to avoid any deduction of Tax. No specific format of Declaration had been provided by law so far. The Payer may insist upon the declaration as per draft given below, from the Payee Transporter, for avoiding tax deduction at source.

Declaration under Section 194C(6) for Non-deduction of Tax at Source

To

______

______

(Name, address of the payer)

Declaration

I, Mr. ______,Proprietor/Partner/Directorof M/s______Transport Company, ______, New Delhi(hereinafter “the contractor”) do hereby make the following declaration as required by sub section (6) of Section 194C of the Income Tax Act, 1961 for receiving payments from the payer without deduction of tax at source,:

  1. ThatI/We,______am/areauthorized to make this declaration in the capacity asProprietor/Partner/Director of M/s ______..
  2. That M/s ______is being engaged by the payer for playing, hiring or leasing of goods carriage for its business.
  3. That M/s ______does not own more than ten goods carriage as on date.
  4. That if the number of goods carriages owned by the contractor exceeds ten at any time during the previous year2015-16(01-06-2015 to 31-03-2016) , the contractor shall forthwith, in writing intimate the payer of this fact.
  5. That the Income Tax Permanent Account Number (PAN) of the contractor is______. A photocopy of the same is furnished to the payer along with this declaration.

Place:

Dated:Declarant

VERIFICATION

I the above named declarant do hereby verify that the contents of paragraphs one to five above are true to my own knowledge and belief and no part of it is false and nothing material has been concealed in it.

Place:

Dated: