Payments for vehicle transportation services attract TDS under Section 194C, not Section 194-I.

The assessee engaged bus, car and truck operators under contracts to transport employees and goods and deducted tax at source (TDS) under Section 194C of the Income Tax Act, 1961.

The Assessing Officer treated the payments as rent subject to Section 194-I, raised a demand under Sections 201(1) and 201(1A), and later reduced it to Rs. 9,04,800.

The CIT(A) allowed the assessee’s appeal, but the Tribunal reversed that decision. The assessee appealed to the High Court

Whether the payments for hiring vehicles and related services were subject to TDS under Section 194C or Section 194-I of the Act

Whether the assessee was liable to be treated as an assessee in default under Sections 201(1) and 201(1A) for deducting TDS under Section 194C

Section 194C requires TDS on payments to a contractor for carrying out work under a contract; the definition of “work” includes carriage of goods and passengers by any mode of transport.

Section 194-I applies to payments constituting rent for the use of machinery, plant or equipment.

The distinction turns on the substance of the arrangement: a contract for transportation or the provision of transport services falls under Section 194C, whereas an arrangement for use of the equipment itself may attract Section 194-I.

Under Sections 201(1) and 201(1A), the payer’s liability as an assessee in default depends on a failure to deduct the tax required by the applicable provision.

The Court relied on *CIT (TDS) v. Swayam Shipping Services Pvt. Ltd.*, (2011) 339 ITR 647, which treated contracts for transportation of goods as falling within Section 194C rather than Section 194-I

The Court found that the contracts and invoices showed that the assessee had engaged operators to provide transport services, not taken vehicles into its possession for its own use.

The operators owned and maintained the vehicles and bore operating expenses; the vehicles were deployed to transport employees or goods as directed by the assessee.

The Tribunal focused on the vehicles’ character as plant or machinery and the monthly payments, but failed to account for the evidence establishing the service-based nature of the contracts

Applying Section 194C and *Swayam Shipping*, the Court held that the payments were for carrying out contracted work, not rent for use of machinery under Section 194-I

It held that Section 194C applied, that the assessee had correctly deducted TDS under that provision, and that the assessee could not be treated as in default under Sections 201(1) and 201(1A).

The appeal was allowed, and the Tribunal’s reversal of the CIT(A)’s order was held unjustified