194C Vs. 194I

This query is : Resolved

Guest

Guest (Querist)

22 November 2008 Hello Experts

First of all thanks for showing your interest in sharing your knowledger.

Guide me about section under which i am responsible to deduct tat at source whether 194C(contract) or 194i(rent);
1. I have taken Material Handling machine (Forklift truck) on hire, rent is fixed for a month. I have to fill diesel and to incur all other operating expense and the machnine remains with me only.

2. I am using the same machine but i have to just pay a sum fixed for a month(use for 8 hr a day) & extra cost per hr for overtime if any. i dont have any possession of the machine and i dont have to incur any other operating exp. or even diesel exp.

As per my openion tds provision will be applicable as follows;
1. U/s. 194I as the Machine is hired and possession remains with me only.
2. U/s. 194C as i have given contract for working at my site and i am having no control over possession of the same or not to incur any operating exp.

Please give your valuable opinion on above cases.

Thanks
Rohit

G Muralidharan

G Muralidharan (Expert)
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24 November 2008 For S No 1, will come under 194 I

For S No 2 also, 194 I will come because
1) whatever be the nomenclature it is only hiring of Machines. Sec 194 C specifically exempts contract for hiring or renting of equipments.
2)Look at the meaning of Rent:
Rent means any payment,by whatever name called, under any lease or sub lease, tenancy or any other agreement for the use of any land, machinery etc.,
3) Hence your case would fall under sec194I only

Ravikumar.G

Ravikumar.G (Expert)
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25 November 2008 The confusion regarding the deduction of tax u/s 194C and 194I has arisen on account of insertion of new definition of rent u/s 194I .The expanded meaning of Rent now includes even plant and machinery's rental.Thus ,work involving plant and machinery for which TDS was being done u/s 194C now demands that consideration for section 194I should also be given.Deductor get confused regarding the selection of correct provision.Because the rate of TDS also very different, wrong application also hurts deductees.
Simplest example of such confusion is regarding rental of car which was previously being subject to TDS u/s 194 C of the I T Act. However, with effect from 13/7/2006, the term rent has been enlarged to include even motor car. Therefore, when the rental of motor car is done, the payer get confused . Should he deduct the tax under 194C or 194 I ?.
My opinion is that there is great difference between the purpose of section 194 C and section 194I .In my considered opinion,the provision u/s 194C is for deduction of tax on payments for “works contract” or any kind of contractual work assigned to a party. Whereas provision u/s 194I is simply tax on the RENT and does not envisage any kind of work associated with such RENT .
Thus, if a company makes an agreement with a car hire company by which the work of transportation is assigned to such car hire company, the payment is payment for work contract and not for simple rent of car or motor car. In that case , the TDS should be u/s 194C and not 194I of the I T Act.However, if same company hires car without assigning any job under an agreement, such hiring become a simple rent of rental which should be subject to TDS u/s 194I of the I T Act.The principal ,therefore,is to see the essence of such contracts. Is it only rental or a service contract?

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