Since the amendment of section 194I w.e.f. 13.7.2006 the
most common query nowadays is 'Should the TDS be
deducted u/s 194C @2% or u/s 194I @10%?' Naturally,
this dilemma arises due to the overlapping nature of the
provisions appearing in these sections. The confusion has
been created with the amendment of section 194I in 2006
whereby the rent on machinery, plant, furniture,
equipment or fittings has also been brought in its purview.
Earlier only the rent on land and building was liable to TDS
u/s 194I.
The recent Circular no. 1/2008 dated 10th Jan 2008 issued
by the I.T. Deptt. on the issue of applicability of
sec.194I to cooling charges paid to cold storage
owners is a welcome measure. The circular says that it
has been represented to the deptt. that:
• Cold storage owners provide a composite service,
which involves preservation of essential food items
including perishable goods at various temperatures
suitable for specific food items for required periods
and that storage of goods is only incidental to the
activity of preservation.
• The cooling of goods is controlled through mechanical
process. The customer brings its packages for
preservation for a required period and takes away its
packages after paying cooling charges.
• The customer does not hire the building, plant/
machinery etc. in any manner and does not become
tenant.
Deptt. has examined the matter and it is clarified that:
• The main function of the cold storage is to preserve
perishable goods by means of a mechanical process,
and storage of such goods is only incidental in nature.
• The customer is also not given any right to use any
demarcated space/place or the machinery of cold
store and thus does not become a tenant.
• Therefore the provisions of sec. 194I are not applicable
to the cooling charges paid by the customers.
• However since the arrangement between the cold
storage owners and the customers is of contractual
nature, the provisions of section 194C will be applicable.
This is a very clear cut clarification issued by the Deptt.
This will be a great relief to the cold storage owners as
after this circular a TDS of only 2% instead of 10% will be
deducted from their bills.
Other confusing cases of 194I v/s 194C
Car Rental
• If there is an arrangement with the taxi/car operator to
do a particular assignment or job involving car then it
will be treated as a contractual arrangement and
therefore covered under section 194C. But if the car
supplier only provides the car without specification of
the job then TDS is to deducted u/s 194I.
• For example, if there is an agreement to carry the
employee from one place to another i.e. let us say
from home to factory and back, such agreement is
giving a job to the car supplier company and the car
company will get payment only when the work
assigned to it was completed. If he supplies only the
car, the company will not pay the amount because the
contract was for the work of transport of employees.
This type of job is covered u/s 194C.
• However if the company hires the car without any
assignment of job, the car supplier completes the job,
the moment he sends the car. How that car is used is of
no importance for him. He will get paid for car hire.
This type of car hire will suffer TDS u/s 194I.
Hiring Audio Visual equipments
• Whether a particular payment made towards hire of
audio visual equipment will be subject to TDS u/s
194C or 194I will depend upon the facts of the case.
• If the equipment is hired from the hotel for a particular
event like conference or exhibition etc. being held in
the hotel itself for few hours or days, then payment for
such hiring will be covered u/s 194C being a
contractual arrangement to provide the equipments
for a particular purpose or event.
• However if the audio visual equipments are hired by
the company for a particular period say one month,
quarter or year to be used for different purposes
whatever it deems fit, payment for such hire charges
will be subject to TDS under section 194I as this will be
treated as rent of the equipment. Here hiring charges
for a 'period' becomes the key element for bringing it
under the definition of rent.
Shifting of material
• In one case a contract was given for shifting of material
in plant from one place to another by loaders, Trucks,
Bulldozers, Dumpers and Tipplers etc. on rate contract
basis i.e. Rs. /hour, Rs./trip or Rs./ton of material.
• The main condition of the contract were:
o That the party would deploy so & so number of
equipments for a particular work.
o In some cases diesel is provided to party i.e. rate is
excluding diesel.
o There is penalty clause in the contract for nonavailability
of the equipment.
• Despite above conditions in the contract, such type of
contract will certainly come under section 194C only.
• Section 194I is definitely not applicable in this case
because even if there is a written agreement for
employing certain types of equipments and vehicles,
the work is to be done by the contractor. This is not a
simple case of taking machinery on rent. The stringent
conditions have been put regarding use of specified
machines, only to maintain quality of work.
Conclusion
From the discussion of above cases, following two broad
criteria (but not conclusive) emerge. We have to check
the facts of a case and analyse:
a. If there is any kind of 'work contract', section
194C is applicable; if the payment is for the 'use
for a certain period' of the things specified in
section 194I then section 194I will be applicable.
b. Section 194I is applicable when the possession of
an asset in question is given to the hirer so that he
may use it the way he wants. In case the possession
is not given but retained by the person letting it on
hire, provision of section 194C shall apply.
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