Section 194C deals with Tax deducted on payments to contractors and sub-contractor. Any person responsible for making any payment to a resident contractor for a contract to carry out any work has to deduct TDS under section 194C.
Tax should be deducted at the time of credit or payment whichever is earlier.
Work for Section 194C shall include the following:
- Works Contract;
- Advertising;
- Broadcasting and telecasting including production of programmes for such broadcasting or telecasting ;
- Carriage of goods and passengers by any mode of transport other than by railways ;
- Catering;
- Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer;
But it does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.
Section 194C is not applicable where the payer being an individual, HUF, AOP, BOI has total sales, gross receipts or turnover from business or profession carried on by them is less than Rs. 1 Crore in case of business and Rs. 25 lakhs in case of profession during the financial year immediately preceding the financial year in which such amount is credited or paid.
It is not applicable to an individual or HUF if the sum is paid towards personal expenses of such individual or any member of HUF.
The payer has to deduct TDS where the total sum credited or paid during the financial year exceeds Rs. 75,000 or any single sum credited or paid exceeds Rs. 30,000.
Rate of TDS:
Where a sum is payable to a resident contractor for –
- 1% where payment/credit is to an individual/HUF
- 2 % where recipient is any other person
# No cess and surcharge on Basic TDS rates given above on payment made to Residents.
It is proposed to amend Section 194C(6) to provide non deduction of tax for payments to a contractor in the business of plying, hiring or leasing goods carriages, where such contractor owns ten or less than ten goods carriages at any time during the previous year and furnishes a declaration to that effect along with his Permanent Account Number, to the person paying or crediting such sum. (w.e.f. 01-06-2015)
In section 194C of the Income-tax Act, in sub-section (6), with effect from the 1st day of June, 2015, for the words “on furnishing of”, the words “where such contractor owns ten or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with” shall be substituted.
Clause 43 of the Bill seeks to amend section 194C of the Income-tax Act relating to payments to contractors. Under the existing provisions contained in sub-section (6) of the aforesaid section, no deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum. It is proposed to amend sub-section (6) of the said section so as to provide that no deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, where such contractor owns ten or less than ten goods carriages at any time during the previous year and furnishes a declaration to that effect along with his Permanent Account Number, to the person paying or crediting such sum. This amendment will take effect from 1st June, 2015.
The updated chart of tax Deduction at Source for FY 2015-16 or AY 2016-17 is as under:
| Section | Nature of Payment | Rate-HUF/Individual | Rate-Others |
| 194C | Contracts: Single > Rs. 30,000 Aggregate > Rs. 75,000 | 1% | 2% |
Budget 2016-17 proposed to increase the limit from Rs 75,000 to Rs 1,00,000 w.e.f. from 1st June 2016.
- No tax is to be deducted on the amount paid/ credited to the transporter if the transporter furnishes PAN to the deductor. The deductor has to intimate the Pan details to the Income Tax Department in the prescribed format and within the time prescribed.
- Payment made by the Individual or HUF to a resident Contractor for Personal purposes is not subject to TDS.
Related Cases:
S. 194C, 194C, Expln. (iv)(e)f 201(1) of IT Act, 1961—TDS—A purchaser who desires to get the product, which he intends to sell under his brand name, or trademark, manufactured from a third party would be interested in ensuring the quality of the product. The trademark has associated with it an assurance of the quality of the goods which are marketed traceable to the origin of the goods. Associated with the trademark is the goodwill and reputation which is associated with the mark. The assessee has an agreement with a third party for manufacture of certain pharmaceutical products. The assessee provides the formulations and specifications. The manufacture affixes the trade mark of the assessee on the articles produced. The raw materials are purchased by the manufacturer and the property in the goods passes to the assessee only on delivery. Hence its is amended to sale and not a contract for carrying on any work within the meaning of S. 194C and therefore, the transaction between the assessee and the manufacturer is a contract for sale of goods and is not in the nature of works contract and, thus, the provisions of S. 194C are not attracted—CIT vs. Glenmark Pharmaceuticals Ltd. [2010] 324 ITR 199 (BOM)
S. 40(a)(ia) & 194C of IT Act, 1961—Business Expenditure—A contract between the assessee and a cement factory taken place and as per the said agreement, the responsibility of the assessee was to transport the cement but for that, assessee hired the services of the truck operators as a sub-contractors. There was no privacy of direct contract between the assessee and the cement factory and therefore, S. 194C is applicable and the payments made to such contracts without deduction of tax at source u/s 194 are disallowable u/s 40(a)(ia) of the Act—Shree Choudhary Transport Company vs. ITO (2009) 225 CTR 125 (Raj)
S. 194C of IT Act, 1961—TDS—The assessees are registered societies/AOP constituted by the truck operators. These societies entered into contracts with the companies for transport of the goods of the companies. The assessee societies made payment to the truck owners who are its member after receiving the payments from such companies against transportation of their goods. Hence, such payments are not subject to TDS u/s 194C (2) as there is no sub-contract between the society and the members and the societies entered into contract with such companies on behalf of its members—CIT vs. Ambuja Darla Kashlog Mangu Transport Co-op. Society (2009) 227 CTR 299 (HP)
S. 194C of the IT Act, 1961—Deduction of tax at source—The service contracts between the hotels and its customers are not covered u/s 194C because neither such contracts constitute work within the meaning of S. 194C, nor those contracts are covered under service contracts specifically included by way of Explanation III to S. 194C. Consequently, the Circular Nos. 681, dt. 8.3.1994, to the extent it held that the service made available by a hotel to its customers are covered u/s 194C are to be held bad in law—East India Hotels Ltd. vs. CBDT
S. 194C of IT Act, 1961—Deduction of tax at source—The assessee who is a manufacturer and trader of footwear, purchases printed material from suppliers for the purpose of manufacturing footwear is not liable to deduct tax at source u/s 194C on the payments made for purchase of printed material—ITO vs. Bata India P. Ltd. (2011) 7 ITR (Trib) 246 (ITAT-Delhi)
S. 194C of the IT Act, 1961, r/w art. 226 of the Constitution of India—Writ Petition—The assessee is a supplier of eggs and it entered into a contract with State Government for supply of eggs to Noon Meal Centres in certain district and accordingly, the assessee supplied the same. Assessing Officer Demand income-tax along with interest from assessee. Department also said that transaction of supply of eggs is liable for payment of income tax and, thus, same has to be deducted at source as contemplated u/s 194C. Assessee challenged the said demand of income-tax through filing writ petition under art. 226 of the constitution of India. Writ petition filed by the assessee against the said demand is not maintainable because the question whether subject contract or sale contract can be construed as a work contract has to be decided on facts and it requires through analysis of the scope of the contract and such other documentary evidence and same cannot be done in writ jurisdiction under art. 226 of the constitution of India— [2010] 230 CTR 542 (Mad.)
S. 40(a)(ia), 194C(3)(i) of IT Act, 1961—Deduction of tax at source—Since there is no material on record to prove any written or oral agreement between the assessee and the recipients of goods for transportation or carriage thereof, or that the payments of freight has been made in pursuance of a contract of transportation of goods for a specific period, quantity or price, that none of the individual payment exceeded Rs. 20,000, the assessee cannot be said to be an assessee in default for non-deduction of tax at source in terms of S. 194C of the Act on the amount of freight billed separately by recipient as the provisions of S. 40(a)(ia) of the Act cannot be applied to disallow the amount of such freight—CIT vs. Bhagwati Steels (2010) 326 ITR 108 (P&H)
S. 40A(3), 194C, 201(1A) of IT Act, 1961—TDS—The assessee is engaged in the Business of purchase, processing and sale of “tur dal” and a survey u/s 133A of the Act was carried out at the business premises of the assessee. The receipt by one person for further redistribution is merely an administrative convenience and when no existence of contract has been established between the recipient and the assessee-company, the provisions of S. 194C of the Act do not apply. Since, there is no violation of S. 40A(3) of the Act and, therefore, consequential interest u/s 201 and 201(1A) of the Act cannot be charged—DCIT vs. Laxmi Protein Products Pvt. Ltd. (2010) 3 ITR (Trib) 768 (ITAT-Ahd)
S. 194C of the IT Act, 1961—Deduction of tax at source—The service contracts between the hotels and its customers are not covered under s. 194C because neither such contracts constitute work within the meaning of S. 194C, nor those contracts are covered under service contracts specifically included by way of Explanation III to S. 194C. Consequently, the Circular Nos. 681, dt. 8.3.1994, to the extent it held that the service made available by a hotel to its customers are covered u/s 194c are to be held bad in law—East India Hotels Ltd. vs. CBDT [2010] 320 ITR 526 (Bom.)
S. 40(a)(ia) & 194C of IT Act, 1961—Business expenditure—The provisions of cl. (1) of S. 194C(7) provides that the person is liable to be audited under cl. (a) or cl. (b) of S. 44AB of the Act during the financial year immediately preceding the financial year in which such payment is credited or paid to the account of the creditor. Since the assessee who is a transporter is not liable to get his accounts audited u/s 44AB in the immediately preceding assessment year, he is not required to deduct tax at source u/s 194C from the payments made to the contractors in the relevant year and thus, on account of non-deduction of TDS, said payment cannot be disallowed u/s 40(a)(ia) of the Act—ITO vs. Dhirubhai Dajibhai Patel (2010) 133 TTJ (UO) 1 (ITAT-Ahd)
S. 194C of the IT Act, 1961—Deduction of tax at source—The assessee is a Co-operative society and its members consist of truck operators and the assessee entered into a contract with a cement factory. The question was arose before the High Court in appeal u/s 260A that “whether assessee is liable or not liable to deduct TDS u/s 194C of the Act.” The said question is a substantial question of law and High Court ought to have decided it but same was not decided. Thus, matter is remitted back to High Court for fresh consideration—CIT vs. Bilaspur District Truck Operators Transport Co-op. Society Ltd.
S. 194C, 194C, Expln. (iv)(e)f 201(1) of IT Act, 1961—TDS—A purchaser who desires to get the product, which he intends to sell under his brand name, or trademark, manufactured from a third party would be interested in ensuring the quality of the product. The trademark has associated with it an assurance of the quality of the goods which are marketed traceable to the origin of the goods. Associated with the trademark is the goodwill and reputation which is associated with the mark. The assessee has an agreement with a third party for manufacture of certain parmaceutical products. The assessee provides the formulations and specifications. The manufacture affixes the trade mark of the assessee on the articles produced. The raw materials are purchased by the manufacturer and the property in the goods passes to the assessee only on delivery. Hence its is amented to sale and not a contract for carrying on any work within the meaning of S. 194C and therefore, the transaction between the assessee and the manufacturer is a contract for sale of goods and is not in the nature of works contract and, thus, the provisions of S. 194C are not attracted—CIT vs. Glenmark Pharmaceuticals Ltd. (2010) 231 CTR 105 (Bom)
S. 194C of IT Act, 1961—TDS—The assessees are registered socities/AOP constituted by the truck operators. These societies entered into contracts with the companies for transport of the goods of the companies. The assessee societies made payment to the truck owners who are its member after receiving the payments from such companies against transportation of their goods. Hence, such payments are not subject to TDS u/s 194C (2) as there is no sub-contract between the society and the members and the societies entered into contract with such companies on behalf of its members—CIT vs. Ambuja Darla Kashlog Mangu Transport Co-op. Society (2009) 227 CTR 299 (HP)
S. 194C of the IT Act, 1961—Deduction of tax at source—The contract may be in writing or it may be oral, but the liability to pay arises when the recipient of the said amount receives payment in excess of Rs. 20,000. Assessee is deriving income from hiring of vehicles however she hires vehicles from her owners, sub-contractors and utilized same for performing written contract entered into by her with customers. Out of transportation charges, received from customers, a substantial portion is paid to subcontractors towards transportation charges. The turnover of the assessee exceeded the monitory limit specified under cl. (a) or cl. (b) of S. 44AB. Therefore, the liability to deduct tax has arisen under the said proviso to the sub-contractor from whom the vehicles are hired and the said amount payable to the sub-contractor is in excess of Rs. 20,000—Smt. J. Rama vs. CIT
S. 194C of the IT Act, 1961, r/w art. 226 of the Constitution of India—Writ Petition—The assessee is a supplier of eggs and it entered into a contract with State Government for supply of eggs to Noon Meal Centres in certain district and accordingly, the assessee supplied the same. Assessing Officer demand income-tax along with interest from assessee. Department also said that transaction of supply of eggs is liable for payment of income tax and, thus, same has to be deducted at source as contemplated u/s 194C. Assessee challenged the said demand of income-tax through filing writ petition under art. 226 of the constitution of India. Writ petition filed by the assessee against the said demand is not maintainable because the question whether subject contract or sale conract can be construed as a work contract has to be decided on facts and it requires through analysis of the scope of the contract and such other documentary evidence and same cannot be done in writ jurisdiction under art. 226 of the constitution of India—Mani Muthusamy vs. Personal Assistant to the Collector.
S. 194C, 201(1A), 204 of IT Act, 1961—Deduction of tax at source—U/s 201 of the Act, when tax has been deducted it is incumbent upon the assessee to deposit it and u/s 201(A) when the concerned person does not deduct or after deducting fails to pay the tax, he shall be liable to pay the interest—Block Development Officer vs. ITO (2010) 5 ITR (Trib) 426 (ITAT-Delhi)
S. 194C of IT Act, 1961—TDS—The facilities/amenities provided to its customer by hotel do not constitute work within the meaning of S. 194C of the Act, therefore the Circular No. 681, dt. 8th March, 1994 came to be quashed to the extent it holds that S. 194C applies to payments by the customers to a hotel for availing the facilities/amenities made by a hotel—The East India Hotels Ltd. & Anr. vs. CBDT & Anr. (2009) 223 CTR 133 (Bombay)
S. 40(a)(ia) & 194C of IT Act, 1961—Business expenditure—Assessee, a transport contractor, entered into an agreement with some parties whereby the assessee undertook to transport bitumen to various points as per their directions. As per the provisions of S. 194C(2), the sub-contractor should carry out the whole or any part of the work undertaken by the assessee. The payments made for hired vehicles would not fall in the category of payment towards a sub-contract with the lorry owners. Hence, the assessee is liable to deduct tax at source, as per the provisions of S. 194C(2) on the payments made to the lorry owners for lorry hire and, therefore, the provisions of S. 40(a)(ia) shall not apply to such payments—Mythri Transport Corporation vs. ACIT (2010) 1 ITR (Trib) 290 (Visakha)
S. 40(a)(ia) & 194C of IT Act, 1961—Business expenditure—Matter is restored to the Assessing Officer for de novo examination after giving reasonable opportunity on his submission that he has made payments to the truck operators without deducting tax at sources after obtaining Form No. 15-I but he failed to produce the same before the Assessing Officer—Shree Choudhary Transport Co. vs. ITO (2010) 128 TTJ 90 (ITAT-Jd)
S. 194C, r/w S. 201, of IT Act, 1961—Deduction of tax at source—As per the provisions of S. 194C if any person makes payment to a contractor for carrying out any work; including supply of labour for carrying out any work which is popularly known as labour contract, there is a legal obligation on said perons, i.e., the principal; to deduct the tax at the specified rate and deposit the same with the Government. The assessee company was formed with an object to carry on business of film laboratory, printing, developing, processing, etc., and also carry on business of producers exporters, importers, hires, dealers, distributors and exhibition of raw films, etc., and it advanced to producers-directors for production of film. Therefore, the provisions of S. 194 are not attracted to any such agreement in absence of any relationship of a principal and a contractor between the assessee and film producers. Since the assessee was not a deemed defaulter u/s 201(1) of the Act, therefore, no interest u/s 201(1A) can be levied—Entertainment One India Ltd. vs. DITO (2010) 126 ITD 491 (ITAT-Mum.)
S. 194C(1), 194C (2) & 194J of IT Act, 1961—TDS—The art work and photography cannot be treated as professional services and these are covered by the provisions of S. 194C (1) of the Act. The job awarded by the assessee to other parties in performance of duty as Event manager has to be treated as a contractor and not a sub-contractor and therefore, the provisions of S. 194(1) are applicable—EMC vs. ITO (2010) 134 TTJ 198 (ITAT-Mum)
S. 40(a)(ia) & 194C of IT Act, 1961—Business expenditure—When the assessee had deducted the tax in the last month of the previous year i.e., March, 2005 and deposited the same before the due date of filing of the return u/s 139(1), then it is covered under cl. (A) of S. 40(a)(ia) of the Act and no disallowance u/s 40(a)(ia) can be made. When the assessee’s case is covered under main provisions of existing law then one need not to go to the issue of prospective or retrospective effect of the amendment in the provisions by the Finance Act 2010—Bapusaheb Nanasaheb Dhumal vs. ACIT (2010) 132 TTJ 694 (ITAT-Mum)
S. 194C, r/w S. 40(a)(i) of IT Act, 1961—Deduction of tax at source—On a clear failure to deduct tax at source in accordance with S. 194C, by invoking sub-cl.(ia) of cl. (a) of S. 40, disallowance were rightly made by Assessing Officer—ITO vs. M. Sankar (2010) 127 ITD 316 (ITAT-Chennai)
S. 194C of the IT Act, 1961—Deduction of tax at source—The Tribunal allowed the claim of deduction u/s 194C for reasons that contract in question provided for payment to sub-contractors on receipt from main contract. Matter requires re-examination with regard to the admission of income and payment of tax by sub-contractors. However, there is no provision for the sub-contractors for sharing of award amount in arbitration proceedings between the respondent and the awarder/main contractor. Matter remitted to the Assessing Officer to verify whether the respondent have deducted TDS and the sub-contractors have offered the amount and paid tax. If this happened, that is, recovery to TDS and assessments of the same amounts in the hands of the sub-contractors and the Assessing Officer should verify the position as to whether the assessee has collected TDS on the amounts and the very same amount is in the hands of contractors and if so to allow the deductions or otherwise to disallow the claim—CIT vs. Vellapally Bros (Construction) (Pvt.) Ltd.
S. 40(a)(ia) & 194C of IT Act, 1961—Business expenditure—When the freight charges are paid directly by the assessee to the truck owners, and there is no oral or written contract between the assessee and the transporters, no tax at source has to be deducted on the freight charges paid to the truck owners—Mrs. Kvaita Chug vs. ITO (2010) 134 TTJ 103 (ITAT-Kol)
S. 194C of IT Act, 1961—Deduction of tax at source—The provisions of S. 194-I are confined to the payment of rent on hiring of land or building including factory building, furniture or fittings but not for the transport vehicles and other modes of transportation, particularly when it was in the nature of providing and availing of transport services. The Assessing Officer cannot raise a demand u/s 201(1) when the entire tax has been paid by the recipient of the amount by way of advance tax and tax deduction at source—ACIT vs. Accenture Services Pvt. Ltd. (2012) 13 ITR (Trib) 48 (ITAT-Mumbai)
S. 194C of the IT Act, 1961—Deduction of tax at source—The contract may be in writing or it may be oral, but the liability to pay arises when the receipient of the said amount receives payment in excess of Rs. 20,000. Assessee is deriving income from hiring of vehicles however she hires vehicles from her owners, sub-contractors and utilized same for performing written contract entered into by her with customers. Out of transportation charges, received from customers, a substantial portion is paid to subcontractors towards transportation charges. The turnover of the assessee exceeded the monatory limit specified under cl. (a) or cl. (b) of S. 44AB. Therefore, the liability to deduct tax has arisen under the said proviso to the sub-contractor from whom the vehicles are hired and the said amount payable to the sub-contractor is in excess of Rs. 20,000—Smt. J. Rama vs. CIT
S. 40(a)(ia) & 194C of IT Act, 1961—Business expenditure—When the freight charges are paid directly by the assessee to the truck owners, and there is no oral or written contract between the assessee and the transporters, no tax at source has to be deducted on the freight charges paid to the truck owners—Mrs. Kvaita Chug vs. ITO (2010) 134 TTJ 103 (ITAT-Kol)
S. 194C & 260A of IT Act, 1961—Appeal(High Court)—Question whether the assessee who is a society and its members consist of truck operators entered into a cement company is liable or not liable to deduct TDS u/s 194C of the Act, is a substantial question of law and the High Court should decide it in appeal u/s 260A of the Act—CIT vs. Bisalpur District Truck Operators Transport Co-op. Society Ltd. (2009) 225 CTR 260 (SC)
S. 40(a)(ia) & 194C of IT Act, 1961—Business expenditure—Sub-cls. (i), (ia) and (ib) substituted for sub-cl. (i) to S. 40 by the Finance (No.2) Act, 2004 w.e.f. 1st April, 2005 and it is applicable to the A.Y. 2005-06 and subsequent years. S. 40(a)(ia) applies to cases in which the hire charges are payable and not applicable to the amounts which have been already paid. If the assessee has paid the impugned amount and not payable at the end of the year on the date of balance sheet, then the provisions of S. 40(a)(ia) are not applicable. It is only applicable in respect of payable amount shown in the balance sheet as outstanding expenses on which TDS has not been made—K. Srinivas Naidu vs. ACIT (2010) 131 TTJ (UO) 17 (ITAT-Hyd.)
S. 194C of IT Act, 1961—TDS—For applying of S. 194C, there has to be first a contract in existence involving a contractor and a contractee and the contract must be for carrying out of any work. Film financing agreement or arrangement not being any work or work contract do not attract S. 194C and therefore, there is no requirement to deduct tax from payment made as advances for production of film—Muktha Arts vs. ACIT [2010] 129 TTJ 425 (MUMBAI)
S. 40(a)(ia) & 194C of IT Act, 1961—Business Expenditure—When hiring of trucks and payments thereof are not in consequence upon any written or oral agreement, the natural outcome is that the provisions of S. 194C are not applicable and therefore, the assessee’s case is not hit by the provisions of S. 40(a)(ia) of the Act. In other words, Provisions of S. 194C are not applicable to the payments of freight or hiring charges made by the assessee to the truck owners and same cannot be disallowed u/s 40(a)(ia) of the Act—Chandrakant Thackar vs. ACIT— (2010) 129 TTJ (uo) -1 (ITAT-Cuttack)
S. 194C of the IT Act, 1961—Deduction of tax at source—The assessee society is an AOP constituted by the truck operators. In absence of any sub contract between the assessee-society and its members, the provision of S. 194C(2) is not attracted at all—CIT vs. Sirmour Truck Operators Union (2010) 195 Taxman 62 (HP)
S. 194C, 194H of IT Act, 1961—Deduction of tax at source—The assessee group of concerns included two entities, MDIL and the assessee, whose vendors are same and a common agreement was executed with the assessee’s group entities. The assessee sales milk and milk products to vendors on the basis of the agreement on various stipulations. The goods were sold to vendors at a lesser price than the maximum retail price on the sale of goods on principal to principal basis. Since the transaction between the assessee and the concessionaires is a principal to principal transaction and not principal to agent transaction, therefore, the assessee’s case does not fall u/s 194 of the Act—ITO vs. Mother Dairy Food Processing Ltd. (2011) 7 ITR 16 (ITAT-Trib)
S. 40(a)(ia) & 194C of IT Act, 1961—Business expenditure—If the assessee has paid the impugned amount and it is not payable at the end of the year on the date of balance sheet, then the provision of S. 40(a)(ia) are not applicable and these are only applicable in respect of “payment amount” shown in the balance sheet as outstanding expenses on which TDS has not been made. Tax is deductible u/s 193, 194A, 194C, 194H and 194J either at the time of payment or at the time of giving credit to the recipient. Howevers, S. 40(a)(ia) is applicable only in respect of TDS defaults when amount is “payable” and if amount is actually paid and tax is not deducted under the above sections, S. 40(a)(ia) is not applicable—Teja Construction vs. ACIT [2010] 129 TTJ 57 (HYD) (DEL)
S. 40(a)(ia), 194C of IT Act, 1961—Deduction of tax at source—The assessee in order to facilitate the proper production advanced the amount to the farmers by way of seeds and cash in advance and the cost of seeds and the amount so advanced was adjusted against the sale proceeds. The operations carried out by the farmers are purely agricultural operations and it cannot by any stretch of imagination be said that they are in the nature of works contract. Therefore, the provisions of S. 194C of the Act are not applicable—ACIT vs. Fortune Kalindi agro Biotech Ltd. (2011) 7 ITR (Trib) 249 (ITAT-Delhi)
S. 40(a)(ia) & 194C of IT Act, 1961—Business expenditure—The provisions of S. 40(a)(ia) as amended by the Finance Act, 2010 w.e.f. 1st April, 2010 which has newly been inserted by the Finance (No.2) Act, 2004, w.e.f. 1st April, 2005 to S. 40 is remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the taxpayers and which made the provision unworkable or unjust in a specific situation, and is of clarificatory nature and, therefore, has to be treated as retrospective w.e.f. 1st April 2005, the date on which S. 40(a)(ia) has been inserted by the Finance (No.2) Act, 2004. Therefore, where the assessee has paid before the due date of filing the return of income, the tax deducted during previous year, no disallowance u/s 40(a)(ia) can be made—Kanubhai Ramjibhai vs. ITO (2011) 135 TTJ 364 (ITAT-Ahd.)
S. 194C, r/w s. 40(a)(ia), of IT Act, 1961—Deduction of tax at source—In order to attract the applicability of S. 194C(2), the payment has to be made by a contractor to a sub-contractor for carrying out or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply. It is therefore, a condition precedent, for invoking S. 194C(2), that the payment in question has to be for carrying out a part of the work, or the work itself, undertaken by the contractor or the supply undertaken by the contractor. Since the assessee did not have any tax withholding obligations, the provisions of disallowance u/s 40(a)(ia) do not come into play at all, which come into force only when an assessee has a tax withholding obligation and he does not discharge the same—Dr. Raja L. Bhatia vs. Jt. CIT (2012) 134 ITD 615 (ITAT-Mum.)
S. 194C of IT Act, 1961—Deduction of tax at source—Purchase of advertisement material from a person without supplying any material used in preparation of said material cannot be termed as works contract, and thus, the provisions of S. 194C are not applicable—DCIT vs. Eastern Medikit Ltd. (2012) 135 ITD 461 (ITAT-Delhi)
S. 194C of the Income tax Act, 1961—Tax Deduction at Source—”The CIT(A) has erred on facts and in law in directing that the payment of hiring charges of tanker is liable for TDS u/s 194C and not u/s 194I of the I.T. Act, 1961, as applied by the A.O.” While dismissing the appeal filed by the Revenue the Delhi Bench of ITAT held that:—”The arrangement for transportation of petroleum products was essentially a contract for transportation of goods and not an arrangement of hiring of vehicles. In view thereof, tax is required to be deducted at source from the payments to the carrier in terms of provisions of S. 194C of the Act and not u/s 194I of the Act. Therefore, ground nos. 1.1 & 1.2 in these six appeals of the Revenue are dismissed.” [2011] 20 ITCD 109 (ITAT-DELHI)
S. 194C of the Income tax Act, 1961—TDS—Honourable Delhi High Court while deciding the appeal in favor of assessee held that:—”In view of the above principles of law, we see that the assessee had been deducting tax from the payments payable to CFA u/s 194C on a consolidated basis towards different heads. There is no reason to disbelieve the assessee that the same was being done by its employees on misconceived professional advice given by the Chartered Accountants. Since the payment were to be deducted from CFA no benefit was to be derived by the assessee for making lesser or inaccurate deductions. No malafide intention of any kind can be attributed to the assessee for deducting tax under one provision of law than the other. This was neither the case of malafide intention nor that of negligent intention or want of bonafide, but a case of misconceived belief of applicability of one provision of law. We cannot say judiciously that the assessee has failed to comply with the provision of S. 194I and 194J of the Act without reasonable cause.” [2011] 18 ITCD 25 (DELHI)
S. 194C, Expln-III(c) of IT Act, 1961—Deduction of tax at source—In case of assessee who hired the cars on fixed rent payment owned and maintained by contractor, sub-cl.(c) to expln-III of the provisions of S. 194C of the Act would apply—Ahmedbad Urban Development Authority vs. ACIT (2012) 13 ITR (Trib) 73 (ITAT-Ahd.)
S. 40(a)(ia) & 194C of IT Act, 1961—Business expenditure—The provisions of S. 194C would not apply in relation to payments made for hiring or renting of equipments, etc.—ACIT vs. Sanjay Kumar (2012) 143 TTJ 415 (ITAT-Del)
S. 194C of IT, Act, 1961—Deduction of tax at source—S. 194C(2) of the Act has no application in the circumastances of the case when the union was merely acting in a representative capacity and there is no separate contract between the union and its members for performance of the work as required for applicability of S. 194C(2) of the Act and thus, S. 40(a)(ia) is not applicable—CIT vs. Truck operators Union (2011) 339 ITR 532 (P&H)
S. 194C, 194-I of IT tax Act, 1961—TDS—S. 194-I makes provision for deduction of tax at source where any person who is responsible for paying to a resident any income by way of rent whereas S. 194C of the Act makes provisions for deduction of tax at source where any person is responsible for paying any sum to any resident for carrying out any work including supply of labour for carrying out any work in pursuance of a contract between the contract and a specified person. The assessee has carried out freight and transportation works contract with three transporters who transported the goods belonging to the assessee and its clients to various places thought their vehicles. The assessee had not taken the trailers/cranes on hire or rent from the said parties. The assessee has given sub-contracts to the said parties for transportation of goods and not for renting out of machineries and equipment. Thus, the said transaction would fall within the purview of S. 194C as the assessee was responsible for paying the amount in question for carrying out work in pursuance of contracts between the assessee and the transporters and as such was required to deduct tax at source at the rate prescribed under the said section. Thus, assessee is not an assessee in default within the meaning of said expression as contemplated u/s 201 of the Act, 1961—CIT vs. Swayam Shipping Services Pvt. Ltd. (2011) 339 ITR 647 (Guj.)
S. 194C, 194-I of IT Act, 1961—TDS—The transactions being in the nature of contracts for shifting of goods from one place to another would be covered as works contracts, thereby attracting the provisions of S. 194C of the Act. In the present case, the assessee was engaged in the business of transportation of building material, salt, black trap, iron, etc., and it paid a certain amount for hiring of dumpers and deducted tax at source. Since the assessee had given sub-contracts for transportation of goods and not for the renting out of machinery or equipment and thus, such payment cannot be termed as rent paid for the use of machinery and the provisions of S. 194-I of the Act would not be applicable but the provisions of S. 194C are applicable—CIT (TDS) vs. Shree Mahalaxmi Transport Co. (2011) 339 ITR 484 (Guj)
S. 9(1)(vii), 194C & 194J of IT Act, 1961—TDS—Any payment for technical services in order to be covered u/s 194J, should be a consideration for acquiring or using technical know-how simplifier provided or made available by human element. There should be a direct and live link between payment and receipt/use of technical services/information. If the conditions of S. 194J r/w S. 9(1)(vii), Expln. 2 are not fulfilled, the liability under this section is ruled out. Thus, the payments made by the assessee to security services are covered u/s 194C and there is no scope for applying the provisions of S. 194J of the Act—Glaxosmithkline Pharaceuticals Ltd. vs. ITO (2012) 145 TTJ (UO) 9 (ITAT-Pune)
S. 40(a)(ia), 147 148, 194C of IT Act, 1961—Reassessment—Under the provision of S. 194C, the assessee is required to deduct tax at source on entire amount debited in the profit and loss account and if the assessee has failed to do so, the necessary action for reopening of the assessment has to be taken—K.D. Manufacturing vs. ITO (2012) 14 ITR (Trib) 265 (ITAT-Ahd.)
S. 194C, 201(1) & 201(1A) of IT Act, 1961—TDS—According to the provisions of the Electricity Act, it is duty of the distribution licensee to develop and maintain an efficient Co-ordinate distribution system in its area of supply. The supply of electricity is to be made by such distribution licensee in accordance with the provisions of the Electricity Act. Where any person whose premises are situated within the area of supply of the distribution licensee, and it requires supply of electricity of its premises, is to apply for such supply of electricity and it is the duty of the distribution licensee to provide the electricity to the premises of the consumer who has made an application for such supply of electricity to its premises. Assessee unit functioning under Ministry of Railways made payments to State Electricity Boards for the construction of transmission lines for providing power to Railway traction sub-station. Payment made to SEBs for necessary infrastructure by a person requiring electricity supply u/s 46 of Electricity Act, 2003 is not contractual payment. There was no oral or written contract between parties and in fact such process of providing electricity to the premises of the consumer, though is carried out at the request of the consumer but is in fact the duty of the distribution licensee and, therefore, the assessee is not liable to deduct TDS on amounts paid to the electricity distribution licenses for providing the infrastructure facility in the form of transmission lines—Chief Project Manager, Railway Electrification, Ambala Cantt. vs. ITO (2012) 144 TTJ 495 (ITAT-Chd.)
S. 40(a)(ia) & 194C of IT Act, 1961—Business expenditure—The printing of packing material is only sale and not contract in terms of provision of S. 194C of the Act, since the predominant object underlying the contract is sale/purchase of goods and only intention of the assessee is to buy packing materials. Admittedly, the raw material for the manufacturing of such packing materials is not supplied by the assessee and thus, it is a case of sale and not a contract for carrying on any work. Therefore, disallowance u/s 40(a)(ia) for non deduction of tax is not called for—ITO vs. Pankaj Jain (2011) 141 TTJ (UO) 54 (ITAT-Asr.)
S. 40(a)(ia) & 194C of IT Act, 1961—Business expenditure—CI. (c) of Expln. III to S. 194C, includes carriage goods and passengers by any mode of transportation other than by railway in expression “work” for the purpose of TDS. Payment made by assessee for transportation of goods by railway does not fall within the ambit of “work”. Therefore, there is no obligation on the assessee to deduct tax at source u/s 194C of the Act—Airtech (P) Ltd. vs. DCIT (2011) 139 TT J 318 (ITAT-Delhi)
S. 194C & 201 of the IT Act, 1961—TDS—When the transactions between the assessee and its manufacturers were of sales simplicitor and not that of works contract as per terms and conditions of the agreement entered into between the assessee and the manufacturers as also Circular No. 681 dated 8.3.1994 issued by the Central Board of Direct Taxes, the assessee could not be an assessee in default u/s 201(1)/201(1A) of the Act
S. 194C & 260A of the IT Act, 1961—Appeal (High Court)—The provisions of S. 194C would not be applicable to the finding of fact to the effect that dealing between the assessee and its suppliers are on principal to principal basis and does not amount to transactions in the nature of work contract—CIT vs. Seagram Manufacturing (Pvt.) Ltd.
Income-tax Act, 1961, Sections 194C, 194-1 and 201(1A)—Circular No. 275/201/95-IT(B) dated 29.1.97—Tax deducted at source—Payments to deductee for use of premises for receipt, storage and dispatch of goods, belonging to the assessee—Whether assessee in default—While allowing the appeal of the assessee, the Supreme Court held that:—”In the instant case, the appellant had paid the interest u/s 201 (1A) of the Act and there is no dispute that the tax due had been paid by deductee-assessee (M/s Pradeep Oil Corporation). It is not disputed before us that the circular is applicable to the facts situation on hand. In the circumstances, it is not necessary to go in detail as to whether the Tribunal could have at all reopened the appeal to rectify the error apparent on the face of the record. We do not wish to express any firm view on this aspect.” Hindustan Coca Cola Beverage Pvt. Ltd. vs. CIT (SC)
S. 194C of the IT Act, 1961—TDS—The assessee engaged trucks through agents and suppliers and for each truck made separate payment because each truck was for a separate destination and contract was with the truck owners/drivers and not with agents or suppliers, therefore provisions of S. 194C are not applicable—ITO vs. Bhoruka Roadlines Ltd. (2009) 117 ITD 311 (ITAT-Mumbai)
S. 194C of the IT Act, 1961—TDS—Supply of outsourced manufactured goods by the contract manufacturers constitute an outright sale and cannot be treated as a contract of works within the scope of S. 194C and therefore, the assessee is not liable to deduct tax at source from the purchase of the goods paid by the assessee to the contract manufacturers or the suppliers—Tuareg Marketing (Pvt.) Ltd. vs. ACIT (2009) 122 TTJ 343 (ITAT-Delhi)
S. 194C, 260A of the IT Act, 1961—Appeal (High Court)—Whether the assessee was liable or not liable to deduct TDS u/s 194C of the IT Act, 1961 is a question of law and which is to be examined and decided by High Court in appeal u/s 260A of IT Act, 1961—CIT vs. Sirmour Truck operators Union (2009) 313 ITR 26 (SC)
S. 194C(2), 260A of the IT Act, 1961—Appeal (High Court)—Whether freight paid by the assessee (AOP) to truck owners who in turn are members of said AOP is subject to TDS u/s 194C(2) of IT Act, 1961 is a question of law and is to be decided by High Court in appeal u/s 260A of the Act—CIT vs. Sirmour Truck operators Union (2009) 313 ITR 27 (SC)
S. 40(a)(ia), 194C of IT Act, 1961—Business expenditure—A sum paid for advertisement towards advancement of the business is liable to be deducted from computation of the total income strictly u/s 194 of the Act. The payment made by the assessee is liable to deduction of tax at source u/s 194C of the Act failing which S. 40(a)(ia) provided that such payment should not be allowed to be deducted from computation of the total income and should not be treated to be the income of the assessee—Day’s Medical (U.P.) Pvt. Ltd. vs. U.O.I. (2009) 316 ITR 445 (All)
S. 5. 40(a)(ia) & 194C of IT Act, 1961—Business expenditure—For carrying out any work, manpower is the sine qua non and without manpower, it cannot be said that work has been carried out. Thus, the hiring of trucks for the purpose of using them in the assessee’s business would not amount to a contract for carrying out any work, as contemplated in S. 194C. Therefore, when the assessee entered into contract for the purpose of taking temporary possession of trucks from the truck owners, it does not amount to the assessee entering into any contract for carrying out any work and since said contract is not for carrying out any work, the provisions of S. 194C are not attracted—DCIT vs. Satish Agarwal & Co. (2009) 124 TTJ 542 (ITAT-Asr.)
S. 194C, 201(1),(1A) of IT Act, 1961—Deduction of tax at source—As per the provisions of S. 194C of the Act, any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract shall at the time of such sum or at the time of payment thereof in cash or by cheque deduct a tax thereon at a prescribed rate. However, no such deduction at source is required to be made, if the sum paid or credited do not exceed Rs. 20,000. Since there is neither an oral nor written agreement between the assessee and the transporters for carriage of goods nor it has been proved that any sum of money regarding freight charges was paid to them in presence of a contract for a specific period, quantity or prices, the assessee cannot be held liable to deduct tax at source—CIT vs. United Rice Land Limited. [2010] 322 ITR 594 (P&H)
S. 194C of IT Act, 1961—Deduction of tax at source—S. 194C applies to all such situations where there is a contract of the nature as indicated in this section and in existence between a person and the company, etc. In the case, the person is an assessee-company and ‘company’ as indicated in S. 194, Explanation (i)(d) is the supplier company—CIT vs. Nova Nordisk Pharama India Ltd. (2012) 341 ITR 451 (Karn)
S. 40(a)(ia), 194C—Business Expenditure—IT ACT, 1961—BHAIL BULK CARRIERS vs. ITO [2012] 148 TTJ 31 (UO)(ITAT-MUMBAI)
S. 194C of the IT Act, 1961—TDS—The assessee entered into a contract for purchase of gas and that there was no works contract entered into between the assessee and GAIL. Therefore, application of S. 194C does not arise.—CIT vs. Krishak Bharati Co-operative Ltd. [2012] 253 CTR 402 (Guj)
S. 194C, 194J, 040(a)(ia)—Business Expenditure—IT ACT, 1961—NITIN M. PANCHAMIYA vs. ACIT [2012] 148 TTJ 96 (ITAT-MUMBAI)
S. 194C—Deduction of tax at source—IT ACT, 1961—RATAN J BATLIBOI vs. ACIT [2012] 138 ITD 355 (ITAT-MUMBAI)
S. 194C—IT ACT, 1961—Deduction of tax at source—Commissioner of Income-tax vs. Karnataka Power Transmission Corporation Ltd.
S. 40(a)(ia) & 194C of IT Act, 1961—Business expenditure—According to S. 194C, “any person responsible for paying any sum to any resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person” is required to deduct tax at source under this section from the amounts so paid or payable. Assessee has made payment to the CDLB for supply of labour even when labour may be treated as employed by the assessee for all practical purposes, the provisions of S. 194C are clearly attracted. Hence, in such a situation, i.e. when labour hired by the assessee through CDLB is considered to be in assessee’s employment, the payment made to CDLB is considered to be in assessee’s employment, the payments made to CDLB cannot be treated as payments for ‘any work,’ but nevertheless these payments could still be covered by the provisions of s. 194C because there are payments made for ‘supply of labour’ which are specifically covered by S. 194C(1) of the Act—DCIT vs. Kamal kukherjee & Co. (shipping) (Pvt.) Ltd. (2012) 145 TTJ 374 (ITAT-Kol.)
S. 194C, r/w S. 44AB and 40(a)(ia), of IT Act, 1961—Deduction of tax at source—Application u/s 194C(2) requires that in financial year immediately preceding financial year in which payment is made or credited, total sales, gross receipts or turnover of concerned individual or HUF from profession or business, exceeded limits provided in S. 44AB of the Act — Harshadbhai Naranbhai Bayadia vs. ACIT [2012] 210 Taxman 387 (Gujarat)
Reference:
As Per Section 194C, of the Income Tax Act, 1961-
Payments to contractors.
194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work(including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to—
(i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family;
(ii) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family,
of such sum as income-tax on income comprised therein.
(2) Where any sum referred to in sub-section (1) is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
(3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source—
(i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or
(ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice.
(4) No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.
(5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed [thirty] thousand rupees :
Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds [seventy-five] thousand rupees, the person responsible for paying such sums referred to in sub-section (1) shall be liable to deduct income-tax under this section.
(6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum.
(7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such form and within such time as may be prescribed.
Explanation.—For the purposes of this section,—
(i) “specified person” shall mean,—
(a) the Central Government or any State Government; or
(b) any local authority; or
(c) any corporation established by or under a Central, State or Provincial Act; or
(d) any company; or
(e) any co-operative society; or
(f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or
(g) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or
(h) any trust; or
(i) any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or
(j) any Government of a foreign State or a foreign enterprise or any association or body established outside India; or
(k) any firm; or
(l) any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person,—
(A) does not fall under any of the preceding sub-clauses; and
(B) is liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor;
(ii) “goods carriage” shall have the meaning assigned to it in the Explanation to sub-section (7) of section 44AE;
(iii) “contract” shall include sub-contract;
(iv) “work” shall include—
(a) advertising;
(b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
(c) carriage of goods or passengers by any mode of transport other than by railways;
(d) catering;
(e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer,
but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.