2004 (2) TMI 43 - HC - Income Tax

Section 194C shows that the tax has to be deducted from the payments made to a contractor at the time of credit of such amount 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. Thus it is clear that the tax has to be deducted only on the payments which are made to the contractor and not on the amount which is collected by it on behalf of the municipal committee. - The writ petition is disposed of with the direction that respondent shall be entitled to charge income-tax under section 194C on the amount paid to the petitioner and not on the basis of the gross amount collected by way of octroi. - It is further directed that the accounts of the petitioner regarding its liability to deposit the Income tax shall be adjusted with effect from the date of the agreement.

Summary

Issues:
- Incorrect tax deduction on collections made by the petitioner for octroi collection contract.

Analysis:
The petitioner, awarded an octroi collection contract, raised a grievance regarding the deduction of tax at 2.30% under section 194C of the Income-tax Act, 1961, on the collections made, not on the payments received. A previous case had directed a reduced tax rate of 0.5% on payments. The court noted that the respondents failed to justify the deduction from total collections. Section 194C mandates tax deduction at the time of payment to the contractor, not on collected amounts. Thus, the court directed that tax should be charged on the amount paid to the petitioner, not on the gross collected octroi amount. The adjustment of the petitioner's tax liability accounts was ordered from the agreement date, aligning with the statutory provision's requirements.