2011 (11) TMI 11 - HC - Income Tax

TDS u/s 194C - assessee awarded contract to different contractors - contract in question was a composite contract for erection of the transmission lines and for supply of material - Appellate Tribunal has recorded a finding of fact that the agreement was split into two parts - Tribunal held that tax was required to be deducted only from that part of the contract which dealt with erection of the transmission lines falling within the scope of Section 194C of the Income Tax Act. 1961 - not find any substantial question of law - Case Dismissed

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal rightly upheld the deletion of demand for non-deduction of TDS on contract work payments?
2. Whether the contract in question was a composite contract for erection of transmission lines and supply of material?
3. Whether tax deduction was required only for the part of the contract related to erection of transmission lines?

Analysis:

1. The High Court dealt with the issue of whether the Income Tax Appellate Tribunal correctly upheld the deletion of demand for non-deduction of TDS on contract work payments. The Revenue raised a substantial question of law regarding the correctness of the Tribunal's decision. The Tribunal had to determine whether tax deduction at source (TDS) was required for the entire payment of the contract work, including execution and supply of material, as per Section 194C of the Income Tax Act, 1961.

2. The Court examined the nature of the contract awarded by the assessee to different contractors for the erection of 33 KV electric lines and sub-stations, involving the laying of poles and electric wires. It was established that the contract was indeed a composite one, encompassing both the erection of transmission lines and the supply of material. The Tribunal found that the agreement was bifurcated into two distinct parts: one for the supply of material and the other for the erection work.

3. The key finding by the Tribunal was that tax deduction was only necessary for the portion of the contract related to the erection of transmission lines falling within the purview of Section 194C of the Income Tax Act, 1961. Since the contract consisted of two separate components - one for material supply and the other for pole erection - the Court concurred with the Tribunal's factual determination. Consequently, the Court concluded that no tax deduction was required for the part of the contract involving the purchase of material. As a result, the Court dismissed the appeal, stating that no substantial question of law arose for consideration in this matter.