Credit of TDS - payment by Firm on behalf of individual - Income Tax - 619/CBDT

INSTRUCTION NO. 619/CBDT Dated : September 25, 1973 Section(s) Referred: 194C Statute: Income - Tax Act, 1961 U/s.194-C Central State Governments, Local Authorities, Corporations, Companies and Cooperative Societies have to deduct an amount equal to 2% of the sum payable to a contractor at the time of credit or payment of such sum. In some cases, a contract is taken by an individual and is executed by a firm of which he is a partner. All the payments received by the individual are on behalf of the firm. A doubt has been raised as to who should be granted credit in terms of section 199 for TDS, viz., the firm or the individual who receives the payment from Government etc. 2. The Ministry of Law who were consulted, have advised as under:- Section 199 of the I.T.Act is clear in its terms. It provides that any deduction made in accordance with the provisions of section 194-C and paid to the Central Government shall be treated as a payment of tax of behalf of the person from whose income the income due under the contract belongs. For the purposes of tax, the question would be whether the income from the contract is included in the income of the firm or of the individual. Credit for the tax would be given in the assessment of the person in whose total income the income from the contract in question is included. Normally, Government contracts do not permit assignments thereof without the permission of the Government. It is therefore, not clear as to how the firm executes the contract though the contract itself has been entered into with an individual. But it would be seen that the individual while receiving payment on behalf of the firm is presumably signing the receipt as such and the income is also being assessed in the hands of the firm. If so, credit for the tax would also have to be given to the firm. 3. Credit for tax deducted at source in the type of cases under consideration may be regulated in the light of the opinion expressed by the Ministry of Law, as extracted above.