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TMI BlogDeduction of income-tax at source under section 194C of the Income-tax Act, 1961, from payments made to contractors/sub-contractors - Supreme Court judgment dated 23rd March, 1993, in Associated Cement Co. Ltd. v. CIT - Instructions RegardingX X X X Extracts X X X X X X X X Extracts X X X X ..... to as "contractor") for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the bodies mentioned therein shall, at the time of credit of such sum to the account of the contractor or 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 2 per cent. of such sum as income-tax on the income comprised therein. 2. Sub-section (2) of section 194C of the Income-tax Act, 1961, lays down that when a contractor makes payment of any sum to a resident sub-contractor in pursuance of a contract made with him for carrying out the whole or any part of the work undertaken by the contractor, or, for supplyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 'work' but for its specific inclusion in the sub-section ". 6. It may be pointed out that this appeal before the Supreme Court was by virtue of a special leave petition against the judgment in Writ Petition No. 2909 of 1978 of the Patna High Court in the case of Associated Cement Co. Ltd. v. CIT [1979] 120 ITR 444. The Patna High Court, while dismissing the writ petition of the aforesaid company, observed that "In a very broad sense, a work done by one person is service rendered to another and indeed one of the dictionary meanings of the word 'service' is work". 7. The conclusion flowing from the aforesaid judgments of the Supreme Court and the Patna High Court is that the provisions of section 194C would apply to all types of contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or dams or laying of roads or airfields or railway lines or erection or installation of plant and machinery are in the nature of contracts for work and labour, income-tax will have to be deducted from payments made in respect of such contracts. Similarly, contracts granted for processing of goods supplied by the Government or any other specified person, where the ownership of such goods remains at all times with the Government or such person, will also fall within the purview of this section. The same position will obtain in respect of contracts for fabrication of any article or thing where materials are supplied by the Government or any other specified person and the fabrication work is done by a contractor. (b) Where, however, the contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract is a contract for work and labour or for sale, the matter should be decided in the light of the principles laid down by the Supreme Court in the above mentioned case. (vii) The provisions of this section would apply in relation to payments made to persons who arrange advertisement, broadcasting, telecasting, etc. (viii) The provisions are wide enough to cover not only written contracts but also oral contracts. (ix) Where the total payment under the contract is likely to exceed Rs. 10,000 for the entire period during which the contract will remain in force, income-tax will have to be deducted at source. In a case where, at the time when the contract was entered into, it was expected that the total payment thereunder would not ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t _ (i) The term "service contracts" would include services rendered by such persons as lawyers, physicians, surgeons, engineers, accountants, architects, consultants, etc. However, services rendered for which payment is in the nature of salaries which is chargeable under the head of income "A. Salaries" in Chapter IV of the Income-tax Act, 1961, shall not be covered by section 194C. (ii) The term "transport contracts" would, in addition to contracts for transportation and loading/unloading of goods, also cover contracts for plying of buses, ferries, etc., along with staff (e.g., driver, conductor, cleaner, etc.). Reference in this regard is also invited to Board's Circular No. 558, dated 28th March, 1990*. (iii) The term "materials c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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