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TMI BlogDeduction of income-tax at source--Section 194C of the Income-tax Act, 1961--Deduction from payments to contractors and sub-contractors--Instructions regarding.X X X X Extracts X X X X X X X X Extracts X X X X ..... om income comprised in payments made to contractors and sub-contractors in certain cases. The broad effect of the new provision is that a peison responsible for paying any sum to a resident contractor for carrying out any work or supplying labour for carrying out any work in pursuance of a contract with the Central Government, State Government, local authority, statutory corporation or a com-pany will be required to deduct income-tax at the rate of 2% from any such sum paid after 31st May, 1972. Similarly, a contractor, not being an individual or a Hindu undivided family, will, in certain cases, be required to deduct tax at the rate of 1% from any payment made by him to a resident sub-contractor after that date. The substance of the new pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same position will obtain in respect of contracts for fabrication of sea and river crafts where materials are supplied by the Government or any other specified person and the fabrication work is done by a contractor. Where, however, the contractor undertakes to supply any sea or river crafts fabricated according to the specifications given by Government or any other specified person and the property in such sea and river crafts passes to the Government or such person only after such crafts are delivered, the contract will be a contract for sale and, as such, outside the purview of the new provision. [In State of Punjab (State of Himachal Pradesh) v. Associated Hotels of India Ltd.* their Lordships of the Supreme Court observed that where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (iv) The deduction of income-tax will be made at the time of credit of the 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. (v) The question whether deduction under the new provision will be made with reference to gross payment due to the contractor or the net payment, i.e., gross payment minus deductions, if any, on account of materials supplied by Government or other specified persons will have to be decided in the light of the terms of the particular contract and the conduct of the parties thereto. Where the contractor has undertaken to construct a building or a dam, and the Govern-ment or other specified person has undertake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out such work by the Central Government or a State Government, a local autho-rity, a corporation established under a Central, State or Provincial Act or a company has, in turn, engaged any sub-contractor (a) for carrying out the whole or any part of the work undertaken by the contractor, or (b) for the supply of labour to carry out such work, or (c) for supplying any labour which the contractor had undertaken to supply, he will be required to deduct income-tax at source from payment made to the sub-contractor at the rate of 1% of such payment. The provisions governing payments to contractors as set forth at items (iv), (v) and (vii) will apply mutatis mutandis to payments made by contractors to sub-contractors. 2. Relevant forms, etc., ..... X X X X Extracts X X X X X X X X Extracts X X X X
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