Clarification regarding applicability of section 194C in view of Supreme Court’s decision in Associated Cement Co. Ltd. v. CIT [1993] 67 Taxman 346/201 ITR 435

1. Reference is invited to the Board’s Circular No. 632, dated the 20th August, 1992 on the above subject.

2. According to the provisions of section 194C of the Income-tax Act, 1961 any person responsible for paying any sum to any resi­dent 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 specified 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 income comprised therein. It is clarified that carrying out any work includes service contracts and transport contracts. The said bodies are :

    (a)   the Central Government or any State Government, or

    (b)   any local authority, or

    (c)   any corporation established by or under a Central, State or Provincial Act ; or

    (d)   any Company ; or

    (e)   any co-operative society, or

     (f)   any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfy­ing the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and vil­lages, or both ; or

Online GST Certification Course by TaxGuru & MSME- Click here to Join

    (g)   any society registered under the Societies Registration Act, 1860 or under any law corresponding to that Act in force in any part of India ;or

    (h)   any trust ; or

     (i)   any University established or incorporated by or under a Central, State or Provincial Act, and, an institution declared to be a University under section 3 of the University Grants Commission Act, 1956.

3. Similarly, when a contractor makes payment of a sum to a resident sub-contractor, in pursuance of a contract with the sub-contractor, for carrying out the whole or any part of the work undertaken by him, he is required to deduct an amount equal to 1 per cent of such sum as income-tax on income comprised therein.

4. The amount of income-tax to be deducted at the aforesaid rates is to be further increased by a surcharge at the following rates :

(i)
in a case where the payee is a non-corporate resident person,
12 per cent
(ii)
in a case where the payee is a domestic company.
15 per cent

5.1 No deduction of tax is, however, required to be made from any sum credited or paid in pursuance of a contract, referred to in the foregoing paragraphs, if the consideration for the contract does not exceed Rs. 10,000.

5.2 Further, sub-section (4) of section 194C lays down that where the Assessing Officer is satisfied that the total income of a contractor or a sub-contractor justifies the deduction of income-tax at a lower rate or no deduction of income-tax, the Assessing Officer can give to him such certificate as may be appropriate. For this, an application has to be made to the Assessing Officer on Form No. 13C. During the validity of this certificate, deduc­tion of tax at source will be made in accordance with the direc­tion given in the certificate.

5.3 It is clarified that the term ‘any work’ in section 194C has to be understood, in its natural meaning  i.e., any work means any and not only a ‘works contract’ which has a special connotation in the tax law. This has been clearly enunciated by the Supreme Court of India in its judgment dated 23-3-1993 in Civil Appeal No. 2860 (NT) of 1979. Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435. Thus, the provisions of section 194C are applicable to all types of contracts for carrying out any work, such as transport contracts, service contracts, labour contracts, materi­al contracts, as well as works contracts, etc.

6. The responsibilities, obligations, etc., under the Income-tax Act, of the persons deducting the tax at source under section 194C are briefly as follows:

    (a)   According to the provisions of section 200, any person deducting any sum in accordance with the provisions of section 194C is required to pay, within the prescribed time, the sum so deducted to the credit of the Central Government in the pre­scribed mannervide  rule 30 of the Income-tax Rules, 1962. In the case of deduction by or on behalf of the Government, the sum has to be paid on the day of the deduction itself. In other cases, normally, the sum has to be paid within one week from the last day of the month in which the deduction is made. If a person fails to deduct tax at source, or, after deducting, fails to pay the tax to the credit of the Government, he shall be liable in accordance with the provisions of section 201(1A) to pay simple interest at fifteen per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. Further, section 271C lays down that if a person fails to deduct tax at source, he shall be liable to pay, by way of penalty, a sum equal to the amount of tax not deducted by him. In this regard, attention is also invit­ed to the provisions of section 276B, which lays down that if a person fails to pay to the credit of the Central Government within the prescribed time the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall not be less than 3 months but which may extend to 7 years, and with fine.

    (b)   According to the provisions of section 203, read with rule 31, every person deducting tax at source is required to furnish a certificate to the effect that the tax has been deduct­ed and to specify therein the amount so deducted and certain other particulars. In the case of deduction of tax under section 194C, the certificate has to be furnished in Form No. 16A w.e.f. 1-7-1993 within the prescribed period of one month and fourteen days to the person to whose account credit is given or to whom payment is made, by any mode, as the case may be. Prior to 1-7-1993 this certificate was required to be given in Form No. 16B which was printed by the Central Government and was to be pro­cured from the Income-tax Department on payment of a nominal consideration. If a person fails to furnish this certificate as required under section 203, he shall be liable to pay by way of penalty, under section 272A(2), a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for every day during which the failure continues.

    (c)   According to the provisions of section 203A, it is obligatory for all persons responsible for deducting tax at source to obtain and quote the Tax-deduction Account Number (TAN) in the challans, TDS certificates, returns, etc. Detailed in­structions in this regard are contained in Board’s Circular No. 497 [F. No. 275/118/87-IT(B)], dated 9-10-1987. If a person fails to comply with the provisions of section 203A, he shall be liable to pay, by way of penalty under section 272BB, a sum upto Rs. 5,000.

    (d)   According to the provisions of section 206, read with rules 36A and 37 of the Income-tax Rules, the prescribed person in the case of every office of Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax at source under the various provisions of the Act, shall, prepare and deliver by the prescribed date, the annual return of tax deducted at source under those provisions. In the case of deduction of tax under section 194C, this return is to be furnished in Form No. 26C to the designated/concerned Assessing Officer by 30th June following the financial year in which deduc­tion is made. It may be noted that a copy of each TDS certificate issued during the financial year should be enclosed with the annual return. If a person fails to furnish in due time the annual return, he shall be liable to pay, by way of penalty, under section 272A(2), a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for every day during which the fail­ure continues. The maximum penalty will, however, not exceed the amount of tax which was deductible at source.

7. These instructions are not exhaustive and are issued only with a view to helping the persons responsible for making deduction of tax at source under section 194C. For further details, the relevant provisions of the Income-tax Act, 1961, and the Income-tax Rules, 1962, should be referred to. In case, any assistance is required, the Assessing Officer concerned or the local Public Relations Officer of the Income-tax Department may be contacted.

Circular : No. 666, dated 8-10-1993.

More Under Income Tax

Posted Under

Category : Income Tax (25142)
Type : Circulars (7506) Notifications/Circulars (30263)

Leave a Reply

Your email address will not be published. Required fields are marked *