As per the existing provisions of the Act, the ‘work’ for the purpose of deduction of tax at source on payment to contractors has been defined to include “manufacturing or supplying a product according to the requirement or specification of customer by using material purchased from such customer”. The above provision has resulted in deduction of tax by companies wherein even a small component is supplied on free of cost basis or otherwise to the supplier and supplier in turn supplies the final product along with the component supplied to the customer.
Suggestion by ICAI
In order to avoid genuine and avoidable hardship to assessee for claiming refund of TDS, it is suggested that the definition of “work” under section 194C in the appropriate clause may be modified as :
“manufacturing or supplying a product according to the requirement or specification of a customer by using all/ significant material purchased from that customer”