TDS u/s. 194C deductible when contract amount exceeds thrash hold limit

Brief of the Case

ITAT Ahmedabad has held in the case ITO v Someshwar Real Estate Pvt. Ltd. that the TDS would be deducted u/s 194C only when the amount of single contract exceeds Rs. 20,000 or the amount exceeds Rs. 50,000 in aggregate which has been given to a particular person in a year.

Facts of the Case

In the present facts of the case the Assessee made certain payment by cheques for carting of sand in nature of contract for labour. According, to AO the TDS was not deducted from the above payments. The assessee submitted that the amount were credited on different dates and each amount did not exceed Rs.20,000/- hence TDS was not deducted. But the AO invoked the provisions of section 194C because at the time of payment the amount was paid in excess of Rs.20,000 and there were no separate contract and hence threshold limit of Rs.20,000 was applicable to the said payment. Accordingly he disallowed Rs.1,35,000/- under section 40(a)(ia) of the Act.

Also, on another ground the AO disallowed Rs.7,60,095/- by invoking provisions of section 40(a)(ia) for non-deduction of TDS under section 194C from the payments made to the transporters.

Held by CIT Appeal

The assessee before the ld. CIT(A) contended that the payment was for purchase of sand and not for carting of sand. The assessee relied upon the decision of Hon’ble Gujarat High Court in CIT vs. Girnar Food & Beverage Pvt. Ltd. 306 ITR 23 where it was held that where there was a contract for supply of material, it cannot be termed as contract for work or labour and, therefore, the provisions of section 194C were not applicable. The assessee also relied on the Board’s Circular No.715. The CIT(A) while Considering the decision of Hon’ble Gujarat High Court deleted the addition.

On the second ground, the assessee submitted that that no TDS was required to be deducted from the payments made if the amount of any single sum credited does not exceed Rs.20,000 and that the aggregate amount of such sum credited does not exceed Rs.50,000. It was also submitted that sub-section (2) of section 194C provides that liability of TDS arises at the time of credit or payment whichever is earlier. In the case of the assessee both the conditions are fulfilled. The CIT(A) in view of the factual position held that no disallowance can be made under section 40(a)(ia) as the assessee was not supposed to deduct tax u/s 194C and deleted the disallowance.

Held by ITAT

The Hon’ble Tribunal while affirming the orders of ld. CIT(A) observed that the Revenue could not point out any specific error in the order of CIT(A). He also could not bring any material to show that the payment of Rs.1,35,000 made by the assessee was towards carting of sand and not for purchase of sand. In absence of any such material being available on record, there is no good reason to interfere with the order of CIT(A) which is confirmed and the ground of Revenue was dismissed.

A perusal of section 194C at the material time shows that a person was liable to deduct tax at source when payment in pursuance of a contract for work exceeds or likely to exceed Rs.20,000/-. Further it was also provided that if aggregate of the payment for work to a person exceeds Rs.50,000/- during the year then also the person responsible for making the payment is liable to deduct tax at source. Therefore, the assessee in pursuance of a single contract for work is required to pay Rs.20,000/- or more, then the assessee is liable to deduct TDS or when payment in respect of a single contract for work does or does not exceed Rs.20,000/- but the aggregate of payment for work to a person during the year exceeds Rs.50,000/- then the assessee is also liable to deduct TDS. In other words if the aggregate payment for different contract for work exceeds Rs.20,000/- but does not exceed Rs.50,000/- in a year and the payment for a single contract for work does not exceed Rs.20,000/- then the assessee is not legally obliged to deduct tax at source. The aggregate of payment for work made to Hitesh Contractor during the year was Rs.84,000/- and therefore, the deletion of disallowance by the CIT(A) was not justified. In respect of the balance amount of Rs.6,70,095/- the Revenue could not bring any material on record to show that in the above cases, payment in respect of single contract was of an amount more than Rs.20,000/- or the aggregate payment for different contract for work exceeded Rs.50,000/-. Thus there is no reason to interfere with the order of the CIT(A) in respect of deletion of Rs.6,70,095/-. Accordingly, the orders of the CIT(A) was modified and appeal was partly allowed to the extent mentioned hereinabove.