08 March 2008
IF I HAD ACCUIRED AN INTERNET CONNECTION FROM AIRTEL AND TATA INDICOM THEN WHETHER I HAD TO DEDUCT TDS FROM THE PAYMENT WHETHER IT IS A CONTRACT BETWEEN AIRTEL AND ME
09 March 2008
Section 194C is applicable only to payments made to any person for ‘any work’ and not the payments made as fee for services rendered or the commission paid to commission agents or brokers, and, therefore, Circular Nos. 661 and 681, dated 8-10-1993 and 8-3-1994, respectively, directing the authorities under the Act to give effect to the provisions of section 194C as against commission agents, brokers, lawyers, chartered accountants, etc., are not within the scope of section 194C - S.R.F. Finance Ltd. v. CBDT [1994] 76 Taxman 432 (Delhi
09 March 2008
MR. SAMPAT JAIN can u please provide the detail of this Circular Nos. 661 and 681, dated 8-10-1993 and 8-3-1994, respectively for the TDS
12 March 2008
MR. SAMPAT JAIN can u please provide the detail of this Circular Nos. 661 and 681, dated 8-10-1993 and 8-3-1994, respectively for the TDS
12 March 2008
SUPREME COURT JUDGEMENT AND CBDT GUIDELINES ON TDS ON SERVICE CONTRACTS ARE GIVEN BELOW.
SECTION 194C l PAYMENTS TO CONTRACTORS AND SUB-CONTRACTORS
Applicability of section 194C to service contracts - Clarification regarding Supreme Court judgment in Associated Cement Co. Ltd. v. CIT [1993] 67 Taxman 346/201 ITR 4351
1. Sub-section (1) of section 194C of the Income-tax Act, 1961 lays down that any person responsible for paying any sum to any resident (hereafter referred 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 by any other mode, whichever is earlier, deduct an amount equal to 2% 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 supplying any labour, the contractor shall deduct an amount equal to 1% of such sum as income-tax on the income comprised therein.
3. Section 194C was introduced with effect from 1st April, 1972. Shortly after its introduction, the Board issued Circular No. 86, dated 29-5-1972, No. 93, dated 26-9-1972 and No. 108, dated 20-3-1973 in this regard.
4. Some of the issues raised in the above mentioned circulars need to be reviewed in the light of the judgment dated March 23, 1993, delivered by the Supreme Court of India in Civil Appeal No. 2860 (NT) of 1979 - Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435.
5. The Supreme Court has held that “...there is nothing in the sub-section which could make us hold that the contract to carry out a work or the contract to supply labour to carry out a work should be confined to ‘works contract’....” . Their Lordships have further held that “‘Any work’ means any work and not a ‘works contract’, which has a special connotation in the tax law.... ‘Work’ envisaged in the sub-section, therefore, has a wide import and covers ‘any work’ which one or the other of the organisations specified in the sub-section can get carried out through a contractor under a contract and further it includes obtaining by any of such organisations supply of labour under a contract with a contractor for carrying out its work which would have fallen outside the ‘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. 2909/1978 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 contracts, including transport contracts, labour contracts, service contracts etc. In the light of these judgments, the Board have decided to withdraw their above-mentioned Circular Nos. 86 and 93 and para 11 of Circular No. 108 and issue the following guidelines in regard to the applicability of the provisions of section 194C :
(i) The provisions of section 194C shall apply to all types of contracts for carrying out any work including transport contracts, service contracts, advertisement contracts, broadcasting contracts, telecasting contracts, labour contracts, material contracts and works contracts.
(ii) No deduction at source under section 194C shall be required to be made if the consideration for the contract does not exceed the prescribed amount which at present is Rs. 10,000 (ten thousand only).
(iii) The provisions of section 194C would not apply in relation to payments made for hiring or renting of equipments, etc.
(iv) The provisions of section 194C would not apply in relation to payments made to banks for discounting bills, collecting/receiving payments through cheques/drafts, opening and negotiating Letters of Credit and transactions in negotiable instruments.
(v) Service contracts would be covered by the provisions of this section since service means doing any work as explained above.
(vi) The provisions of this section will not cover contracts for sale of goods—
(a) Since contracts for the construction, repair, renovation or alteration of buildings 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 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 contractor undertakes to supply any article or thing fabricated according to the specifications given by Government or any other specified person and the property in such article or thing passes to the Government or such person only after such article or thing is delivered, the contract will be a contract for sale and as such outside the purview of this section.
(c) In State of Himachal Pradesh v. Associated Hostels of India Ltd. [1972] 29 STC 474, the Supreme Court observed that where the principal objective of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, contract is of work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of the materials nor the value of skill and labour as compared with the value of the materials is conclusive although such matters may be taken into consideration in determining in the circumstances of a particular case, whether the contract is, in substance, one of work and labour or one for the sale of a chattel. A building contract or a contract under which a movable is fixed to another chattel or on the land where the intention plainly is not to sell the article but to improve the land or the chattel and the consideration is not for the transfer of the chattel, but for the labour and work done and the material furnished, the contract will be one of work and labour. In case of doubt whether a particular contract 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 exceed Rs. 10,000 but later on it is found that the payment exceeds that amount, deduction should be made in respect of earlier payments as well.
(x) The percentage deduction prescribed in law is with reference to the amount of payment and not ‘income comprised in the payment’. The person responsible for making payment, therefore, is not required to estimate the income comprised in the payment.
(xi) In a case where advance payments are made during the execution of a contract and such payments are to be adjusted at the time of final settlement of accounts, tax will have to be deducted at the time of making advance payments if the total payment is likely to exceed Rs. 10,000.
(xii) Where any contractor is the recipient of any amount under a contract but the income of the recipient is not subject to income-tax, such contractor may obtain a certificate from his Assessing Officer under section 194C(4) for receiving payment without deduction of tax at source.
(xiii) Every contractor, other than an individual or HUF, who is responsible for paying any sum to any sub-contractor (who is resident in India), in pursuance of a contract with such sub-contractor for carrying out or for the supply of labour for carrying out, wholly or in part, of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor had undertaken to supply, will be required to deduct income-tax at the rate of 1% of such sum.
8. It may be noted that—
(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.
13 March 2008
MR. SAMPAT JAIN can u please provide the detail of this Circular Nos. 661 and 681, dated 8-10-1993 and 8-3-1994, respectively for the TDS
Applicability of section 194C to service contracts - Clarification regarding Supreme Court judgment in Associated Cement Co. Ltd. v. CIT [1993] 67 Taxman 346/201 ITR 4351
1. Sub-section (1) of section 194C of the Income-tax Act, 1961 lays down that any person responsible for paying any sum to any resident (hereafter referred 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 by any other mode, whichever is earlier, deduct an amount equal to 2% 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 supplying any labour, the contractor shall deduct an amount equal to 1% of such sum as income-tax on the income comprised therein.
3. Section 194C was introduced with effect from 1st April, 1972. Shortly after its introduction, the Board issued Circular No. 86, dated 29-5-1972, No. 93, dated 26-9-1972 and No. 108, dated 20-3-1973 in this regard.
4. Some of the issues raised in the above mentioned circulars need to be reviewed in the light of the judgment dated March 23, 1993, delivered by the Supreme Court of India in Civil Appeal No. 2860 (NT) of 1979 - Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435.
5. The Supreme Court has held that ...there is nothing in the sub-section which could make us hold that the contract to carry out a work or the contract to supply labour to carry out a work should be confined to works contract.... . Their Lordships have further held that Any work means any work and not a works contract, which has a special connotation in the tax law.... Work envisaged in the sub-section, therefore, has a wide import and covers any work which one or the other of the organisations specified in the sub-section can get carried out through a contractor under a contract and further it includes obtaining by any of such organisations supply of labour under a contract with a contractor for carrying out its work which would have fallen outside the 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. 2909/1978 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 contracts, including transport contracts, labour contracts, service contracts etc. In the light of these judgments, the Board have decided to withdraw their above-mentioned Circular Nos. 86 and 93 and para 11 of Circular No. 108 and issue the following guidelines in regard to the applicability of the provisions of section 194C :
(i) The provisions of section 194C shall apply to all types of contracts for carrying out any work including transport contracts, service contracts, advertisement contracts, broadcasting contracts, telecasting contracts, labour contracts, material contracts and works contracts.
(ii) No deduction at source under section 194C shall be required to be made if the consideration for the contract does not exceed the prescribed amount which at present is Rs. 10,000 (ten thousand only).
(iii) The provisions of section 194C would not apply in relation to payments made for hiring or renting of equipments, etc.
(iv) The provisions of section 194C would not apply in relation to payments made to banks for discounting bills, collecting/receiving payments through cheques/drafts, opening and negotiating Letters of Credit and transactions in negotiable instruments.
(v) Service contracts would be covered by the provisions of this section since service means doing any work as explained above.
(vi) The provisions of this section will not cover contracts for sale of goods
(a) Since contracts for the construction, repair, renovation or alteration of buildings 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 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 contractor undertakes to supply any article or thing fabricated according to the specifications given by Government or any other specified person and the property in such article or thing passes to the Government or such person only after such article or thing is delivered, the contract will be a contract for sale and as such outside the purview of this section.
(c) In State of Himachal Pradesh v. Associated Hostels of India Ltd. [1972] 29 STC 474, the Supreme Court observed that where the principal objective of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, contract is of work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of the materials nor the value of skill and labour as compared with the value of the materials is conclusive although such matters may be taken into consideration in determining in the circumstances of a particular case, whether the contract is, in substance, one of work and labour or one for the sale of a chattel. A building contract or a contract under which a movable is fixed to another chattel or on the land where the intention plainly is not to sell the article but to improve the land or the chattel and the consideration is not for the transfer of the chattel, but for the labour and work done and the material furnished, the contract will be one of work and labour. In case of doubt whether a particular contract 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 exceed Rs. 10,000 but later on it is found that the payment exceeds that amount, deduction should be made in respect of earlier payments as well.
(x) The percentage deduction prescribed in law is with reference to the amount of payment and not income comprised in the payment. The person responsible for making payment, therefore, is not required to estimate the income comprised in the payment.
(xi) In a case where advance payments are made during the execution of a contract and such payments are to be adjusted at the time of final settlement of accounts, tax will have to be deducted at the time of making advance payments if the total payment is likely to exceed Rs. 10,000.
(xii) Where any contractor is the recipient of any amount under a contract but the income of the recipient is not subject to income-tax, such contractor may obtain a certificate from his Assessing Officer under section 194C(4) for receiving payment without deduction of tax at source.
(xiii) Every contractor, other than an individual or HUF, who is responsible for paying any sum to any sub-contractor (who is resident in India), in pursuance of a contract with such sub-contractor for carrying out or for the supply of labour for carrying out, wholly or in part, of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor had undertaken to supply, will be required to deduct income-tax at the rate of 1% of such sum.
8. It may be noted that
(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 Boards Circular No. 558, dated the 28th March, 1990.
(iii) The term materials contracts in the context of section 194C would mean contracts for supply of materials where the principal contract is for work and labour and not a contract for sale of materials.
9. Boards Circular No. 86, dated 29-5-1972 and No. 93, dated 26-9-1972 and para 11 of Circular No. 108, dated 20-3-1973 are hereby withdrawn. Boards Circular No. 558, dated 28-3-1990 is reiterated.
10. It is clarified that this circular explaining the provisions of section 194C will apply with effect from 1st of April, 1994. Tax deductions made in accordance with Circular Nos. 86, 93 and 108 up to 31st March, 1994 will be regarded as compliance of the provisions of section 194C.
13 March 2008
Circular : No. 661, dated 16-9-1993.
Instructions for deduction of tax at source from winnings from lotteries and crossword puzzles, horse races or from commission, etc. - Rates of tax applicable during financial year 1993-94
1. Reference is invited to the Boards Circular No. 631, dated 20-8-1992 on the abovementioned subject wherein the rates at which the deduction of tax under sections 194B, 194BB and 194G of the Income-tax Act, 1961 was to be made during the financial year 1992-93 from winnings from lotteries, crossword puzzles, horse races and from commission, etc., paid on sale of lottery tickets, were communicated.
2. There is no change in the rates of tax which will be applicable during the financial year 1993-94 in the matter of deduction of tax at source under sections 194B, 194BB and 194G of the Income-tax Act. The salient provisions relating to deduction of tax at source under the aforesaid sections are as follows :
(i) As per section 194B, the person responsible for paying to any person any income by way of winnings from lotteries or crossword puzzles, in an amount exceeding Rs. 5,000 (Rupees Five thousand only) shall, at the time of payment thereof, deduct income-tax thereon at the rate in force. For the financial year 1993-94, the rate at which tax is to be deducted is 40 per cent (plus surcharge, referred to in para 3).
(ii) As per section 194BB, any person,being a book-maker or a person to whom a licence has been granted by the Government under any law, for the time being in force, for horse racing in any race course or for arranging for wagering or betting in any race course, who is responsible for paying to any person any income by way of winnings from any horse race in an amount exceeding Rs. 2,500 (Rupees Two thousand and five hundred only) shall, at the time of payment thereof, deduct income-tax thereon at the rate in force, viz., 40 per cent (plus surcharge, referred to in para 3).
(iii) As per section 194G(1), any person who is responsible for paying on, or, after the 1st day of October, 1992, to any person who is, or, has been stocking, distributing, purchasing or selling lottery tickets, any income by way of commission, remuneration or prize (by whatever name called) on such tickets in an amount exceeding Rs. 1,000 (Rupees One thousand only), shall, at the time of credit of such income, to the account of the payee or at the time of payment of such income in cash or by issue of a cheque or a draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of 10 per cent (plus surcharge, referred to in para 3). It is clarified in this regard that where any such income, e.g., commission, remuneration, etc., is credited to any account, whether called Suspense Account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the tax will have to be deducted at source. It may be stated that persons engaged in the lottery business, whose total income bears no tax liability or bears a tax liability justifying deduction of tax at rate lower than 10 per cent, can obtain from the Assessing Officer a certificate for deduction of tax at a lower rate, or, for no deduction of tax at source, as the case may be. Such a person can make an application in this behalf to the Assessing Officer in Form No. 13D (Annexure II).
3. The amount of income-tax to be deducted at the aforesaid rates shall be further increased by a surcharge, for the purposes of the Union, 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.
4. The responsibilities, obligations, etc., under the Income-tax Act, of the person deducting tax at source are as follows :
(a) According to the provisions of section 200, any person deducting any sum in accordance with the provisions of sections 194B, 194BB and 194G, etc., shall pay within the prescribed time, the sum so deducted, to the credit of the Central Government. Reference in this regard is invited to rule 30 of the Income-tax Rules, 1962 which prescribes the time for payment of tax into the Governments account. Normally, the tax is required to be deposited within one week from the date of deduction of tax. Where, however, deduction is made by or on behalf of the Government, the sum has to be credited to the Central Government on the day of the deduction itself. If a person fails to pay the tax to the credit of the Central 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 into the Government account. Reference in this regard is also invited to section 271C, according to which, a person who fails to deduct the whole or any part of the tax as required under these provisions, shall pay, by way of penalty, a sum equal to the amount of tax, not deducted by him. Further, section 276B lays down that if a person fails to pay, to the credit of the Central Government, 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 seven years, and with fine.
(b) According to the provisions of section 203, every person responsible for 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 deducted and certain other prescribed particulars. The certificate has to be furnished within the prescribed period (as given in rule 31 of the Income-tax Rules; generally within one month and fourteen days of the date of payment/credit) to the person to whose account credit is given or to whom payment is made, or, to whom the cheque or warrant is issued, as the case may be. The certificate for tax deduction under section 194G has to be issued in Form No. 16A (copy enclosed at Annexure I) on tax-deductors own stationery. In case of deduction under sections 194B and 194BB, this certificate was required to be furnished till the 30th June, 1993 in Form No. 16B which was printed by the Central Government and was to be obtained from concerned Commissioner of Income-tax on making a nominal payment. However, with effect from 1st of July, 1993, Form No. 16B has been omitted [vide the Income-tax (Eleventh Amendment) Rules, 1993 published under Notification No. SO 405(E), dated 21-6-1993], and the certification for tax deducted at source under sections 194B and 194BB shall also be issued in Form No. 16A (Annexure I) with effect from 1-7-1993. If a person fails to furnish the certificate of tax deduction 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 each 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 a Tax-deduction Account number (TAN) and quote the same in the challans, TDS certificates, returns, etc. Detailed instructions in this regard are contained in this Departments Circular No. 497, dated 9-10-1987. If a person fails to comply with the provisions of section 203A, he shall by way of penalty under section 272BB, pay a sum which may extend to 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 under the provisions of Chapter XVII of the Income-tax Act (which includes sections 194B, 194BB and 194G) shall, within the prescribed time, after the end of each financial year, prepare and, deliver or cause to be delivered to the designated/concerned Assessing Officer a return of deduction of tax under those provisions. These annual returns of tax deduction under sections 194B and 194BB have to be filed in Form Nos. 26B and 26BB, respectively, by the 31st May, following the financial year in which tax is deducted. For deduction under section 194G, the annual return has to be filed in Form No. 26H by the 30th June, following the financial year in which the deduction is made. 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 will not be less than Rs. 100 per day, and, not more than Rs. 200 per day, for each day during which the default continues; so, however, that this amount shall not exceed the amount of tax which was deductible at source.
5. These instructions have been issued with a view to helping the persons responsible for making deduction of tax at source under sections 194B, 194BB and 194G. However, if there is any doubt, reference should be made to the relevant provisions of the Income-tax Act, 1961 and the Income-tax Rules, 1962. In case any assistance is required, the Assessing Officer concerned, or the local Public Relations Officer of the Income-tax Department, may be contacted.
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