Law: Income Tax Act, 1961

Section: 194

Income-tax-----Deduction of tax at source---Payments to contractors "for carrying out any work"---Provision for deduction as income-tax from payments---Is not restricted to payments in relation to works contracts---Person responsible for payment---Has to deduct from. entire sum paid or credited and not merely income component of the sum---No right or duty to determine whether part of sum paid constitutes income of contractor---Indian Income Tax Act, 1961, S.194C(1). Under the terms and conditions of an agreement between the appellant and a contractor, the contractor was to be paid at a flat rate for loading packed cement bags into wagons or trucks. This rate was fixed on the basis of daily basic wages, dearness allowance, etc., and clause 13 of the agreement stipulated reimbursement by the appellant to the contractor in case of certain increase in the dearness allowance, etc., payable by the contractor to the workmen employed by him. The appellant paid the contractor the amount stipulated at a flat rate as well as amounts by way of reimbursement under clause 13. But the deduction of tax at source made by the appellant under section 194C(1) of the Income Tax Act, 1961, fell short of the deductions required to be made thereunder. The appellant's claim was that it was not liable to deduct any amount under the section. Notices were served on the appellant to show cause as to why action should not be taken under sections 276B(1), 201 and 221 for short deduction. The appellant thereupon filed a writ petition in the High Court to have the notice quashed, but the High Court dismissed the writ petition. On appeal to the Supreme Court: Held, dismissing the appeal (i), that section 194C(1) had a wide import and covered "any work" which could be got carried out through a contractor under a contract including the obtaining of supply of labour under a contract with a contractor for' carrying out any work. The section was not confined or restricted in its application to "works contracts". (ii) That the percentage deductible under section 194C(1) was from the sum or suns credited to the account or paid to the contractor. The words "on income comprised therein" appearing in the…

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