INCOME TAX ACT, 1961

Section 194C

Tax deduction at source under section 194C - Payment made towards job work charges and labour charges - Reimbursements of expenses or not - Applicability

Assessee-company was engaged in business of fabrication. During the course of assessment proceedings, AO observed that assessee had paid job work charges and labour charges. Assessee submitted that expenditure incurred under the heads 'job work charges' and 'labour charges', included amounts paid to various parties for purchase of material, transport charges and labour charges and that actual amounts paid towards labour charges to various parties were less than Rs. 50,000, except in three cases and therefore, there was no requirement to deduct tax at source. AO, however, was not satisfied with assessee's explanation and accordingly made the disallowance under section 40(a)(ia) of the entire expenditure on which no TDS was made. Held: Assessee had not furnished any evidence before AO or CIT(A) that recipients had no taxable income or that they had income which was less than taxable income or that the recipients have made the payment of tax on their receipts from the assessee. In view of same, proviso to section 201(1) would not be applicable to assessee and in the absence of such applicability, the second proviso to section 40(a)(ia) also would not be attracted. TDS provisions are applicable in respect of the labour charges paid by assessee. AO was, therefore, directed to examine whether the labour charges paid by the assessee included reimbursement of the material and transportation cost.

REFERRED :

FAVOUR : In assessee's favour (by way of remand)

A.Y. : 2007-08

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