Advance payment under works contract deduction did not attract higher tax where the charging condition was not met.

Deduction at source under section 8D(1) of the U.P. Trade Tax Act applied only where payment was made towards consideration payable for transfer of property in goods under a works contract; advance payment made before such transfer did not satisfy that charging condition. The contractor's order under the compounding or deduction arrangement for deduction at one per cent was treated as operating retrospectively, so the lower deduction rate was not contrary to law on the facts found. The finding of bona fide belief and absence of deliberate default was one of fact, and deletion of penalty under section 8D(6) was upheld.

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Issues: Whether deduction at source under section 8D(1) of the U.P. Trade Tax Act, 1948 applied to advance payment made to a contractor in respect of a works contract, and whether penalty under section 8D(6) was liable to be deleted.

Analysis: Section 8D(1) applies only where payment is made for discharge of liability on account of valuable consideration payable for transfer of property in goods in pursuance of a works contract. Advance payment made before such transfer does not fall within that charging condition. The contractor had also obtained an order under the compounding / deduction arrangement for deduction at one per cent, and that order was treated as operating retrospectively. The finding that the assessee acted under a bona fide belief and that there was no deliberate default was a finding of fact.

Conclusion: Deduction at the rate of one per cent was not contrary to law on the facts found, and deletion of penalty was upheld.

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