TDS on contractor payments: Section 194C applies unconditionally, while Section 196 is confined to payments to Government or specified authorities.

Section 196 applies only to payments made to the Government or a specified authority, and does not extend to amounts merely routed under another authority's directions; on that basis, the challenge based on Section 196 failed. Section 194C imposes an unconditional obligation to deduct tax at source from payments to a contractor, and the payer cannot refuse deduction by questioning the income component or relying on the absence of a direct contractual link with one entity; on that basis, Section 194C was held applicable. The impugned orders were set aside and the revenue was permitted to proceed in accordance with law.

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Issues: (i) Whether the payments in question were outside the scope of Section 196 of the Income-tax Act, 1961 because they were not made to the Government or a specified authority; (ii) whether Section 194C of the Income-tax Act, 1961 required deduction of tax at source on such payments.

Issue (i): Whether the payments in question were outside the scope of Section 196 of the Income-tax Act, 1961 because they were not made to the Government or a specified authority.

Analysis: The earlier decision relied upon held that Section 196 applies only where the payment is made to the Government or to an authority specifically covered by the provision. The statutory character of the levy, the mode of recovery, or the fact that payment was made pursuant to directions of another authority was held to be immaterial. The decisive question was whether the amount reached the hands and disposal of the specified entity.

Conclusion: The payments were not treated as falling within Section 196, and the challenge based on that provision was not sustained.

Issue (ii): Whether Section 194C of the Income-tax Act, 1961 required deduction of tax at source on such payments.

Analysis: The earlier decision applied the settled principle that Section 194C casts an unconditional obligation on the payer to deduct tax from payments made to a contractor. The payer is not entitled to examine the income component of the payment or to refuse deduction on the basis that the amount was made under a particular contractual or administrative arrangement. Considerations such as the absence of a direct contractual obligation with one entity or the fact that work was undertaken on governmental directions were held irrelevant.

Conclusion: Section 194C was held applicable, and the contrary view taken by the Tribunal was not accepted.

Final Conclusion: The impugned orders were set aside, while the revenue authorities were left at liberty to proceed in accordance with law.

Ratio Decidendi: Section 196 applies only to payments made to the Government or a specified authority, whereas Section 194C requires deduction at source on payments to a contractor without permitting the payer to test the income component of the payment.

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