TaxTMI 
TaxTMI 
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 435
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....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 eq....
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.... 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-men....
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....lteration 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. &nbs....
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....hed, 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 deduc....
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....k 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 contract....