TDS under Section 194C won’t attract since Labour Charges were paid Directly without a Contract or Sub-Contract: ITAT [Read Order]

In ITO vs. M/s. Maakali Enterprises, the Kolkata Bench of the Income Tax Appellate Tribunal ( ITAT ) held that TDS under Section 194C of the Income Tax Act, 1961 would not attract when labour charges were directly paid by the assessee without a contract or Sub-contract.

The assessee is a partnership firm engaged in the business of civil construction. During the scrutiny proceedings the assessee was asked to produce supporting evidence whether TDS has been deducted in respect of labour charges claimed. The Assessing Officer (A.O) had noted that assessee did not furnish any supporting evidence neither explained whether TDS was made on labour charges. Thus, the AO concluded that the assessee had not made any TDS on labour charges and thereby violated the provision of section 194C of the Income Tax Act read with section 40(a)(ia) of the Act and ultimately disallowed the said expenses claimed and added back to the total income of the assessee. On appeal, the Commissioner of Income Tax (Appeals), allowed the appeal of the assessee. He observed that it was the assessee who engages the labourers and that there was no contract. It noted that the labour payments were made respectively to the respective labours. Aggrieved, revenue appealed to ITAT.

The Counsel for the assessee argued that the AO had failed to establish that any sub-contract was engaged in the payment of labour charges. He further contended that the disallowance of his claim of expenses on labour charges for violation of section 40(a)(ia) of the Act by the AO was unlawful. According to him, since there was no contract or sub-contract, the case doesn’t fall under the purview of section 194C of the Act.

Upholding the decision of the CIT(A), the Bench comprising of Judicial Member S.S. Viswanethra Ravi & Accountant Member P.M. Jagtap observed “It appears from the register that the names and addresses of all 83 labourers are written serially in the register and all have received the money by putting thumb impression on the same. It is a fact that the labours are paid by the assessee directly and not through contract or sub-contract. Therefore, section 194C of the Act is not attracted. We have also perused the profit and loss account for the year ended 31.03.2008 and the amount of works bill is of Rs.1,37,60,588/- out of which labour charges are to the tune of Rs.71,81,150/-. Therefore, we do not find any infirmity in the order of CIT(A) and confirm the same.”