In a significant ruling, the Income Tax Appellate Tribunal, Kolkata bench has observed that section 194C of the Income Tax Act, 1961 is not applicable to the wages paid to labourers. The Tribunal opined that wages must be treated just like salary and are taxable on same basis and therefore, such payments are covered under section 192 of the Act.
The assessee, in the instant case, is engaged in the business of contracting. The assessee for the relevant assessment year, filed a return conceding income under the head “profits and gains from business and profession.”While completing assessment, the assessment officer disallowed certain expenditures including the wages paid to the labourers on ground that no TDS was paid on such amount. The assessee maintained that labourers to whom the wages were paid are the employees. There was no relationship of contractor and contractee between the assessee and the labourers, therefore the provision of Sec. 194C r.w.s. 40(a)(ia) of the Act are not attracted.It was further contended that the payment was made to the employees after deducting PF and ESI in respect of all the labourers.
On appeal, the first appellate authority accepted the contentions. Therefore, the Revenue approached the Tribunal impugning the order of the CIT(A).
While upholding the findings of the first appellate authority, the Tribunal held that “as per the provisions of section 17(1) of the Act salary includes wages and therefore conceptually there is no difference between salary & wages. Wages are treated just like salary and are taxable on same basis. The employment relationship can be complex, with no quick and easy formulae to use which will provide an instant solution. The general principles of contract law govern the formation of the contract of employment. A contract of employment is a contract by which a person, the employee, undertakes for a limited or indeterminate period of time to do work for remuneration according to the instructions and under the direction or control of another person, i.e the employer. Within the framework of a contract of employment, a person carries out the service of work, receives remuneration and the work is carried out according to the direction and control of the employer. The terms of the contract may be either in writing or given orally, but both are equally binding and enforceable. When a person is hired to be an employee, the person enters into a contract of service, which is an employer/employee relationship. Another type of contract between two parties is that of an independent contractor or a contract for service. This type of contract may be defined as a contract by which a person, contractor or service provider makes a commitment to another person, the client, to carry out material or intellectual work or to provide a service for a price or fee. The characteristics of a contract for service are that the contractor isfree to choose the means of performing the contract and no relationship of subordination exists between the contractor or the provider of services and the client in respect of such performance. In the instant case before us the ld. DR has not brought anything contrary to the findings of ld. CIT(A). In our considered view the wages in the instant case are covered under section 192 of the Act. Therefore the provisions of section 194C are not applicable.”
Read the full text of the order below.
