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In a case it was held that provision of section 194C shall be applicable only when there is contractual obligation. Hence, payments made for legal obligation shall not attract section 194C. 
Case: Executive Officer vs. Income Tax Officer Facts: The assessee was a public trust set up under Punjab Towns Improvement Act, 1922. During a TDS Survey, it was noticed that assessee was making payments to Punjab Water Supply and Sewerage Board, but no tax was deducted from these payments. During the proceedings it was held that assessee was under obligation for deducting tax under section 194C. Due to non-deduction of such tax, demands under section 201(1) and 201(1A) were raised on the assessee. On appeal, CIT (A) upheld the demand raised however, restricted the demand only to the extent principal liability of the recipient remained unpaid and in respect of the delay in eventual realization of tax. Aggrieved by the order, assessee appealed to the Tribunal. Held: In the light of the applicable legal provisions, tribunal noticed that payments to Punjab Water Supply and Sewerage Board were made for execution of work relating to sewerage pipe lines and for treatment of polluted water of the city under section 24(1) of the Punjab Water Supply and Sewerage Board Act 1976. It means such payments were made out of legal obligations rather than contractual obligations. Tribunal highlighted that when payments are made “in pursuance of a contract” then, provisions of section 194C shall be applicable. There must be a contract that may be oral or written, express or implied. In addition, section 24(1) of the Punjab Water Supply and Sewerage Board Act 1976 provided: he cost of investigation, preparation and execution of any scheme undertaken by the Board shall be initially incurred by the Board out of its funds but it shall be recoverable from the concerned local authority or local authorities in such manner and in such installments as may be prescribed.” Thus, it was clear that in the present case, section 194C shall not be applicable and therefore, demands under section 201(1) and 201(1A) were deleted. ___________________________________________________________________
Payments made for legal obligation shall not attract section 194C
Direct Taxes (including International Taxation) | By ALOK PATNIA | Last updated on Oct 5, 2017
In a case it was held that provision of section 194C shall be applicable only when there is contractual obligation. Hence, payments made for legal obligation shall not attract section 194C. Case: Executive Officer vs. Income Tax Officer Facts: The assessee was a public trust set up under Punjab Towns Improvement Act, 1922. During a TDS Survey, it was noticed that assessee was making payments to Punjab Water Supply and Sewerage Board, but no tax was deducted from these payments. During the proceedings it was held that assessee was under obligation for deducting tax under section 194C. Due to non-deduction of such tax, demands under section 201(1) and 201(1A) were raised on the assessee. On appeal, CIT (A) upheld the demand raised however, restricted the demand only to the extent principal liability of the recipient remained unpaid and in respect of the delay in eventual realization of tax. Aggrieved by the order, assessee appealed to the Tribunal. Held: In the light of the applicable legal provisions, tribunal noticed that payments to Punjab Water Supply and Sewerage Board were made for execution of work relating to sewerage pipe lines and for treatment of polluted water of the city under section 24(1) of the Punjab Water Supply and Sewerage Board Act 1976. It means such payments were made out of legal obligations rather than contractual obligations. Tribunal highlighted that when payments are made “in pursuance of a contract” then, provisions of section 194C shall be applicable. There must be a contract that may be oral or written, express or implied. In addition, section 24(1) of the Punjab Water Supply and Sewerage Board Act 1976 provided: he cost of investigation, preparation and execution of any scheme undertaken by the Board shall be initially incurred by the Board out of its funds but it shall be recoverable from the concerned local authority or local authorities in such manner and in such installments as may be prescribed.” Thus, it was clear that in the present case, section 194C shall not be applicable and therefore, demands under section 201(1) and 201(1A) were deleted. ___________________________________________________________________