TDS 194C not applicable on payment by contractee to contractor. Supreme Court dismisses SLP of Income Tax Department

TDS 194C not applicable on payment by contractee to contractor of license fee. Supreme Court dismisses SLP of the Income Tax Department

ABCAUS Case Law Citation:
ABCAUS 2444 (2018) 07 SC

The respondent assessee was granted a contract by IRCTC for providing catering service for which the assessee was required to make payment of licence fee. The Assessing officer disallowed the payment u/s 40(a)(ia) of the Income Tax Act 1961 (the Act) as the assessee had not deducted tax at source.

CUT(A) confirmed the disallowance. However, the Income Tax Appellate Tribunal (Tribunal /ITAT) allowed the appeal of the assessee and deleted the disallowance.

Aggrieved, the Income Tax Department (Revenue) challenged the order of the Tribunal before the Hon’ble High Court.

The Hon’ble High Court observed that Section 194J of the Act raises the requirement for deduction of tax on payment of professional or technical service fee and for obvious reasons therefore the section had no applicability.

Further, it was observed that section 194C requires deduction of tax at source on payments to contractors. Under sub section (1) of Section 194C, any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between the contractor and the specified person is required at the time of credit of such sum in the account of the contractor or at the time of payment to deduct tax at specified rate.

The Hon’ble High Court concurred with the Tribunal in observing that section 194C of the Act would apply in case of a payment being made by a contractor to a contractee and not vice-versa. In the present case, the payment of licence fee was made by the contractee to the contractor and therefore section 194C of the Act would not apply.

Aggrieved by the judgment of the Hon’ble High Court, the Revenue had filed a Special Leave Petition before the Hon’ble Supreme Court.

However, their Lordships dismissed the SLP of the Revenue on the ground of delay as well as on merits.

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