By TIOL News Service

KOLKATA, JUNE 02, 2017: THE issue before the Tribunal is - Whether payment of labour charges warrants TDS deduction u/s 194C, merely because the paymemt was in the form of fixed salary plus incentive commission as mutually agreed. NO is the answer.

Facts of the case:

The assessee is an individual and is engaged in the business of civil construction. The assessee has claimed labour charges amounting to Rs. 80,19,210/- without deducting the TDS u/s 194C of the Act. The AO called upon the assessee to explain the reasons for non-deduction of TDS and also directed to furnish the labour register. However, assessee failed to furnish the same and the charges was disallowed by AO for non-deduction of TDS and added to the total income of assessee. Not satisfied, assessee preferred an appeal before CIT(A) and submitted that the payments were made to individual labour and none of the case, it was exceeding more than the prescribed limit u/s. 194C of the Act. Later, CIT(A) observed certain defects in the labour register produced by assessee and accordingly he rejected the contention of assessee as stated.

On appeal, the ITAT held that,

++ it reflects from the order of CIT(A) that AO has disallowed the payment made by assessee to the labourers on the ground that TDS was not deducted u/s 194C which was subsequently confirmed by the CIT(A). It was found from the laborers register as produced by assessee that the payment was made to individual labourers and not to the labour contractor. Therefore the individual labourers can be treated as employee of the assessee. Further it was noted that the labourers are working under the direct supervision of the assessee representing the organization of the assessee where they have no other separate business organization. Thus, there exists an employer and employee relationship between the assessee and labourers. Similarly the payment of PF and ESI by the employer cannot be the basis of deciding whether there exist employer and employee relationship. For the applicability of PF and ESI there are certain conditions attached to an organization. The character of the relationship of the employer and employee cannot be changed on the basis whether an organization is registered under PF and ESI. The payment to the employees can be in the form of fixed salary plus incentive commission as mutually agreed;

++ in this connection, reliance has been made on the decision of ITAT Delhi in case of St. Stephen's Hospital Vs. DCIT, wherein it was held that: "....the treatment given by the assessee as well as the consultant doctors to the remuneration paid in their respective books of account was not conclusive to decide the nature of the said remuneration which had to be ascertained on the basis of relationship between the assessee and the consultant doctors. The said payments, thus, were subject to deduction of tax as per provisions of section 192 and not as per provisions of section 194J...." Based upon the above mentioned reasoning's, tribunal concluded that the assessee is not liable for TDS deduction u/s 194C of the Act.

(See 2017-TIOL-777-ITAT-KOL)