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2014 (12) TMI 222 - ITAT PUNEDisallowance u/s 40(a)(ia) – TDS to be deducted on labour charges or not - Held that:- The assessee is an individual carrying out job work business - The assessee receives the orders from various companies for roughing and finishing of the raw material provided by the customer - The raw material is supplied by the customer and the assessee does the machining work through use of CNC machines - Sometimes, the raw material provided by the customer is required to be roughened and the roughing cannot be done at the assessee's premises since the assessee does not have the requisite plant and machinery - in F.Y. 2006-07, the assessee being an individual was not liable to deduct TDS on the payments to contractors and he was liable to deduct tax only on the payments made to sub-contractors. Nature of contract - Whether the labour charges paid by the assessee are in the nature of contract awarded by the assessee or sub contract awarded – Held that:- The customer provides the raw material to the assessee for carrying out certain job work - Since the assessee do not have certain machines and hence, the assessee in turn, gives the contract to other labour contractors to carry out part of the job - Ultimately the assessee is liable for the work carried out by them - This is evident from the purchase order from Jinabakul Forge Pvt. Ltd. for whom the assessee do the job work, wherein it is clearly mentioned that rejection upto 1% is allowed and rejection more than 1% would be to the assessee's account - the labour contract given by the assessee is in the nature of separate contract of work and assessee was not liable to deduct TDS under the provisions of section 194C. The assessee has engaged various labour contractors for which, the assessee himself was responsible for executing the contract and the labour contractors had no privacy of contract with Principal customer - For a contract to qualify as a subcontractor, the subcontractor should spend their time and energy and also undertake the risk attached with the main contract - As the element of risk taking was missing, the contract could not be held as subcontract – thus, the payments made to the labour contractors are not in the nature of sub-contracts and there was no obligation on the assessee to deduct TDS on the said payments and consequently, no disallowance could be made u/s. 40(a)(ia) of the Act – relying upon Mr. Vijay Ramchandra Shirsth, C/o. Shah Khandelwal Jain & Associates Versus ACIT, Circle -2, Nashik [2011 (9) TMI 904 - ITAT PUNE] - there is no written or real agreement to substantiate the view taken by the AO and it could not be held to be a contract - thus, the authorities below were not justified in making disallowance u/s 40(a)(ia) – Decided in favour of assessee.
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