Deduction of tax at source under Sec.194C. - Income Tax - 1561/CBDT

INSTRUCTION NO. 1561/CBDT Dated: May 9, 1984 Under section 194 C of the IT Act any person responsible for paying any sum to any resident contractor/sub-contractor is required to deduct income-tax at source at the rate of two percent one per cent respectively from any sum credited or paid in pursuance of any contract, for carrying out any work, including supply of labour for carrying out any work, entered into between the contractor and the following bodies, the consideration for which exceeds Rs.10,000:- (a) the Central Govt. or any State Government; or (b) any local authority; or (c) any corporation established by or under a Central, State or Provisional Act; or (d) any company; or (e) any co-operative society. 2. With a view to enforcing the aforesaid provisions it has been laid down in rule 37(2C) of the Income-tax Rules, 1962 that the person making deduction of tax in accordance with Section 194 C of the Income-tax Act from payments made to any contractor/sub-contractor shall send to the I.T.O concerned a quarterly statement in form No. 26 C in respect of deductions made by him during the immediately preceeding quarter. Section 200 envisages that the deductions made at source should be credited to the Central Government account within the time prescribed in rule 30 of the Income-tax Rules. On his failure to do so, he will be deemed to be an assessee in default, and consequently will make him liable to pay interest thereon as per section 201 of the Income-tax Act. He will also be liable to penal provisions of section 221. 3. As most of constructional and other activities are being undertaken/carried out on contractual basis, the Board desire that the officers of the Department engaged in collection of taxes should exercise utmost vigilance to the exchequer. The statutory statements of particulars for contractors are intended to furnish data or material to enable the Income-tax Department to cause an enquiry to be made in good time to find out the source of money involved in such activities. Strict observations of these provisions will enable the Department to track down the tax evadors who are suspected to have evaded payment of tax on their incomes. 4. You are therefore requested to call for as much information as possible from top/bigger organisations in respect of all such contractors from all organisations mentioned in para 1 above within your jurisdiction for the financial years 1981-82 to 1983-84 and have an alphabetical list prepared. You may please ensure that verification is made speedily to see if any of them had contravened the provisions of section 194 C and wherever necessary including penal action should be taken against those found guilty. 5. Incidentally it may be mentioned that section 285A of the Income Tax Act stipulates that any person for carrying out any work etc., the value of which exceeds Rs.50,000 should furnish to the I.T.O. concerned particulars relating to the contract in Form No.52 as provided in rule 120 of the I.T.Rules. This is no doubt that the Commissioners power to impose fine in the case of failure to comply with these provisions is discretionary but it cannot be an excuse for inaction in this respect. A scrutiny of all such cases is to be taken up on a priority basis, and as a result of such scrutiny any instance of non-rendering of statements by contractors etc. comes to your notice, steps may be taken for initiation of penal proceedings and for stricter enforcement of the provisions of law so that the interests of revenue are protected. By vigorously pursuing the provisions of lawn in all such cases it will be possible to combat tax-evasion to some extent. 6. Internal audit may also be requested to keep the above aspects in view in their work. 7. The progress of action taken in this respect should be reported to the Board by 31st July, 1984.