2.3       Query

Deduction of tax at source from charges paid to processors.

1. The querists have sought the opinion of the Expert Advisory Committee on whether any tax should be deducted at source from the spinners/dyers of yarns or processors of the goods in which the assessee deals.

                                                             Opinion                                             September 18, 1988

1. The Committee notes that section 194C(1) of the Income-tax Act, 1961, provides as below:

“194C. 6(1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and-

            (a) the Central Government or any State Government; or

            (b) any local authority; or

            (c) any corporation established by or under a Central, State or Provincial Act; or

            (d) any company; or

            (e) any co-operative society,

shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to two per cent of such sum as income-tax on income comprised therein.”

2. On the basis of the above, the Committee is of the opinion that tax should be deducted at source from the charges paid to spinners/dyers of yarns or processors of goods, since the above mentioned section covers payments made “for carrying out any work”, provided the contract in this respect is awarded by the entities stipulated in the said section.

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