I have one query that.. The A.O. has disallowed one heavy exp on account of weaving charges. saying that payment done to the party is like payment done to the conractor & no Tax is dedcted at source u/s 194C, as that party is working as per my instruction it indicates there is contract.but i argued that there is no written agreement between both (me and that party), so AO said as per the contract act oral contract is valid and enforceble. is this valid stand on the side of A.O?? can any one provide any relevant case law?
23 April 2009
The oral contract is also a contract and the position taken by the AO is tenable to the extent that there is a contract. However the matter of deduction of TDS or non deduction of TDS depends upon various facts which are not disclosed in your query. If only the weaving charges are being paid to the vendors and all RM etc is being supplied by your company the agreement is of contractor in nature as defined in the section 194C, the TDS is attracted. If the vendor supplies your the weaved material and raises a bill for sale of weaved material the contract would be for supplies of material, TDS is not attracted. You can refer to circular no - 681 and 13/dated 13/12/2006 and circular no 715. The case of the Dabur India,LG Elecronics, Wilmer Schewab may of help to you.
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