Tds on contract

This query is : Resolved

amol (Querist)
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02 March 2012 Case:
There is an agreement between Mr.A & 'X' co to paint a section of Building.The value of paint & value of labour work is separately provided in the agreement.
Mr.A raise separate invoice for Painting material with VAT & for labour charges with service tax.

Issue involve:
Whether tds to be made only on labour invoice or on both invoice?

CA. Hari Kishan

CA. Hari Kishan (Expert)
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02 March 2012 TDS shall be deductible on the labor invoice raised by the painter.. under section 194C.. NO TDS is required to be done on sale of goods to you.

amol

amol (Querist)
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02 March 2012 Hi..hari
pls refer to the following discussion:
There is no dispute that works contract (including job work) are covered within the scope of section
194C of the Act.The expression “carrying out any work” in section 194C is used for deduction of tds.
A contract of sale is
one whose main object is the transfer of property in, and the delivery of the possession of, a
chattel as a chattel to the buyer. Where the principal object of work undertaken by the payee
of the price is not the transfer of a chattel qua chattel, the contract is one of work and
labour. The test is whether or not the work and labour bestowed end in anything that can
properly become the subject of sale; neither the ownership of materials, nor the value of the
skill and labour as compared with the value of the materials, is conclusive, although such
matters may be taken into consideration in determining, in the circumstances of a particular
case, whether the contract is in substance one for work and labour or one for the sale of a
chattel."
Mere passing of property in an article or commodity
during the course of the performance of the transaction in question does not render it a
transaction of sale. For, even in a contract purely of work or service, it is possible that articles
may have to be used by the person executing the work and property in such articles or
The Law of TDS u/s 194C: Controversies & Solutions 7 http://www.itatonline.org
materials may pass to the other party. That would not necessarily convert the contract into
one of sale of those materials. In every case the court would have to find out what was the
primary object of the transaction and the intention of the parties while entering into it.
It
may in some cases be that even while entering into a contract of work or even service,
parties might enter into separate agreements, one of work and service and the other of sale
and purchase of materials to be used in the course of executing the work or performing the
service. But, then in such cases the transaction would not be one and indivisible, but "would
fall into two separate agreements, one of work or service and the other of sale."
So, it is the dominant object which would determine the nature of the contract. If the dominant
object is to transfer the chattel as chattel then it would be a contract of sale even though goods
might have been manufactured as per the requirement and specification of the client. Hence, section
194C would not be applicable. On the other hand, if the dominant object is to carry out a work, it
would be a works contract even though some material might have been used in the execution of the
contract. In such cases, section 194C would be attracted.
In the given case the intention of Painter/Company is to paint the building and not to sale/purchase the paint so as to treat it as sale of goods.
So in my view even though separate bill is submitted tds will also to be deducted on painting material bill.
Do you have any case law/notification/circular to support your view as to not to deduct tds on painting matrial bill?

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Ravi Jhamb

Ravi Jhamb (Expert)
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02 March 2012 IF Painter raised partially paint charges and labour charges on his letter head. then both are cover under TDS 194C. or beneficiary will pay the paint charges to shop keeper and Job work to Painter. Both transaction should be differ. You will not full amt to painter.