TDS for contractors - contract for work and contract for sale -Contradiction between two circulars – CBDT clarifies after 11 years.
Circular No. 681 dated 8.3.94 of the Board clarifies in Para 7(vi) that the provisions of section 194C would not apply to contracts for sale of goods and further clarifies that where the property in the article or thing so fabricated passes from the fabricator-contractor to the assessee only after such article or thing is delivered to the assessee, such contract would be a contract for sale and so outside the purview of the section 194C.
In reply to question No. 15 in Circular No. 715 dated 8.8.95 on the subject of applicability of Section 194C, in respect of contract for supply of printed material as per prescribed specifications, it has been said that such contracts would also be covered under Section 194C.
There seems to be an apparent contradiction between these two circulars.
Board in typical bureaucratic lingo does not say which circular is correct. It says that the 1995 circular has to be understood with the principles laid down in the 1994 circular.
Board now clarifies that
++ Before taking a decision on the applicability of TDS under section 194C on a contract, it would have to be examined whether the contract in question is a 'contract for work' or a 'contract for sale' and TDS shall be applicable only where it is a 'contract for work'.
++ the provisions of section 194C would apply in respect of a contract for supply of any article or thing as per prescribed specifications only if it is a contract for work and not a contract for sale
CIRCULAR NO. , Dated: December 13, 2006