Tax deduction at source under works contract tax

"Tax Deduction at Source" This term in its abbreviated form "TDS" has been used since a long time in Income Tax. Under the scheme, certain amount is deducted by the employer or payer from the amount which is payable to an employee or a person. This amount is deposited in Income Tax accout by the person who makes deduction. The person who deducts the amount does two things:
(a)	such person submits details of persons from whose payments amount has been deducted, amount deducted and details of Income Tax challan by which amount deducted has been deposited in the Bank; and
(b)	such person issues a certificate in the prescribed form to the person from whom amount has been deducted alongwith details of deposit of the amount in the Bank in Income Tax account.
Provision of tax deduction at source does not in any manner absolves the liability of return filing by the person form whose payments amount has been deducted. Such person is required to file income tax return like any other person. Such person, while preparing his income tax return, first computes total income tax payable and thereafter, claims benefit of aggregate of all amounts of tax deduction. There may be three circumstances as under:
(i)	Aggregate of all amounts deducted falls short of total amount of income tax payable; or
(ii)	Aggregate of all amounts deducted exceeds the total amount of income tax payable; or
(iii)	Aggregate of all amounts deducted is equal to the total amount of income tax payable; or
In first case, income tax payer diposits the amount of difference, in second case, he claims refund of the amount of difference and in third case, he has to do nothing. Exactly same procedure is to be adopted in cases of tax deduction made by the contractor from payments of contractor and same treatment is to be given to any amount deducted at source by the contractee.
"WCT" Many people dealing with tax in cases of works contracts often use abbreviation "WCT" for amount of tax deducted at source. Unless law of any State specifically provides that amount deducted shall be treated in a works contract or in cretain type of works contract or in all cases of works contract as the amount of tax payable by a dealer, term "WCT" cannot be used for amount deducted in cases of works contract. For amount of tax deducted at source in cases of works contract, it will be proper to use the term "TDS (VAT)" or "TDS (WCT").
"Liability of payment of sub-contractor in cases of works contract" Under a works contract, sale of goods is not a normal sale. In a case of works contract, sale of goods is deemed by accretion of goods in the works. In a works contract, transfer of property in goods takes place at the time of incorporation of goods in the works. Where a contract is executed through sub-contractor, property immediately before incorporation in the works belongs to sub-contractor and with the incorporation it becomes property of the contractee. Property in goods never passes to main contractor. Therefore, it is sub-contractor who makes sale of goods in execution of the contract. Therefore, in such cases, sub-contractor is liable for payment of tax. Please see State of Andhra Pradesh & Ors. versus M/s Larsen & Tourbo Ltd. & Ors. (Supreme Court) Civil Appeal No. 5239 of 2008, date of decision August 26, 2008.
"TDS in cases of sub-contractors" Where liability of payment of tax is of sub-contractor, tax deduction should not be made from payments made to main contractor by contracteee. Where a contract is executed partially through sub-contractors, TDS should not be made by contractee on those amounts which are payable by main contractor to sub-contractor(s). Except where law of a State specifically provides otherwise, tax deduction is mandatory by the main contractor from payments of sub-contractor(s). Following observations of the Hon'ble Supreme Court in M/s Bhawani Cotton Mills Ltd. verses State of Punjab And Anr. 1967 AIR 1616, decided on 10-04-1967:
"If a person is not liable for payment of tax at all, at any time, the collection of a tax from him with a possible contingency of refund at a later stage will not make the original levy valid."
Tax Deduction at Source at Lower Rate  Where a contractor is of the view that his liability of payment of tax on sale of goods in a works contract will be lesser than the aggregate of amounts of deduction if deduction is made at general rate of tax deduction, he may apply to his assessing authority for issuing direction to the contractee for making deduction at a rate lower than the general rate of tax deduction. Where the assessing authority is satisfied it it will issue direction to the contractee for making tax deduction at such rate as may be mentioned by it in the direction issued by it.