Only payments "in pursuance of a contract" are subject to TDS. Payments made under a legal obligation are not covered

Kapurthala Improvement Trust vs. CIT (ITAT Amritsar)I.T.A. Nos. 40 to 43/Asr/2015  10th day of June 2015

Appellant has made payments to Punjab Water Supply and Sewerage Board for execution of work relating to sewerage pipe lines and for treatment of polluted water of the city. However, as learned counsel for the assessee rightly points out, such payments are out of legal obligations rather than contractual arrangements, and it is only when payments are made “in pursuance of a contract” that the provisions of section 194C come into play. The contract may be oral or written, express or implied but there must be a contract nevertheless. In the present case, however, the payment is on account of legal obligation under section 24(1) of the Punjab Water Supply and Sewerage Board Act 1976 which provides as follows :
“24(1). The cost of investigation, preparation and execution of any scheme undertaken by the Board shall be initially incurred by the Board out of its funds but it shall be recoverable from the concerned local authority or local authorities in such manner and in such instalments as may be prescribed.”