www.simpletaxindia.netPractical issues in Tax Deduction at SourcePayments to residents (other than salary)CA. N.C. HegdeDe...
www.simpletaxindia.netContents• Section 194A – Interest other than interest on securities• Section 194C – Payments to cont...
www.simpletaxindia.netSection 194A – Interest otherthan interest on securities3
www.simpletaxindia.netSection 194ATDS on net off payment?Issue• Whether deduction should be done from gross interest payab...
www.simpletaxindia.netSection 194ADiscounting chargesIssue• Whether discounting charges are in the nature of ‘interest’ on...
www.simpletaxindia.netSection 194AUsance interestIssue• Whether finance charges / usance interest is in the nature of ‘int...
www.simpletaxindia.netSection 194APayment on overdue purchase priceIssue• Whether a compensatory sum payable on overdue pu...
www.simpletaxindia.netSection 194AInterest along with damages / compensationIssue• Whether interest for delay in construct...
www.simpletaxindia.netSection 194C – Payments tocontractors9
www.simpletaxindia.netSection 194CDeputation of employeesBackground and issue• JV company (JV) made payment towards reimbu...
www.simpletaxindia.netSection 194CDeputation of employees• Merely because the promoter companies had in an agreement to de...
www.simpletaxindia.netSection 194CWages paid through BoardIssue• When wages paid to Mathadi Board for onward payment to la...
www.simpletaxindia.netSection 194CMeaning of ‘work’ and ‘service’Issue• Whether section 194C is applicable only to payment...
www.simpletaxindia.netSection 194CPayment for hire of machineryIssue• Whether mere providing of machinery on hire without ...
www.simpletaxindia.netSection 194CDifferent contracts – viewed as a ‘works contract’Background and issue• For the purpose ...
www.simpletaxindia.netSection 194CDifferent contracts – not viewed as a compositetransactionBackground and issue• Assessee...
www.simpletaxindia.netSection 194CWarehousing chargesIssue• Whether tax is deductible on warehousing charges paid to clear...
www.simpletaxindia.netSection 194CHire of trucks without contract of carriage of goodsIssue• Is payment for mere hiring of...
www.simpletaxindia.netSection 194CFacilities provided by hotelsIssue• Whether various facilities offered to guests of the ...
www.simpletaxindia.netSection 194CPayment to transportersBackground and issue• The assessee got a sub-contract pertaining ...
www.simpletaxindia.netSection 194CUse of name and copyrightBackground and issue• The assessee was engaged in providing edu...
www.simpletaxindia.netSection 194CReimbursement of expensesIssue• Whether reimbursement of customs clearance expenses to a...
www.simpletaxindia.netSection 194J – Fees forprofessional or technicalservices23
www.simpletaxindia.netSection 194JTransaction fees paid to stock exchangeIssue• Whether transaction charges paid to stock ...
www.simpletaxindia.netSection 194JThird Party Administrators (TPAs)Background and issue• TPAs provide services such as hos...
www.simpletaxindia.netSection 194JFilm broadcasting rightsIssue• Whether payment made for acquiring rights for satellite b...
www.simpletaxindia.netSection 194JParticipation fees for seminarIssue• Whether payment as participation fees for a confere...
www.simpletaxindia.netSection 194JRelationship with stockistBackground and issue• Assessee appointed a firm as a ‘super st...
www.simpletaxindia.netSection 194JReimbursement of expensesBackground and issue• Assessee made payments for professional c...
www.simpletaxindia.netSection 194JMeaning of ‘managerial’ services• ….merely because some managerial skill is required to ...
www.simpletaxindia.netSection 194JAcquisition of softwareNotification no. 21/2012 dated 13 June 2012 –• No TDS under secti...
www.simpletaxindia.netSection 194H – Commission orbrokerage32
www.simpletaxindia.netSection 194HCredit card commission to banksIssue• Whether credit card commission retained by the cre...
www.simpletaxindia.netSection 194HCredit card commission to banks• The commission retained by the credit card company is i...
www.simpletaxindia.netSection 194HPrincipal - agent relationshipBackground and issue• Assessee is engaged in providing cel...
www.simpletaxindia.netSection 194HPrincipal - agent relationship• The franchisee had no free choice to sell and everything...
www.simpletaxindia.netSection 194HPrincipal - principal relationshipBackground and issue• Assessee was a cellular telephon...
www.simpletaxindia.netSection 194HPrincipal - principal relationship• The element of agency is required in case of all ser...
www.simpletaxindia.netSection 194HDifference between commercial price and published priceBackground and issue• Airlines ha...
www.simpletaxindia.netSection 194HDifference between commercial price and published price• It would be impracticable and u...
www.simpletaxindia.netSection 194HCommission and supplementary commission• Tax should be deducted at source under section ...
www.simpletaxindia.netSection 194HDiscount given to retail customers, group passengersand small time agentsBackground and ...
www.simpletaxindia.netSection 194HDiscount availed by stamp vendorsIssue• Whether tax is deductible on discount given to s...
www.simpletaxindia.netSection 194HIncentive to distributorsBackground and issue• The assessee had given certain discounts ...
www.simpletaxindia.netSection 194HIncentive to distributors• The dispute in the present case is not regarding income arisi...
www.simpletaxindia.netSection 194I – Rent46
www.simpletaxindia.netSection 194IPayment for infrastructure facilityIssue• The assessee was engaged in the business of pr...
www.simpletaxindia.netSection 194IPayment for infrastructure facility• Instead of giving a deposit which it would have don...
www.simpletaxindia.netSection 194IRoaming chargesIssue• Whether payment towards roaming charges (by one telecom service pr...
www.simpletaxindia.netSection 194IRoaming charges• Rent is something which is paid for earmarked premises, and in the case...
www.simpletaxindia.netSection 194IPayment for use of equipmentIssue• Whether the payment for use of equipment is ‘rent’ un...
www.simpletaxindia.netSection 194IPayment for use of equipmentIssue• Whether the payment for use of equipment is ‘rent’ un...
www.simpletaxindia.netSection 194IPayment for use of equipment• It is settled law that the provisions which are more benef...
www.simpletaxindia.netSection 194ISecurity depositIssue• Whether security deposit for hiring a premises which was to be re...
www.simpletaxindia.netSection 194IUpfront chargesIssue• Whether upfront charges can be regarded as ‘rent’?Held• Rent has b...
www.simpletaxindia.netSection 194IReimbursement of rentBackground and issue• The holding company had taken office premises...
www.simpletaxindia.netSection 194IReimbursement of rent• Therefore, there was no lessor and lessee relationship between th...
www.simpletaxindia.netOther issues58
www.simpletaxindia.netOther issuesProvisions / credits to suspense accountIssue• Whether TDS is applicable on provisions /...
www.simpletaxindia.netOther issuesTDS prior to accrual of income?Issue• Applicability of TDS prior to accrual of income in...
www.simpletaxindia.netOther issuesThreshold for applicability of section 44ABIssue• The assessee, an individual, is a surg...
www.simpletaxindia.netAppendix62
www.simpletaxindia.netSection 194AExtract(1)   Any person, not being an individual or a Hindu undivided family, who is res...
www.simpletaxindia.netSection 194CExtract(1)   Any person responsible for paying any sum to any resident (hereafter in thi...
www.simpletaxindia.netSection 194JExtract(1)   Any person, not being an individual or a Hindu undivided family, who is res...
www.simpletaxindia.netSection 194HExtract(1)   Any person, not being an individual or a Hindu undivided family, who is res...
www.simpletaxindia.netSection 194IExtract(1)   Any person, not being an individual or a Hindu undivided family, who is res...
www.simpletaxindia.netSection 194AInterest on time deposits by banks using CBS SoftwareCircular no. 3/2010 dated 2 March 2...
www.simpletaxindia.netSection 194AOther key circulars Circular no.     Gist 643 (dated 22    • Cumulative deposit / debent...
www.simpletaxindia.netSection 194CKey circulars Circular no.      Gist 715 (dated 8      TDS is applicable on payments to ...
www.simpletaxindia.netSection 194JKey circulars Circular no.    Gist 726 (dated 18   • Fees for professional services from...
www.simpletaxindia.netSection 194HPayments to banksNotification no. 56/2012 dated 31 December 2012 –• No TDS on following ...
www.simpletaxindia.netSection 194IKey circulars Circular no.    Gist 715 (dated 8    • Subletting a rented premise (fully ...
www.simpletaxindia.netSection 194IKey circularsCircular no. 5/2002 dated 30 July 2002• Clarifications regarding payments f...
www.simpletaxindia.net                                      Thank you!The information contained in this document is intend...
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Practical issues in tax deduction at source uploaded by Simpletaxindia.net

  1. 1. www.simpletaxindia.netPractical issues in Tax Deduction at SourcePayments to residents (other than salary)CA. N.C. HegdeDeloitte Haskins & Sells22nd March 2013
  2. 2. www.simpletaxindia.netContents• Section 194A – Interest other than interest on securities• Section 194C – Payments to contractors• Section 194J – Fees for professional or technical services• Section 194H – Commission or brokerage• Section 194I – Rent• Other issues• Appendix2
  3. 3. www.simpletaxindia.netSection 194A – Interest otherthan interest on securities3
  4. 4. www.simpletaxindia.netSection 194ATDS on net off payment?Issue• Whether deduction should be done from gross interest payable or net interest after setting-off mutual balances?Held• Statutory liability is imposed at the time of the credit of interest• It is not possible to cast off the liability or shirk the liability imposed by the statute• The expression, any income by way of interest in section 194A, indicates that all interest income is included except those which are specifically excluded from the scope of the section• The principal of netting the interest has no application under section 194A• Tax was required to be deducted on gross interest credit to the account S.K. Sundararamier and Sons (240 ITR 740) (Madras HC)4
  5. 5. www.simpletaxindia.netSection 194ADiscounting chargesIssue• Whether discounting charges are in the nature of ‘interest’ on which tax is deductible?Held• Interest is the sum payable in respect of money borrowed or debt incurred• Bill discounting is a process in which sale consideration receivable on sale of goods is discounted, which is not debt incurred or money borrowed• The Interest Tax Act, 1974 specifically includes discounting charges in the definition of interest. However interest defined under the Income-tax Act, 1961 (Act) does not include discounting charges• Wherever the legislature intended the discount of bills of exchange to be included within the definition of interest, the same was specifically provided for. Hence omission of these words in the definition under the Act indicates the intention of the legislator to keep the same out of the ambit of ‘interest’ under the Act• The same rationale is also laid down in Circular no. 65 issued by the Central Board of Direct Taxes (CBDT) in relation to section 194A of the Act• Circular no. 647 dated 22 March 1993 also referred to Cargill Global Trading (I) (P) Limited (ITA Nos. 331 & 204 of 2011) (SC)5
  6. 6. www.simpletaxindia.netSection 194AUsance interestIssue• Whether finance charges / usance interest is in the nature of ‘interest’ on which tax is deductible?Held• The intention of the parties to the contract was clear and the price of the material to be supplied was reflected in a separate invoice• In lieu of the credit facility, the buyer was required to pay interest at a stipulated rate for which a separate invoice was prepared• There was no nexus between the interest amount and fixation of the price of the raw materials purchased. The nexus of interest was only with the period from which the purchase price became due• Thus, the outstanding price was a ‘debt incurred’ within the meaning of interest under the Act Uniflex Cables Ltd. (150 TTJ 290) (Mumbai ITAT) Circular no. 65 of 1971 – TDS is applicable where there is no immediate discounting and the bank (as an agent) receives interest at the end of the period6
  7. 7. www.simpletaxindia.netSection 194APayment on overdue purchase priceIssue• Whether a compensatory sum payable on overdue purchase price is ‘interest’ on which tax is deductible?Held• A distinction is required between payments not connected with any debt and those having connection with borrowings• A payment having no nexus with a deposit, loan or borrowings is out of the ambit of the definition of interest• If the immediate source of receipt is trade activity, then the nature of receipt is not ‘interest payment’ but is payment of compensation. TDS is not applicable Parag Mahasukhlal Shah (46 SOT 302) (Ahmedabad ITAT)7
  8. 8. www.simpletaxindia.netSection 194AInterest along with damages / compensationIssue• Whether interest for delay in construction projects is ‘interest’ for section 194A?Held• In case the houses were ready within the stipulated period the assessee would not be liable to pay interest• When construction of a house was delayed, there could be escalation in the cost, the allottee could be deprived of rental income / right of living in his own house• Thus, the amount paid by the assessee was not payment of interest but payment of damages to compensate the allottee for the delay in the construction of his house and the harassment caused• The allottees had not given money to the assessee by way of deposit nor had the assessee borrowed the amount from the allottees• The amount was paid under a self-financing scheme for construction of the flats and the interest was paid on account of damages suffered by the claimant for delay in completion of the flats. TDS is not applicable H. P. Housing Board (340 ITR 388) (HP HC)8
  9. 9. www.simpletaxindia.netSection 194C – Payments tocontractors9
  10. 10. www.simpletaxindia.netSection 194CDeputation of employeesBackground and issue• JV company (JV) made payment towards reimbursement of salaries of employees deputed by its promoter companies, without deducting tax at source• Whether the payment can be considered as payment for supply of labour for carrying out the work and would fall under the provisions of section 194CHeld• The deputed personnel worked under the control and management of the JV• The work was being carried out as employees of the JV and not on behalf of the promoter companies• Their salary cost was a charge on profits of the JV• Instead of paying it to the employees directly, the JV reimbursed the amount to the promoter companies who had paid the amount to the employees10
  11. 11. www.simpletaxindia.netSection 194CDeputation of employees• Merely because the promoter companies had in an agreement to depute their employees would not mean that it was a works contract• Such payment by way of salary would neither constitute FTS nor a works contract performed by the promoter companies Bhagyanagar Gas Ltd. (29 taxmann.com 220) (Hyderabad ITAT)11
  12. 12. www.simpletaxindia.netSection 194CWages paid through BoardIssue• When wages paid to Mathadi Board for onward payment to labourers is subject to TDS under section 194C?• Held• The mandate of section 194C is that the relationship of the person paying any sum to the person carrying out any work including the supply of labour should be in the nature of the principal to contractor• There was no contractual relationship as a principal and contractor between the assessee and Mathadi Board, but, in fact, in pursuance of the provisions of the Act as well as the scheme, the assessee was bound to engage labourers or the workers through the Mathadi Board• The payments to Mathadi Board are not subject to TDS under section 194C Gokuldas Virjibhai & Company (139 ITD 284) (Pune ITAT)12
  13. 13. www.simpletaxindia.netSection 194CMeaning of ‘work’ and ‘service’Issue• Whether section 194C is applicable only to payments made for any work and not the payment made as fee for services rendered?Held• If the term any work in section 194C by itself covers any kind of service, the words in the bracket in sub-section (1) i.e. ‘including supply of labour for carrying out any work’, will be otiose or superfluous• But for the specific inclusion of those words in section 194C, obtaining of supply of labour for carrying out the work would have fallen outside the word work‘• The term ‘any work is not wide enough to comprise within its scope obtaining of supply of labour to carry out work (because this is essentially within the sphere of services‘). However, any work is wide enough to cover any kind of work which one can get carried out through another• It is most inappropriate to equate rendering of a service to carrying out a work S.R.F. Finance Ltd. (76 Taxman 432) (Delhi HC)13
  14. 14. www.simpletaxindia.netSection 194CPayment for hire of machineryIssue• Whether mere providing of machinery on hire without any manpower cannot be termed as ‘carrying out of any work’ by plant and machinery owners and, thus, provisions of section 194C cannot be applied?Held• There was no contract between the hirer and the owners of the machinery to carry out any work and only the machinery belonging to the owners was hired for a fixed period, on payment of hire charges• Hiring of machinery for the purpose of using it in its business would not amount to a contract for carrying out any work, as contemplated in section 194C• The provisions of section 194C are attracted only where any sum is paid for carrying out any work including supply of labour for carrying out any work• Circular no. 681 also clarified that the provisions of section 194C would not apply in relation to payments made for hiring or renting of equipments etc. Kiran Constructions (30 taxmann.com 235) (Hyderabad ITAT)14
  15. 15. www.simpletaxindia.netSection 194CDifferent contracts – viewed as a ‘works contract’Background and issue• For the purpose of setting up an oil refinery, the assessee entered into three contracts (for supply of material, for labour-cum-erections and for construction of refinery) with its sister concern• Whether these contracts could be termed as works contract‘ on which tax was deductible?Held• It is necessary to consider the primary object of the transaction and intention of the parties in order to determine whether contract is divisible or indivisible• The assessee had originally entered into a single agreement for construction of refinery plant and thereafter made amendments and created three separate contracts for supply (wherein the original agreement was mentioned at various places)• Thus, the three agreements were found to be in nature of a single integrated agreement for construction of refinery plant which could be termed as works contract‘. TDS under section 194C is applicable Essar Oil Ltd (30 taxmann.com 39) (Gujarat HC)15
  16. 16. www.simpletaxindia.netSection 194CDifferent contracts – not viewed as a compositetransactionBackground and issue• Assessee entered into entered into three independent contracts with the contractors, viz., agreement for supply, agreement for civil work, and agreement for erection work for total / partial turnkey project• Tax was deducted for civil work and erection work, but not for payments for supply• Whether TDS is applicable on payments for supply portion?Held• The contract to be entered into would be treated as divisible contract resulting in three separate contracts (owing to the language in the contract)• Carrying out any work is a sine quo non to attract section 194C. A contract under which a contractor agrees to supply material which may be used by him later in carrying out the work will not render the agreement to supply a contract for carrying out any work• The contract for supply of materials is a distinct contract in respect of which TDS is not applicable Karnataka Power Transmission Corporation Ltd. (21 taxman.com16 473) (Karnataka HC)
  17. 17. www.simpletaxindia.netSection 194CWarehousing chargesIssue• Whether tax is deductible on warehousing charges paid to clearing and forwarding agents under section 194C or section 194I?Held• From an analysis of the various lease deeds and agreements entered into by the assessee with the landlord / lessors and separately the C & F agreements, the ITAT was able to discern that no element of rent was paid by the assessee to the C & F agents• Wherever there was a payments of rent, TDS had been deducted under section 194I• What was paid to the C & F agents as warehousing charges was the consideration in terms of the agreement on which tax was deductible under section 194C Hindustan Lever Ltd. (29 taxmann.com 313) (Delhi HC)17
  18. 18. www.simpletaxindia.netSection 194CHire of trucks without contract of carriage of goodsIssue• Is payment for mere hiring of trucks liable to TDS under section 194C?Held• Section 194C would be applicable when there is a payment for carrying out any work including supply of labour for carrying out any work in pursuance of a contract• In the present case, the carriage of goods was not entrusted with the lorry / truck owners from whom the lorries / trucks were hired by the transport contractor for further hiring to ‘L’ or even with the transport contractor himself• The responsibility of carriage of goods remained with ‘L’• Therefore, there is no contract for carriage of goods between the transport contractor and the lorry / truck owners from whom the trucks / lorries were hired and hence, the provisions of section 194C are not applicable Reez Karakkattil Raghavan (29 taxmann.com 295) (Cochin ITAT)18
  19. 19. www.simpletaxindia.netSection 194CFacilities provided by hotelsIssue• Whether various facilities offered to guests of the hotel (apart from boarding and lodging) should be subject to TDS under section 194C?Held• The phrase ‘carrying out work’ under section 194C is limited to any work, which on being carried out, culminates into a product or result (reliance was placed on the decision of the SC in the case of Associated Cements)• Circular no. 681 dated 3 March 1994, to the extent it applies to a customer availing the services of a hotel, should be held contrary to section 194C• The word ‘work’ has to be understood in a limited sense and would extend only to the service contracts specifically included in (the then) Explanation III to section 194C• All service contracts do not automatically fall under the purview of section 194C East India Hotels Ltd and another (320 ITR 526) (Bombay HC)19
  20. 20. www.simpletaxindia.netSection 194CPayment to transportersBackground and issue• The assessee got a sub-contract pertaining to construction of peripheral and approach roads and to transport the construction material to the site, the assessee had availed services of transporters• Whether tax was deductible on payments made to the transporters?Held• The assessee was solely responsible for execution of the work and no part of such liability was cast on the transporters• The services of the transporters had only been availed for carrying the material to the site• For application of section 194C, what is necessary is a relationship between the contractor and sub-contractor (and not merely hiring of an agency during the course of execution of the work)• TDS is not applicable in the present case Prashant H Shah (29 taxmann.com 296) (Gujarat HC)20
  21. 21. www.simpletaxindia.netSection 194CUse of name and copyrightBackground and issue• The assessee was engaged in providing education and training across the country through education centres run by assessee or by its franchisees• Whether payment to franchisees attracts TDS under section 194C?Held• The substance of the franchisee agreement is that it is a business arrangement under which both parties hope to benefit (and there are mutual obligations and rights)• It is not a simple case of an agreement under which a person is engaged in carrying out any work for the other• An arrangement under which both sides have joined together by mutual arrangement and to share profits of a joint enterprise is not covered by the definition• The work is undertaken jointly by them for third parties who pay consideration which is shared. Parties do not work for each other• Section 194C is not applicable Career Launcher India Ltd. (20 taxmann.com 637) (Delhi HC)21
  22. 22. www.simpletaxindia.netSection 194CReimbursement of expensesIssue• Whether reimbursement of customs clearance expenses to a C & F agent through a separate bill attracts TDS under section 194C?Held• If the assessee reimbursed expenses towards freight incurred on its behalf under an agreement for which separate bills is raised, the provisions of section 194C are not attracted• Section 194C is applicable where payments is made to a contractor / sub- contractor where the contract is either a work contract or a contract for supply of labour for works contract• In the present case, the assessee has reimbursed the expenses to its consignment agent and it was not a direct payment of freight by the assessee to the transporter Surendra Commercial & Exim (P) (ITA No. 916) (Kolkata ITAT)22
  23. 23. www.simpletaxindia.netSection 194J – Fees forprofessional or technicalservices23
  24. 24. www.simpletaxindia.netSection 194JTransaction fees paid to stock exchangeIssue• Whether transaction charges paid to stock exchanges would be Fees for Technical Services (FTS)?Held• The BOLT system of the stock exchange provides all the data that is necessary for an intending buyer and intending seller of the respective securities• The fact that the BOLT system has inbuilt automatic safeguards which automatically alert if the price fluctuation exceeds a particular limit, does not mean that managerial services are not rendered• Stock exchanges are required to manage the entire trading activity carried on by its members and accordingly managerial services are rendered by the stock exchanges• Therefore, transaction charges paid to the stock exchange are for rendition of managerial services and hence, constitutes FTS under section 194J Kotak Securities Ltd. (340 ITR 333) (Bombay HC)24
  25. 25. www.simpletaxindia.netSection 194JThird Party Administrators (TPAs)Background and issue• TPAs provide services such as hospitalization services, cashless access services, processing and settlement of claims• TPAs make payment to hospitals for rendering medical services to the policy holders• Whether the TPA is required to deduct tax at source under section 194J?Held• Though a hospital by itself, being an artificial entity, is not a ‘medical professional’, it provides medical services by engaging the services of doctors and qualified medical professionals. These services are rendered in the course of carrying on the medical profession• Accordingly, the TPA is required to deduct tax at source under section 194J• Circular no. 8/2009 dated 24.11.2009 is applicable• The circular is set aside to the extent it states that a failure to deduct tax on payments made by TPAs to hospitals will necessarily attract a penalty under section 271C Dedicated Health Care Services TPA (324 ITR 345) (Bombay HC)25
  26. 26. www.simpletaxindia.netSection 194JFilm broadcasting rightsIssue• Whether payment made for acquiring rights for satellite broadcasting of film amounts to royalty‘ on which tax is deductible?Held• Consideration for transfer of all or any rights in respect of any copyright, including copyright for films and videotapes, used in connection with television or tapes, would fall within the definition of royalty‘ (except consideration for sale, distribution and exhibition of cinematographic films)• Assessee had only received right for satellite broadcasting and had not purchased the cinematographic films• Whether the transfer of rights is perpetual or only relates to a part of the rights, the consideration paid would be ‘royalty’ as long as it relates to transfer of any right relatable to a copyright of a film or videotape, which is to be used in connection with television or tapes. TDS under section 194J is applicable Shri Balaji Communications (30 taxmann.com 100) (Chennai ITAT)26
  27. 27. www.simpletaxindia.netSection 194JParticipation fees for seminarIssue• Whether payment as participation fees for a conference is subject to TDS under section 194J or section 194C?Comments• The payment for attending a seminar would not be for procuring any technical services if the information in the seminar is general in nature and not specifically delivered for the participating company. Accordingly, TDS under section 194J should not apply• If the conference is not specifically organized for the payer, there would be no ‘contract for work’ and hence, TDS under section 194C would not be triggered27
  28. 28. www.simpletaxindia.netSection 194JRelationship with stockistBackground and issue• Assessee appointed a firm as a ‘super stockist’ responsible for getting stock of the assessee for onward transmission to the market, through the retailer• Whether the ‘super stockist’ is a manager for the purpose of section 194J?Held• The agreement clearly stipulates that the relationship shall be on a ‘Principal to Principal’ basis and that the super stockist is not and shall, at no point, hold itself as an agent / employee / legal representative / partner of the assessee• There is no payment (mush less payment of fee for professional services) which attracts section 194J• A bare perusal of section 194J makes it clear that it is necessary that the assessee or the person concerned liable to deduct and pay TDS must be responsible for paying to a resident any sum, by way of fees for professional services, fees for technical services, royalty, etc. In the present case, the assessee had not paid any sum to the super stockist• The relationship is on a Principal to Principal basis and TDS is not applicable28 Piramal Healthcare Ltd (Mumbai ITAT)
  29. 29. www.simpletaxindia.netSection 194JReimbursement of expensesBackground and issue• Assessee made payments for professional charges and also reimbursed car maintenance expenses of a consultant (which were charged to the assessee through separate bills)• Whether reimbursement of expenses was also part of professional fee paid to consultant and liable to TDS under section 194J?Held• The bills raised for car expenses were towards actual expenses incurred by the consultant and there was no element of any profit involved therein• It was a clear case of reimbursement of actual expenses incurred and therefore not a payment covered by section 194J requiring TDS• Circular no. 715 dated 8 August 1995 applies in cases where bills are raised for the gross amount inclusive of professional fees as well as reimbursement of actual expenses (which was not the case in the present facts) Dr. Willmar Schwabe India (P.) Ltd. (3 SOT 71) (Delhi ITAT)29
  30. 30. www.simpletaxindia.netSection 194JMeaning of ‘managerial’ services• ….merely because some managerial skill is required to render the services, it would not make the services to be managerial services as envisaged in Explanation 2 to section 9(1)(vii). Similarly, the requirement of knowledge of local laws on the part of the service providers to render the services ….would not change the basic nature of the services which otherwise are commercial services…” Yash Raj Films Pvt. Ltd. (28 taxmann.com 247) (Mumbai ITAT)• “The term managerial services refers to managing certain affairs, a quid pro quo for which will be described as fees for technical services…The assessee has no role, much less the provision of any managerial services, in the process of completion of successful sales, which entitles it to user fee.….When some purchaser intends to purchase a particular product, he accesses the assessees website and on finding a suitable product, clicks Buy It Now button. It concludes the transaction of sale between the buyer and seller, entitling the assessee to its fee.…By providing a platform for doing business, the assessee can, by no standard, be considered as having rendered any managerial services either to the buyer or to the seller, for which it received fee from the seller.” eBay International AG (140 ITD 20) (Mumbai ITAT)30
  31. 31. www.simpletaxindia.netSection 194JAcquisition of softwareNotification no. 21/2012 dated 13 June 2012 –• No TDS under section 194J on payments for acquisition of software in some cases, subject to certain conditions• Payment by a person (i.e. transferee) for acquisition of software from another person, being a resident, (i.e. transferor), where − the software is acquired in a subsequent transfer and the transferor has transferred the software without any modification − tax has been deducted under section 194J / 195 on payment for any previous transfer of such software − the transferee obtains a declaration from the transferor regarding such TDS along with the Permanent Account Number of the transferor Effective from 1 July 201231
  32. 32. www.simpletaxindia.netSection 194H – Commission orbrokerage32
  33. 33. www.simpletaxindia.netSection 194HCredit card commission to banksIssue• Whether credit card commission retained by the credit card company / bank from the sale transaction of merchants is subject to TDS under section 194H?Held• Though the definition of ‘commission or brokerage’ used under section 194H is an inclusive definition, the liability to deduct tax under the said section arises only when a person acts on behalf of another person• Sale made through credit card is clearly a transaction of the merchant establishment. The credit card company / bank only facilitates the electronic payment, for a charge33
  34. 34. www.simpletaxindia.netSection 194HCredit card commission to banks• The commission retained by the credit card company is in the nature of normal bank charges and not in the nature of commission / brokerage for acting on behalf of the merchant establishment• Accordingly, there is no requirement of deducting tax at source on the commission retained by the credit card companies M/s. Vah Magna Retail Pvt. Ltd. v. Department of Income Tax on 10 April, 2012 (ITA No. 905/Hyd./2011) No TDS on credit / debit card commission for transaction between merchant establishment and acquirer bank - Notification No 56/2012 [F. NO. 275/53/2012-IT(B)], Dt. 31-12-201234
  35. 35. www.simpletaxindia.netSection 194HPrincipal - agent relationshipBackground and issue• Assessee is engaged in providing cellular mobile telephone services• It sells SIM cards and pre-paid cards at a fixed rate (below market price) to distributors / franchisees for onward sale to ultimate customers• Whether the price difference (between the sale price and market price) is a payment of commission and hence subject to TDS under section 194H?Held• As per the agreement, there was essentially a relation of principal and agent between the assessee and the distributors / franchisees• In the real sense, the franchisee was acting on behalf of the assessee for selling SIM cards and pre-paid cards to the customers of the assessee• The property in the SIM cards and prepaid cards remained with the assessee even after transfer and delivery to franchisee35
  36. 36. www.simpletaxindia.netSection 194HPrincipal - agent relationship• The franchisee had no free choice to sell and everything was being regulated and guided by the assessee• The rate at which the franchisee would sell to retailers and that at which is realized by the assessee from the franchisee was also regulated and fixed by the assessee• The franchisee had no role except that of a middleman between the assessee and the ultimate customers, for which a discount (in real sense commission) was received• Therefore, the assessee was liable for deduction of tax at source under section 194H on the indirect commission paid to its franchisees Bharti Cellular Ltd. (244 CTR 185) (Calcutta HC)36
  37. 37. www.simpletaxindia.netSection 194HPrincipal - principal relationshipBackground and issue• Assessee was a cellular telephone service provider offering both pre-paid and post-paid facilities to subscribers• It appointed distributors for pre-paid cellular connections and recharge coupons• At the time of selling its pre-paid cellular connections and recharge coupons to the distributors, some margin was allowed to the distributors in the form of discount / commission on the market priceHeld• ‘Commission or brokerage’ as contained in clause (i) of the Explanation to section 194H is not so wide that it would include any payment receivable, directly or indirectly, for services in course of buying or selling of goods37
  38. 38. www.simpletaxindia.netSection 194HPrincipal - principal relationship• The element of agency is required in case of all services or transactions contemplated by Explanation (i) to section 194H• Held that transactions between the assessee (a cellular service provider) and the distributor (for prepaid cellular connections and recharge coupons) were on a principal to principal basis (i.e. the legal relationship between a seller and purchaser) and not on principal to agent basis• Therefore the margins allowed to the distributors on prepaid cards was not in the nature of commission and hence, section 194H was not applicable Idea Cellular Ltd (125 ITD 222) (Hyderabad ITAT) Dairy was not liable to deduct tax on payments made to concessionaires / agents to whom milk and milk products were sold on a principal to principal basis – Mother Dairy India Ltd. (249 CTR 559) (Delhi HC)38
  39. 39. www.simpletaxindia.netSection 194HDifference between commercial price and published priceBackground and issue• Airlines had an agreement with agents to sell tickets at a minimum fixed commercial price which was lower than the published price• Agents could sell at a higher price subject to a maximum of published price• As per IATA rules, agents were entitled to commission at 9% on the published price• Airlines deducted tax on the payment of this 9% commission. However, Revenue contended that the difference between commercial price and published price was also in the nature of commission and liable to TDSHeld• The agents were entitled to sell tickets at any price between the fixed commercial price and the published price. As a result the airlines would have no information regarding the final rates at which tickets were sold39
  40. 40. www.simpletaxindia.netSection 194HDifference between commercial price and published price• It would be impracticable and unreasonable to expect the airlines to collect feedback from its numerous agents regarding the prices at which the tickets were finally sold• Thus, the difference between the commercial price and the published price could neither be considered as commission nor brokerage in the hands of the agents and hence was not liable to TDS Qatar Airways (332 ITR 253) (Bombay HC)40
  41. 41. www.simpletaxindia.netSection 194HCommission and supplementary commission• Tax should be deducted at source under section 194H on the amount available to agents, being the difference between airfare fixed by airlines and the price at which agents are enabled to sell tickets Around the World Travels & Tours Pvt. Ltd. (141 Taxman 53) (Madras HC)• Supplementary commission retained by travel agents over and above the net fare made over to airlines is liable to TDS under section 194H as commission• Air tickets sold by airlines company to travel agents at a concessional rate held to be a sale transaction on principal to principal basis and does not amount to commission Singapore Airlines Ltd. & Other airlines (319 ITR 29) (Delhi HC)41
  42. 42. www.simpletaxindia.netSection 194HDiscount given to retail customers, group passengersand small time agentsBackground and issue• Assessee, an IATA approved agent, was engaged in booking tickets for various airline companies• Commission (i.e. in effect, discounts offered) payments made by the assessee (without TDS) could be grouped into payments to retail customers, to group passengers like Haj pilgrims and to small time travel agents• Whether tax is deductible on the said commission ceded?Held• Retail / group customers do not provide any service to the assessee and only get flight tickets at a concession. Accordingly, they cannot be considered as agents and the commission ceded by the assessee is in the nature of Discount• Small time travel agents act on behalf of and provide service only to their customers by identifying the best available rates for their flight tickets. Hence, commission income ceded by the assessee in respect of tickets purchased by them would also partake the character of Discount only• No TDS is applicable42 Al Hind Tours & Travels (P.) Ltd. (29 taxmann.com 294) (Cochin ITAT)
  43. 43. www.simpletaxindia.netSection 194HDiscount availed by stamp vendorsIssue• Whether tax is deductible on discount given to stamp vendors?Held• Discount given to the Stamp Vendors is for purchasing the stamps in bulk quantity• The said discount is in the nature of cash discount• The transaction is that of a sale and section 194H has no application Ahmedabad Stamp Vendors Association (348 ITR 378) (SC)43
  44. 44. www.simpletaxindia.netSection 194HIncentive to distributorsBackground and issue• The assessee had given certain discounts to distributors by issuing credit notes and specifically mentioned the nomenclature discount in these credit notes• No tax was deducted contending that the relationship between the distributor and the assessee was that of Principal to Principal• Whether the amount of discount paid by way of credit note could be regarded as ‘commission’ in absence of Principal–Agent relationship?Held• A discount is given from the gross price and it occurs at the instance of sale and purchase between the manufacturer and the distributor / dealer• Commission is in the nature of refund or compensation for performing some task or business by one person on behalf of the other and in case of sale and purchase of goods, the commission is accrued at the instance of further sales by the dealer or distributor44
  45. 45. www.simpletaxindia.netSection 194HIncentive to distributors• The dispute in the present case is not regarding income arising due to difference between MRP and the price as invoiced to the distributor but relates to the incentive given by the assessee in addition to the margin on the purchase and sale of goods• Therefore, even if the relationship is that of principal to principal so far as the price and sale of products is concerned, the incentive / benefit given to the distributor is not accruing from transaction of sale and purchase and therefore, cannot be regarded as income from purchase and sale of product• TDS is applicable as section 194H talks about the payment of commission or brokerage and does not talk about the relationship between the payer and the payee necessarily be of a principal and agent. It does not require any formal contract of agency SKOL Breweries Ltd. (29 taxmann.com 111) (Mumbai ITAT)45
  46. 46. www.simpletaxindia.netSection 194I – Rent46
  47. 47. www.simpletaxindia.netSection 194IPayment for infrastructure facilityIssue• The assessee was engaged in the business of providing computer education and training. For this purpose, it had entered into various agreements with franchisees for running the education centers at various metro cities• For the purpose of convenience, the assessee had categorized the fees shared as (i) marketing claim and (ii) infrastructure claim• Whether the infrastructure claim paid by the franchisees to the assessee can be termed as ‘rent’ under section 194I?Held• The relations between the parties were not of a lessor and lessee as was sought to be contended by the revenue authorities• The franchisee agreement showed that a limited license was granted by the assessee to the licencee for use of the trademark and the trade name of the assessee for the education center47
  48. 48. www.simpletaxindia.netSection 194IPayment for infrastructure facility• Instead of giving a deposit which it would have done if it was a tenant, the assessee, in fact, received a security deposit from the licensee• If the interpretation of the revenue was to be accepted, then in a case where there is a partnership and one of the partners brings in his capital in the form of his premises from where the partnership business is carried on, payment made to such a partner by the firm can be stretched to be included in the definition of rent under section 194I• The agreement was in fact a franchisee agreement and it could not be said that the rent was being paid by the assessee company to the licensee franchisee NIIT Ltd. (184 Taxman 472) (Delhi HC)48
  49. 49. www.simpletaxindia.netSection 194IRoaming chargesIssue• Whether payment towards roaming charges (by one telecom service provider to another) would be payment for services or payment for use of equipment?Held• ‘Rent’ means any payment by whatever name called under any lease, sub-lease or tenancy or ‘any other agreement’. The emphasis is upon the term ‘use’• The service provider is merely a facilitator between the subscriber and the other service provider (for facilitating a roaming call to be made by the subscriber)• The service provider only collects the roaming charges from its subscriber and passes it on to the other service provider and cannot be said to have used the equipment which is involved in the roaming facility49
  50. 50. www.simpletaxindia.netSection 194IRoaming charges• Rent is something which is paid for earmarked premises, and in the case of roaming charges, a subscriber does not get any earmarked premises from service provider. Also, the choice of the service provider (who will provide the roaming facility) is left to the subscriber• The payment for roaming charges to be paid by the service provider is not in the nature of ‘rent’ Vodafone Essar Ltd. (9 taxmann.com 31) (Mumbai ITAT)50
  51. 51. www.simpletaxindia.netSection 194IPayment for use of equipmentIssue• Whether the payment for use of equipment is ‘rent’ under section 194I or ‘FTS’ under section 194J?Comments• If the control and supervision of the equipment is with the owner of the equipment, the payer is only availing services from the owner of equipment. Accordingly, the same may not be considered as rent under section 194I − Poompuhar Shipping Corpn. Ltd. – (53 SOT 451) (Chennai ITAT) − Chhattisgarh State Electricity Board (50 SOT 33) (Mumbai ITAT)• Payment for use of equipment cannot be regarded as FTS unless human element is involved for providing the services − Bharti Cellular Ltd. – (319 ITR 139) (Delhi HC) − Dampskibsselskabet of 1912 – (142 TTJ 70) (Mumbai ITAT) − Merchant Shipping Services Pvt. Ltd – (135 TTJ 589) (Mumbai ITAT)51
  52. 52. www.simpletaxindia.netSection 194IPayment for use of equipmentIssue• Whether the payment for use of equipment is ‘rent’ under section 194I or ‘royalty’ under section 194J?Comments• ‘Royalty’ (Explanation to section 194J r.w. Explanation 2 to section 9(1)(vi)) includes amount payable for the use or right to use any industrial, commercial or scientific equipment (excluding payments referred to in section 44BB)• ‘Rent’ (Explanation to section 194I) means any payment under any lease, sub- lease, tenancy or any other agreement or arrangement, amongst others, for the use of any equipment• Both these sections (i.e. sections 194I and 194J) apply for payment towards use of equipment52
  53. 53. www.simpletaxindia.netSection 194IPayment for use of equipment• It is settled law that the provisions which are more beneficial to the assessee should be followed ‒ Noble Enclave & Towers (P.) Ltd. (50 SOT 5) (Kolkata ITAT)• Section 194I is specific in respect of payment of rent for use of equipment as against section 194J which is general in nature covering fees for professional services, fees for technical services and royalty• Payment of any sum shall be liable for deduction of tax only under one section ‒ Circular No. 720, dated 30-8-199553
  54. 54. www.simpletaxindia.netSection 194ISecurity depositIssue• Whether security deposit for hiring a premises which was to be reduced every six months by an amount of rent which became payable in accordance with the agreement is subject to TDS?Held• The security deposit was not a fully ‘refundable deposit amount’• It was in the nature of advance rent and accordingly, TDS under section 194I is applicable Reebok India Co. (291 ITR 455) (Delhi HC) Circular no. 715 dated 8 August 1995 - If the deposit is adjustable against future rent, the deposit is in the nature of advance rent subject to TDS54
  55. 55. www.simpletaxindia.netSection 194IUpfront chargesIssue• Whether upfront charges can be regarded as ‘rent’?Held• Rent has been specifically defined in the Explanation to section 194I• Definition of rent includes payments of any type under any agreement or arrangement for use of land• The definition of rent under Explanation to section 194I will squarely cover the upfront charges and render such payment liable to TDS Foxconn India Developer (P.) Ltd. (53 SOT 213) (Chennai ITAT)55
  56. 56. www.simpletaxindia.netSection 194IReimbursement of rentBackground and issue• The holding company had taken office premises on rent and it permitted the assessee to use portion of said premises• The rent for the whole premises was paid directly by the holding company to the lessors and tax was deducted under section 194I• Whether TDS is applicable on reimbursement of rent expenditure by the assessee to its holding company?Held• The lease deed provided for use of the premises by the subsidiary companies• The actual payments were made by the lessee (holding company) to the lessor after deducting tax therefrom• Also, the holding company had not debited the whole rent amount in its books of account. It had only debited that portion of the rent which pertained to the part of the premises occupied by it56
  57. 57. www.simpletaxindia.netSection 194IReimbursement of rent• Therefore, there was no lessor and lessee relationship between the holding company and assessee where the provisions of section 194I were attracted• The assessee had been paying rent to the holding company as reimbursement for last many years and this position had been accepted by the department so far Result Services (P.) Ltd. (52 SOT 598) (Delhi ITAT) Rent reimbursed could be regarded as reimbursement of expenses if – • The rent agreement provides that the lessee may allow its subsidiaries / associates to use the premises; and • The lessee does not book the entire rent expense • The above decision as well as Circular no. 4/2008 dated 28 April 2008 (relating to service tax component on rent) recognize that TDS is applicable on ‘income’ of the landlord • Could the same rationale be extended to sections other than section 194I or would it fail owing to difference in the language in these sections?57
  58. 58. www.simpletaxindia.netOther issues58
  59. 59. www.simpletaxindia.netOther issuesProvisions / credits to suspense accountIssue• Whether TDS is applicable on provisions / credits to suspense account?Comments• TDS is applicable at the time of payment or credit, whichever is earlier (including credit to suspense account)• Accordingly, TDS would ordinarily be applicable while creating provisions for expenses as well as crediting amounts to any party’s account including suspense account• However, if it is not possible to identify the payee at the time of creating the provision / credit to suspense account (depending on the facts), a position could be adopted that no tax was required to be deducted• It was observed in the case of Industrial Development Bank of India (107 ITD 45) (Mumbai ITAT) that the TDS mechanism cannot be put into practice until the identity of the person in whose hands it is includible as income, can be ascertained59
  60. 60. www.simpletaxindia.netOther issuesTDS prior to accrual of income?Issue• Applicability of TDS prior to accrual of income in the hands of the recipient?Comments• TDS is applicable at the time of payment or credit, whichever is earlier• However, there could be instances where this event would precede the accrual of income in the hands of the recipient (e.g. interest on cumulative deposit / debenture / bond – refer circular no. 643 dated 22 January 1993)• Issues when the recipient maintains cash system of accounting60
  61. 61. www.simpletaxindia.netOther issuesThreshold for applicability of section 44ABIssue• The assessee, an individual, is a surgeon running a private nursing home at Jodhpur• What would be the applicable threshold for requiring tax audit under section 44AB and the consequent liability to deduct tax?Held• There is no bar for a professional to carry on trade or commerce, which could also be one annexed to the exercise of his profession• Where, say lawyers are employed as specialists in their respective areas of practice with a view to broaden the horizons of the professional services being offered, the firm, though only a law firm as far as the clients are concerned, its proprietor could be said to be carrying out trade or commerce, inasmuch as his function is only passive, of an entrepreneur managing the affairs, much in the same manner as a nonprofessional would• A business, by its very nature, is characterized by a much higher level of risk, in comparison to profession, and which would be one of the defining attributes of a business Sunil Chandak (ITA No. 344) (Jodhpur ITAT)61
  62. 62. www.simpletaxindia.netAppendix62
  63. 63. www.simpletaxindia.netSection 194AExtract(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force:Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business orprofession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during thefinancial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deductincome-tax under this section.Explanation.—For the purposes of this section, where any income by way of interest as aforesaid is credited to any account,whether called “Interest payable account” or “Suspense account” or by any other name, in the books of account of the personliable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and theprovisions of this section shall apply accordingly.63
  64. 64. www.simpletaxindia.netSection 194CExtract(1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to— (i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family; (ii) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein.(2) Where any sum referred to in sub-section (1) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.(3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source— (i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or (ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice.(4) No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.64
  65. 65. www.simpletaxindia.netSection 194JExtract(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of— (a) fees for professional services, or (b) fees for technical services, or (ba) any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company; or (c) royalty, or (d) any sum referred to in clause (va) of section 28, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax on income comprised therein :………………………….Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from thebusiness or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44ABduring the financial year immediately preceding the financial year in which such sum by way of fees for professional servicesor technical services is credited or paid, shall be liable to deduct income-tax under this section :Provided also that no individual or a Hindu undivided family referred to in the second proviso shall be liable to deduct income-tax on the sum by way of fees for professional services in case such sum is credited or paid exclusively for personalpurposes of such individual or any member of Hindu undivided family.65
  66. 66. www.simpletaxindia.netSection 194HExtract(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent :………………………….Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from thebusiness or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44ABduring the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid,shall be liable to deduct income-tax under this section66
  67. 67. www.simpletaxindia.netSection 194IExtract(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of— (a) two per cent for the use of any machinery or plant or equipment; and (b) ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings:………………………….Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from thebusiness or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44ABduring the financial year immediately preceding the financial year in which such income by way of rent is credited or paid,shall be liable to deduct income-tax under this section.67
  68. 68. www.simpletaxindia.netSection 194AInterest on time deposits by banks using CBS SoftwareCircular no. 3/2010 dated 2 March 2010 –• Clarification on the issue of TDS from payment of interest on time deposits by banks using Core-Branch Banking Solutions (CBS) software• No tax is required to be deducted where: − Interest on time deposits is calculated on daily or monthly basis and for macro monitory purpose only − No constructive credit is given to the depositor’s / payee’s account• Tax is required to be deducted on the income (exceeding limits specified under section 194A) where: − Interest is accrued at the end of the financial year or at periodic intervals as per practice of the bank; or − as per the depositors / payees requirement or on maturity or on encashment of time deposits whichever event takes place earlier.68
  69. 69. www.simpletaxindia.netSection 194AOther key circulars Circular no. Gist 643 (dated 22 • Cumulative deposit / debenture / bond – TDS is January 1993) applicable every time interest is credited in the books of the payer and is not to be postponed till maturity 715 (dated 8 • Reinvestment term deposit – TDS is applicable at the time August 1995) of credit of interest to the account of the payee (or credit to suspense account) or at the time of payment thereof, whichever is earlier • Variable deposits are in the nature of time deposits and TDS is applicable on the interest thereon 647 (dated 22 • Commercial Papers and Certificates of Deposits – The March 1993) difference between issue price and face value is to be treated as ‘discount allowed’ (and not as ‘interest paid’). TDS is not applicable 526 (dated 5 • Interest payments under Land Acquisition Act – TDS is December 1988) applicable 718 (dated 22 • Interest, if any, carried on deposit provided to landlord –69August 1995) TDS is applicable on
  70. 70. www.simpletaxindia.netSection 194CKey circulars Circular no. Gist 715 (dated 8 TDS is applicable on payments to / for the following – August 1995) • Clearing and forwarding agents for carriage of goods • Carrier of goods (by clearing and forwarding agents) • Couriers • Supply of printed material • Electrician engaged on a contract basis • Sponsorship for functions held with a view to earn publicity through display of banners, etc. (as, in essence, it is an agreement for carrying out a work of advertisement) • Chartering an aircraft for carriage of passengers or goods • Reimbursement of expenses (as section 194C refers to ‘any sum paid’) – whether stating the expense claim separately in the invoice / separate invoice could relieve TDS liability thereon? 13 (dated 13 • TDS shall be applicable only where it is a ‘contract for work’ December 2006) and not where it is ‘contract for sale’70
  71. 71. www.simpletaxindia.netSection 194JKey circulars Circular no. Gist 726 (dated 18 • Fees for professional services from foreign companies / October 1995) foreign law and accountancy firms (who are non-residents and do not have any agent / business connection / permanent establishment in India) to any CA, lawyer, advocate or solicitor who is resident in India may not be subject to TDS 715 (dated 8 Following would be liable to TDS under section 194J (and not August 1995) section 194C) • Payments to recruitment agencies • Payments made by a company to a share registrar • Maintenance contracts involving rendition of technical services (unless it is routine/normal maintenance contracts which include supply of spares) Reimbursement of actual expenses cannot be deducted out of the bill amount for the purpose of TDS (since section 194J71 refers to ‘any sum paid’)
  72. 72. www.simpletaxindia.netSection 194HPayments to banksNotification no. 56/2012 dated 31 December 2012 –• No TDS on following payments to a bank (listed in the Second Schedule to the Reserve Bank of India Act, 1934), excluding a foreign bank – − bank guarantee commission − cash management service charges − depository charges on maintenance of DEMAT accounts − charges for warehousing services for commodities − underwriting service charges − clearing charges (MICR charges) − credit card or debit card commission for transaction between the merchant establishment and acquirer bank Effective from 1 January 201372
  73. 73. www.simpletaxindia.netSection 194IKey circulars Circular no. Gist 715 (dated 8 • Subletting a rented premise (fully or in part) for putting up a August 1995) hoarding would be liable to TDS under section 194I (and not section 194C) • TDS is applicable with respect to business centre agreements 718 (dated 22 • TDS is applicable on warehousing charges August 1995) • No TDS on municipal taxes, ground rent, etc., borne by the tenant 1 (dated 10 • TDS under section 194I is not applicable for cooling charges January 2008) for cold storage (the customer is not given any right to use any demarcated space/place or the machinery of the cold store and thus does not become a tenant) • However, since the arrangement is basically contractual in nature, TDS under section 194C is applicable 4 (dated 28 • TDS is applicable on the amount of rent paid / payable without73 April 2008) including service tax thereon
  74. 74. www.simpletaxindia.netSection 194IKey circularsCircular no. 5/2002 dated 30 July 2002• Clarifications regarding payments for hotel accommodation taken on a regular basis• Where an employee or an individual representing a company (like a consultant, auditor, etc.) makes payment directly to the hotel, the question of TDS would not normally arise (except where he is covered under section 44AB) since the payer is an individual (and the company merely reimburses the expenditure)• Following would be construed as accommodation available on ‘regular basis’ – − Earmarked rooms let out for a specified rate and specified period − No rooms are earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement• TDS would not apply to mere rate contracts i.e. – − Contract provides specified types of hotel rooms at pre-determined rates during an agreed period (usually entered into for lower tariff rates) − There is no obligation on the part of the hotel to provide a room / set of rooms − Occupancy would be occasional / casual74
  75. 75. www.simpletaxindia.net Thank you!The information contained in this document is intended to provide general information on a particular subject orsubjects and are not exhaustive treatment of such subject(s).This contents of this document are for general information and the presenter by means of this document is notrendering accounting, business, financial, investment, legal, tax, or other professional advice or services. Thisdocument is not a substitute for such professional advice or services, nor should it be used as a basis for anydecision or action that may affect your finances or your business. Before making any decision or taking any actionthat may affect your finances or business, you should consult a qualified professional advisor.The presenter shall not be responsible for any loss whatsoever sustained by any person who relies on thisdocument. © 2013 Deloitte Haskins & Sells

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