In the part I of the article Understanding TDS with case laws published on February 2011 now we should move ahead and should discuss the latest judicial development in the area of TDS.
- Trade Discount : In the case of S.D. Pharmacy Pvt. Ltd. ITA Nos. 948/Coch/2008, A.Y. 2005-06, dt. 5-5- 2009. It was held that trade discount are not in the nature of commission and hence no TDS is required to be deducted u/s 194H of the act. This was again confirmed in the case of Add CIT v Pearl Bottling (P) Limited.
- Verification of tax declaration of employees : In the case of ITI Limited 183 taxmann 219, the Supreme Court held that an employer is under no obligation to collect and examine the supporting evidence to a declaration submitted by an employee to the effect that he has actually utilised the amounts for the specified purposes in deciding the liability to TDS u/s. 192.
- Employees Transport : In the case of Transwork Information Services Ltd (Now Aditya Birla Minacs Worldwide Limited) 1 ITR 58 the Mumbai ITAT decided that Employer providing composite free Bus pick up and drop facility to employees, not taxable as perquisites. Value of facilities enjoyed by all employees as it is impossible of computation, computation machinery fails hence the employer cannot be treated as assessee in default for failure to deduct tax at source. Again in the case of ACIT vs. Accenture Services P. Ltd. TIOL 618 ITAT–Mum. 295 / (2010) 42-B BCAJ, it was held that the assessee entered into agreements with various transport service providers. Under the agreements entered into, the service provider was to provide transport service at particular locations for transportation of assessee’s employees to different destinations and locations mentioned in the agreement. The transport service provider had to provide vehicles along with the requisite staff and relevant facilities, full maintenance and repairs of vehicles, etc. The assessee deducted the tax at source under section 194C, the Assessing Officer was of the view that the payments were covered under section 194I, The Tribunal held that the payment made by the assessee for hiring vehicles for transportation of its employees qualifies for TDS under section 194C and not under section 194I. This was again confirmed in the case of Lotus valley Education Society v ACIT & Ahemdabad Urban Development Authority v ACIT.
- Hotels : Facilities / amenities made available by a Hotel to its customers do not constitute “work” within the meaning of s. 194C and consequently, Circular No 681 dt. 8th March, 1994 to the extent it holds that services made available by a hotel to its customers are covered u/s. 194C must be held to be bad in law and is liable to be quashed. This was decided in the case of The East India Hotels Ltd. & Anr. 223 CTR 133.
- Manufacturing of CDS: In the present case, the DVDs etc. were manufactured by entrepreneurs in their own establishment, in accordance with specifications of assessee, (ii) the raw material cost and other ancillary costs were also incurred by them, (iii) excise duty was paid by them and it was only when goods were sold to assessee that property in goods passed over to it, such agreements of the assessee with entrepreneurs could not be termed as works contract within the scope of s. 194C and hence no TDS was required. Refer Shemaroo Video (P) Ltd. 31 SOT 65.
- Stock Exchange Fees : Transaction fee paid to stock exchange on the basis of volume of transaction is payment for use facilities provided by stock exchange and not for any services, either technical or managerial, hence, provisions of s. 194J are not attracted and no disallowance can be made by invoking s. 40(a)(ia). Refer, Kotak Securities Ltd. 24 DTR 214.
- Interest on claims : In the case of G.M. Punjab Roadways 178 Taxman 112 it was held that assessee a department of State Government, is liable to deduct TDS on interest paid, along with compensation to victims as per the order of courts / motor accident claims Tribunal. Same was again confirmed in the case of Sant Ram v Union of India 328 ITR 160. Again in the case of National Insurance Co. Ltd. vs. Smt. Draupadibai & Ors, it was held that Where the Motor Accident Claim Tribunal apportionated the compensation amount and interest payable to each claimants. The interest income of each of the claimant is to be taken into account separately for applying the limit prescribed under section 194A(3)(ix) for the purpose of deducting tax at source under section 194 A of the Act. The same had been again confirmed in the case of United India Insurance Co Ltd v Ramanlal & Ors 56 DTR 407.
- Financing arrangements : Provisions of s. 194C would not apply to the film financing arrangements. Refer, Mukta Arts 31 SOT 244.
- Bandwidth Charges : Payments for bandwidth and network services cannot be said to be Technical services liable to TDS u/s. 194J. Refer, Pacific Internet (India) Pvt. Ltd. ITA Nos. 1607 to 1609/Mum/2006, Bench – D, A.Y. 2003-04 to A.Y. 2005-06 BCAJ p. 795, Vol. 40-B, Part 6, March 2009. Again in the case of CIT v Bharti Cellular Ltd 44 DTR 190 (SC). It was held that Department having not adduced any expert evidence to show that any human intervention is involved during the process when calls takes place so as to bring the payments of interconnect charges /access/pot charges made by the assessee to BSNAL/MTNL within the ambit of “fees for technical services” under section 194J, matter is remitted to AO to examine a technical expert and to decide a fresh .Department is not entitled to levy interest under section 201(1A), or impose penalty for non deduction of TDS on the facts and circumstances of the case for the reasons that there is no loss of revenue as tax has been paid by the recipient and the moot question involved in the case is yet to be decided.
- Labour sardar : In the case of Samanwaya 34 SOT 332 (Kol). It was held that Labour sardars could not be called labour contractors, within the meaning of s. 194C(2), hence provisions of s. 40(a)(ia), can not be made applicable.
- Enhanced Compensation : Deduction of TDS on enhanaced compensation of Agricultural Land u/s 194LA. Refer, Karnail Singh v State of Haryana 326 ITR 501.
- Doctors : Assessee hospital having engaged the services of doctors on the basis of agreements whereby the doctors are free to treat the patients at the hospital at their own discretion and time, without any supervision and control of the assessee and they are not on the pay roll of PF payments, there is no element of employer and employee relationship and therefore, the doctors are to be treated as consultants and tax has to be deducted under section 194J from payments made to them and not under section 192. Refer, Dy. CIT vs. Yashoda Super Speciality Hospital 133 TTJ 17. Same was confirmed again in the case of Appollo Hospitals 9 Taxmann.com 95.
- Salary : Sub section (3) of section 192 permits the person obliged to deduct tax to make adjustments in case of excess or deficient and also authorizes adjustment even in case of total failure to deduct tax during the financial year and therefore, assessee is not liable to pay interest under section 201(IA) for not deducting tax at source from salary payments in several months, when it has deducted tax in the remaining months. Refer, CIT vs. Enron Expat Services Inc 235 CTR 198.
- Bank Interest : Bank making for notional provision for half yearly interest on account of cumulative deposit shown in general ledger reversed on next working day. Interest credited to provisioning account for macro– monitoring. Interest not due and payable on that day. Deduction of tax not obligatory. Refer, Bank of Maharashtra vs. ITO 6 ITR 824.
- Roaming Charges : In the case of Vodafone Essar Limited v DCIT 9 Taxmann.com 31, it was held that Payment of Roaming charges made by Vodafone essar ro other mobile service providers cannot be considered as rent within meaning of explanation of section 194 – I.
- Re-Insurance : In the case of Tata AIG General Insurance Co. Ltd. vs. ITO 43 SOT 215, it was held that assessee, a general insurance company, entered in to an arrangement with one B for facultative reinsurance. As per said arrangement, assessee was liable to pay certain percentage of premium as reinsurance inward commission to B. Assessee was receiving only net premium on reinsurance from B. Profit commission, if any, was shared between assessee and B in certain percentage. Assessing Officer held that assessee was liable to deduct tax on reinsurance commission paid to B under section 194D. The Tribunal held that provisions of section 194D were not applicable to payment of reinsurance commission made by assessee to B.
- Shipping Freight Charges : Provisions of sec 194C do not apply to shipping freight charges paid by an exporter to shipping agents of non resident shipping companies. Refer, DCIT v Hasmukh J Patel 10 Taxmann.com 229.
- Franchisee : Fees shared by an operator of study center with its franchisees under a licence agreement would not attract provisions of sec 194C. Refer, Carrer Launcher. 10 Taxmann.com 242.
- Separate Material Contract : In the case of Karnataka Power Transmission Co Limited v ACIT, it was held that There would be no TDS obligation on the part of assessee under sec 194C for making payments towards supply of material portion of a divisible contract. Further, in the case of S. T. Reddiar & Sons vs. Dy. CIT, 129 ITD 475 / 135 TTJ 480 / 49 DTR 326 (Coch.)(Trib.), it was held that It was noted from records that a small friction of total expenditure was in form of labour charges, and as such, it was difficult to say that contract was for supply of labour or work and would rather be categorized as one for purchase of goods, though some labour work stood performed. As it was not a case of contract for service or labour, provision of section 194C cannot be applicable consequently disallowance wasdeleted. (A. Y. 2005-06)
- Sportsperson : Amounts paid to foreign team for participation in match in India in any shape , either as prize money or as administrative expenses , is income deemed to have accrued in India and is taxable under section 115BBA and thus , section 194E is attracted. However ,payments made to umpires or match referees do not come with in purview of section 115BBA because umpires and match referee are nether sportsmen (including an athletic) nor are they non resident sports association or institution so as to attract provisions contained in section 115BBA and therefore , liability to deduct tax at source under section 194E does not arise.( Asst Year 1996‐97).. Refer, INDCOM v. CIT (TDS) (Cal) 335 ITR 485
I Hope that above small summary will able you to understand TDS in more better way. In case of any further clarification you can write at [email protected]
CA Manish Kumar Agarwal
E mail: [email protected]