Tax Deduction at Source Recent Issues

Tax Deduction at

Source

Recent Issues

Gautam Nayak

Chartered Accountant

BCAS Lecture Meeting

Recent Amendments

„

With effect from 13-7-2006

… Definition of “rent” u/s.194I amended to include payments for use of machinery, plant, equipment, furniture, fittings, whether or not owned by payee – applicable for use either separately or together

… Section 194J extended to royalty[s.9(1)(vi)], and non -compete payments [s.28(va)]

Recent Amendments…..

„

With effect from 1-6-2007

… TDS deductible from interest on 8% Savings (Taxable) Bonds 2003 exceeding Rs.10,000

… Limit u/s.194A increased to Rs.10,000 where payer is a bank/ post office (for notified scheme)

… TDS u/s.194C extended to individual/HUF (main

contractor) who was liable to tax audit in earlier year – no TDS on payments for personal purposes

… Rate of TDS on Commission or Brokerage increased from 5% to 10%

Recent Amendments….

„

With effect from 1-6-2007…..

… TDS u/s.194I reduced to10% for rent of machinery/ plant/ equipment

… Rate of TDS u/s.194J increased from 5% to 10%

„

With effect from 1-4-2008

… Interest u/s.201(1A) amended from 12% per annum to 1% per month or part thereof

Recent Amendments

Some

Issues

„

What payments now remain outside the purview

of TDS?

… Sale of Goods

„ Circular No.13 of 2006 dated 13.12.2006 „ BDA Ltd. v. ITO(TDS) 281 ITR 99(Bom) „ CIT v. Dabur India Ltd. 283 ITR 197(Del)

… Electricity

–

… Software Licence for Shrink Wrapped is Goods -TCS v. State of AP 271 ITR 401(SC)

Recent Amendments

Some

Issues

„

Payments outside the purview of TDS….

… Statutory payments – fees, cess, taxes, etc.

… Services using technology – telephone, internet, etc.

„ Skycell Communications Ltd. v. Dy. CIT 251 ITR 53 (Mad) „ Hutchison Telecom East Ltd. v. ACIT 16 SOT 404 (Kol) –

leased line charges?

… Clearing house charges, stock exchange charges, demat charges?

Recent Amendments

Some

Issues

„

Hire charges of plant/machinery/ equipment

covered by both s.194I and s.194J – which

section to apply?

… Applicability of section 194I to pure unconnected lease of movables

Recent Amendments

Some

Issues

„

Hire of ship – which section applicable –

s.194C, s.194I or s.194J?

Bareboat Charter

„ Klaus Vogel Commentary – Royalty

„ Bareboat Charter cum Demise – West Asia

Maritime Ltd. v. ITO 109 TTJ (Chen) 617 – royalty – ship is equipment

Voyage Charter

„ Transportation contract vs. contract of hire „ Disposal and Control over vessel

„ Bombay HC decision in INSA’s case 39D BCAJ

Recent Amendments

Some

Issues

Time Charter

„ Disposal and Control over vessel – under whose

instruction is the master of the vessel

„ VAT - Great Eastern Shipping Co. Ltd. v. State of

Karnataka 136 ITR 519 (Kar) – tug with crew given for use by port trust – maintenance by owner –

transfer of right to use

„ CIT v. Pompuhar Shipping Corpn. Ltd. 282 ITR 3

(Mad) – hire, not contract for work (pre 194C amdt)

Recent Amendments

Some

Issues

„

_{Hire of machinery/car with operator/driver –}

s.194C, s.194I or s.194J?

… Contract of transportation v. contract of hire

… Control and Disposal over machinery/vehicle

… CBDT Circular No.558 dated 28.3.1990, 183 ITR (St.) 158

Recent Amendments

Some

Issues

„

Which section applicable – s.194A, s.194I or

s.194J to:

Hire purchase payments

„ Whether hire (rent) or finance with interest?

„ Muthoot Leasing & Finance Ltd. 84 ITD 477 (Coch)

Finance lease charges

Impact of e TDS & e Filing

„

Credit for TDS on basis of TDS returns filed

„

Form 26AS online view

„

Entry of TDS details in tax return – practical

difficulties

„

Grant of refunds – verification of TDS for refunds

exceeding Rs.25,000

„

Remedy if TDS return not filed by deductor or PAN

not correctly mentioned

„

Applicability of Bombay HC decision in Yashpal

Sahni v. Rekha Hajarnavis 293 ITR 539

Recent Notifications

„ PAN details required – 90% for salaries, 70% for others, for e TDS returns after 30.9.2007

… Can deductor be made liable for penalty for late filing if details not furnished by deductees?

… Is there any penalty at all for late filing – Crest Communication Ltd. v. ADIT 111 TTJ 93 (Mum)

… Penalising all deductees for default by few

… Minimum no. of PAN not required for s.195 returns

„ Notification No.238/2007 dated 30.8.2007 – e TDS

returns mandatory w.e.f. 1.9.2007 for all persons subject to tax audit for earlier year & in cases where deductees

Amount on which tax deductible

„ Whether tax is to be deducted on amount inclusive of service tax or excluding service tax?

„ Nature of service tax – tax payable by the service provider

„ Similar to excise duty

„ Whether manner of accounting for service tax would make a difference?

Assessee in Default &

Interest u/s. 201(1A)

„ Hindustan Coca- Cola Beverage P. Ltd. v. CIT 293 ITR 226 (SC)

„ CBDT Circular No.275/201/95- IT(B) dated 29.1.1997

„ Tax cannot be recovered from deductor if paid by deductee

„ Interest only till date of payment of tax by deductee

„ When tax can be regarded as paid – advance tax paid, self assessment tax paid, return filed?

„ Position as regards s.40(a)(ia) disallowance if tax paid by deductee and not deducted by deductor

Certificates u/s.197

„

CBDT Instruction No.8/2006 dated 31.10.2006

deduction or no- deduction of tax at source under s.197(1) indiscriminately and in contravention of the methodology and procedure laid down..”

„ “Certificates to be issued strictly as per manner prescribed under rules 28AA & 28AB with prior administrative approval of Range JCIT/Addl. CIT”

Manner of Credit for TDS –

Recipient following cash system

„ S.199 – credit for TDS in year income assessable

„ Whether TDS to be treated as income received in year of deduction?

„ If so, whether credit for pro- rata TDS or entire TDS?

„ Pardeep Kumar Dhir v. ACIT 109 TTJ (Chd) (TM) 445

… Amount of receipt Rs.2,05,592

… TDS thereon Rs. 11,413

… Receipt included in income Rs. 11,413

Manner of Credit for TDS –

Recipient following cash system

„ Varsha G. Salunkhe 98 ITD 147 (Mum)(TM)

… Sections 198 and 199 do not in any way change the year of assessability of income

… Neither income could be added nor credit given in relevant assessment year

„ Assessee following project completion method

… Toyo Engineering India Ltd. v. JCIT 100 TTJ 373 (Mum)

… Nexus between TDS & income is notional/conceptual rather than specific/immediate

… Since WIP impregnated with element of income, credit in that year in which included in WIP

TDS on Interest on Securities –

When Deductible?

„ If due date of payment of interest not 31st March, entry passed by issuer for interest accrued

„ Whether TDS to be deducted at time of credit on 31st March?

„ Payee not known, may change till due date

„ Tax deductible at time of payment

„ Industrial Development Bank of India v. ITO 293 ITR (AT) 267 (Mum)

Franchise Arrangements

„

Payments to Franchisees by Franchisor

… S.194C (for work) or 194I (usage of space)?

ITO v. Bhasin Motors India (P.) Ltd. 16 SOT 319 (Del)

… Discount allowed on sale of SIM cards – whether commission?

ACIT v. Bharati Cellular Ltd. 294 ITR (AT) 283 (Kol)

„

Payments to Franchisor by Franchisees

… If payment as percentage of turnover, royalty/FTS (s.194J)?

Bill Discounting Charges

„

Whether interest within the meaning of s.2(28A) and

therefore liable for deduction u/s.194A?

„

ITO v. Kanha Vanaspati Ltd. 108 TTJ (Del) 816

„

Borrowing of money or sale of assets? Does

recourse make a difference?

„

CBDT Circular No.65 dated 2.9.1971 not considered

„

“Where bills discounted, and payment made

immediately to holder, property in bill passes to bank

– net payment made by bank is price paid for the

Payments to Clearing & Forwarding

Agents

„ Whether fees for professional or technical services or whether contract of work?

„ Services relating to storage, dispatch, transportation, loading & unloading

„ C & F agent not professional – CIT v. Jeevanlal Lallubhai & Co. 206 ITR 548 (Bom) – whether manager?

„ Hindustan Lever Ltd. v. ACIT 4 SOT 785 (Del)

„ National Panasonic India (P.) Ltd. v. Dy.CIT 94 TTJ (Del) 899

„ Glaxo Smithkline Consumer Healthcare Ltd. v. ITO 12 SOT 221 (Del)