Recent changes in Tax Deducted at Source and Tax
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Recent changes in Tax Deducted at Source and Tax Collected at Source under the Income Tax Act,1961 206C Who Is liable to colect tax: 1. Any Transferrer Person as defined Us 2(31) of the Act liable to collect the consideration from the
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Recent changes in Tax Deducted at Source and Tax Collected at Source under the Income Tax Act,1961<br>
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206C Who Is liable to colect tax: 1. Any Transferrer Person as defined U/s 2(31) of the Act liable to collect the consideration from the Transferee in regards to the certain specified goods as per tabulated as under. Subject matter: Transfer of Tabulated goods<br>
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Section 206C(1C) Nature of contract or license or lease, etc. Rate of TCS i. Parking lot 2% ii. Toll plaza 2% iii.Mining and quarrying (doesnot includes mining and quarrying of mineral oil, including petroleum And natural gas) 2%<br>
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Section 206C(1F)
Sale of Motor car exceeding Rs.10 lac 1%
Section 206C(1G)
Foreign remittance under the Liberalised 5% w.e.f 01.07.23
Remittance Scheme of the Reserve Bank of India 20%
Foreign remittance is less than INR 7 Lakhs in the NIL
Financial Year and the remittance is for the purpose
of education/ medical treatment<br>
Sale of Motor car exceeding Rs.10 lac 1%
Section 206C(1G)
Foreign remittance under the Liberalised 5% w.e.f 01.07.23
Remittance Scheme of the Reserve Bank of India 20%
Foreign remittance is less than INR 7 Lakhs in the NIL
Financial Year and the remittance is for the purpose
of education/ medical treatment<br>
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Foreign remittance in case amount/ aggregate 5%
amount exceeds INR 7 Lakhs in the Financial Year
and the remittance is for the purpose of education/
medical treatment
Foreign remittance in case amount/ aggregate amount 0.5%
exceeds INR 7 Lakhs and if the remitted amount is out
of the loan that is obtained from Financial Institution
u/s 80E for pursuing any education
Overseas tour program package w.e.f. 01.07.23 20%<br>
amount exceeds INR 7 Lakhs in the Financial Year
and the remittance is for the purpose of education/
medical treatment
Foreign remittance in case amount/ aggregate amount 0.5%
exceeds INR 7 Lakhs and if the remitted amount is out
of the loan that is obtained from Financial Institution
u/s 80E for pursuing any education
Overseas tour program package w.e.f. 01.07.23 20%<br>
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Amendments in TDS:
1. Section 194BA – Introduction of withholding tax provisions for income from online gaming
In view of the surge in online gaming, the government proposes to introduce specific sections for TDS w.e.f. 1 July 2023. The payer needs to deduct tax at the rate of 30% on the 'net winnings' in the user account at the end of the Financial Year (FY) or at the time of withdrawal by the user. The method for computing the net winnings is yet to be prescribed.
Clarity is sought on taxability of online gaming in a scenario where the user, gaming platform and the gaming server are in different jurisdictions and each jurisdiction brings such income within its tax purview. The treaty benefit for non-residents would also not be available. Moreover, since no threshold is prescribed, the entire net winnings shall be liable for tax deduction.<br>
1. Section 194BA – Introduction of withholding tax provisions for income from online gaming
In view of the surge in online gaming, the government proposes to introduce specific sections for TDS w.e.f. 1 July 2023. The payer needs to deduct tax at the rate of 30% on the 'net winnings' in the user account at the end of the Financial Year (FY) or at the time of withdrawal by the user. The method for computing the net winnings is yet to be prescribed.
Clarity is sought on taxability of online gaming in a scenario where the user, gaming platform and the gaming server are in different jurisdictions and each jurisdiction brings such income within its tax purview. The treaty benefit for non-residents would also not be available. Moreover, since no threshold is prescribed, the entire net winnings shall be liable for tax deduction.<br>
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Section 196A – Benefit of tax treaty rate extended to specified income earned by non-residents
For income earned from units of mutual funds by non-residents in India, tax is required to be deducted at the rate of 20%. W.e.f. 1 April 2023, a non-resident can avail the beneficial rate provided in the tax treaty by furnishing a Tax Residency Certificate.
This is a welcome step towards boosting investments in India. It bridges the gap and brings uniformity in the rate at which tax is deducted and income is offered resulting in no blockage of funds for a non-resident in India.
Section 192A – Relaxation provided for employees not having a PAN
W.e.f. 1 April 2023, employees to receive accumulated balance of provident fund post tax deduction at the rate of 20% as against the existing Maximum Marginal Rate in case PAN is not furnished.<br>
For income earned from units of mutual funds by non-residents in India, tax is required to be deducted at the rate of 20%. W.e.f. 1 April 2023, a non-resident can avail the beneficial rate provided in the tax treaty by furnishing a Tax Residency Certificate.
This is a welcome step towards boosting investments in India. It bridges the gap and brings uniformity in the rate at which tax is deducted and income is offered resulting in no blockage of funds for a non-resident in India.
Section 192A – Relaxation provided for employees not having a PAN
W.e.f. 1 April 2023, employees to receive accumulated balance of provident fund post tax deduction at the rate of 20% as against the existing Maximum Marginal Rate in case PAN is not furnished.<br>
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The lower tax deduction rate will provide relief to many employees who do not have/furnish their PAN to employers. Additionally, this will lead to reduced number of tax refund claims, thereby bringing down the administrative burden of the government.
Section 193 – Tax to be deducted on interest on specified securities
It is proposed w.e.f. 1 April 2023, to deduct tax on the interest payable on listed securities in dematerialized form which was previously excluded from the ambit of this Section.
Earlier taxpayers inadvertently missed reporting the interest income in their tax returns due to non-deduction of taxes. The proposed amendment will ensure accurate disclosures in the tax returns and enable the government in collection of due taxes.<br>
Section 193 – Tax to be deducted on interest on specified securities
It is proposed w.e.f. 1 April 2023, to deduct tax on the interest payable on listed securities in dematerialized form which was previously excluded from the ambit of this Section.
Earlier taxpayers inadvertently missed reporting the interest income in their tax returns due to non-deduction of taxes. The proposed amendment will ensure accurate disclosures in the tax returns and enable the government in collection of due taxes.<br>
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Section 194B and 194BB – Clarification on threshold limit for winning income from lottery, crossword puzzle and horse racing
The existing threshold limit of INR 10,000 for tax deduction on such income is clarified to be the limit per FY.
Presently, by splitting the winning income into multiple transactions below INR 10,000, the payers could circumvent the requirement to withhold tax. The proposed amendment seeks to curb the existing loophole of the sections.
Section 194N – Enhanced limit for co-operative society
In case of cash withdrawals by a co-operative society, the threshold is now proposed at INR 3 crores instead of INR 1 crore, for deduction of taxes from 1 April 2023.
The intention vide this proposed amendment is to provide relief to co-operative societies in view of the numerous cash transactions with farmers/ low-income group people.<br>
The existing threshold limit of INR 10,000 for tax deduction on such income is clarified to be the limit per FY.
Presently, by splitting the winning income into multiple transactions below INR 10,000, the payers could circumvent the requirement to withhold tax. The proposed amendment seeks to curb the existing loophole of the sections.
Section 194N – Enhanced limit for co-operative society
In case of cash withdrawals by a co-operative society, the threshold is now proposed at INR 3 crores instead of INR 1 crore, for deduction of taxes from 1 April 2023.
The intention vide this proposed amendment is to provide relief to co-operative societies in view of the numerous cash transactions with farmers/ low-income group people.<br>
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Section 194R – Clarification for tax deductibility on benefits/ perquisites
It is proposed to clarify that the tax is to be deducted whether the benefit or perquisite is in cash or in kind or partly in cash and partly in kind. Similar amendment is also proposed under Section 28(iv).
Amidst a prevailing plethora of uncertainty in the said section, clarifications on various issues are still awaited from the government.<br>
It is proposed to clarify that the tax is to be deducted whether the benefit or perquisite is in cash or in kind or partly in cash and partly in kind. Similar amendment is also proposed under Section 28(iv).
Amidst a prevailing plethora of uncertainty in the said section, clarifications on various issues are still awaited from the government.<br>
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TCS Amendments
1. Section 206C(1G) – Enhanced TCS rate on certain remittances made outside India
Tax to be collected at an enhanced rate of 20% as against the existing rate of 5% in case of all the remittances under Liberalised Remittance Scheme (LRS) and overseas tour package. However, the TCS rate on remittances made for medical and education purposes in excess of INR 7 lakh continues to be at 5%. Further, in case remittance in excess of INR 7 lakh is made for educational purpose out of loan obtained from financial institution, the TCS rate of 0.5% remains unchanged.
The proposed amendment will be applicable from 1 July 2023.
Though the taxpayer is eligible for credit of tax collected by way of filing a return of income, it may lead to blockage of funds till refund is credited in taxpayer's bank account. Moreso, in cases where large refunds are claimed by the taxpayer, it may result in unwarranted scrutiny. This will largely impact the foreign tourism industry and the overseas investments made by residents under LRS.<br>
1. Section 206C(1G) – Enhanced TCS rate on certain remittances made outside India
Tax to be collected at an enhanced rate of 20% as against the existing rate of 5% in case of all the remittances under Liberalised Remittance Scheme (LRS) and overseas tour package. However, the TCS rate on remittances made for medical and education purposes in excess of INR 7 lakh continues to be at 5%. Further, in case remittance in excess of INR 7 lakh is made for educational purpose out of loan obtained from financial institution, the TCS rate of 0.5% remains unchanged.
The proposed amendment will be applicable from 1 July 2023.
Though the taxpayer is eligible for credit of tax collected by way of filing a return of income, it may lead to blockage of funds till refund is credited in taxpayer's bank account. Moreso, in cases where large refunds are claimed by the taxpayer, it may result in unwarranted scrutiny. This will largely impact the foreign tourism industry and the overseas investments made by residents under LRS.<br>
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Section 206AB & 206CCA – Exclusion of specified category from non-filers of tax return
There are certain persons who are not obliged to file tax return in India i.e. non-resident with no PAN and persons notified by the government. W.e.f. 1 April 2023 it is proposed to exclude such persons from the ambit of this Section and provide relief from higher TDS/TCS rate.
Procedural Amendments
1. Extension of Section 197 to include Section 194LBA
An application for Lower Withholding Tax Certificate can now be made for income covered under Section 194LBA – 'Certain income from units of business trust' w.e.f. 1 April 2023. This will largely benefit Sovereign Wealth Funds and Pension funds whose income from business trust is exempt under Section 10(23FE).
However, inclusion of Section 194R and Section 194Q within the ambit of Section 197 for a lower or Nil tax rate is still awaited.<br>
There are certain persons who are not obliged to file tax return in India i.e. non-resident with no PAN and persons notified by the government. W.e.f. 1 April 2023 it is proposed to exclude such persons from the ambit of this Section and provide relief from higher TDS/TCS rate.
Procedural Amendments
1. Extension of Section 197 to include Section 194LBA
An application for Lower Withholding Tax Certificate can now be made for income covered under Section 194LBA – 'Certain income from units of business trust' w.e.f. 1 April 2023. This will largely benefit Sovereign Wealth Funds and Pension funds whose income from business trust is exempt under Section 10(23FE).
However, inclusion of Section 194R and Section 194Q within the ambit of Section 197 for a lower or Nil tax rate is still awaited.<br>
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Introduction of Section 155(20) – TDS credit in the year in which income is offered to tax
Where a taxpayer reports income on accrual basis in a year and tax on the same is deducted in the subsequent year, it results in tax credit mismatch. Such taxpayer w.e.f.1 October 2023 can make an application to claim the credit in the year in which the income is offered to tax. The application is to be made within two years of a FY in which tax credit is reflected.
Though this is a welcome step by the government towards simplifying compliances, the prior years' tax credit issue remains unresolved.<br>
Where a taxpayer reports income on accrual basis in a year and tax on the same is deducted in the subsequent year, it results in tax credit mismatch. Such taxpayer w.e.f.1 October 2023 can make an application to claim the credit in the year in which the income is offered to tax. The application is to be made within two years of a FY in which tax credit is reflected.
Though this is a welcome step by the government towards simplifying compliances, the prior years' tax credit issue remains unresolved.<br>
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The above amendments proposed are in line with the objectives highlighted by the Hon'ble Finance Minister towards reducing the hardships faced by the taxpayer. However, there are various withholding tax provisions where clarifications were expected such as Section 194R, 194N, 194Q etc. which are still awaited. Overall, some amendments facilitate increased/ early collection of taxes for the government and the others provide relief to the taxpayers by offering reduced tax rates/ compliances.<br>
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JUDICIOUS VIEWS
Section 192
(a) 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. This was decided by SC in the case of ITI Limited 221 CTR 619. Same was also confirmed in the case of CIT v Larsen & Toubro 181 Taxmann 71.
(b)In the case of Transwork Information Services Ltd. 1 ITR 58 (Trib) it was held 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.
(c) In the case of North West Karnataka Road Transport Corporation 22 DTR 237 it was decided that assessee liable to deduct tax at source (TDS) from the salaries paid to its employees, shall not be treated as assessee in default, to the extent of the amount of gratuity which is exempt u/s. 10(10) of the Act, even if gratuity is paid under the provisions of the Payment of Gratuity Act, 1972 or otherwise.<br>
Section 192
(a) 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. This was decided by SC in the case of ITI Limited 221 CTR 619. Same was also confirmed in the case of CIT v Larsen & Toubro 181 Taxmann 71.
(b)In the case of Transwork Information Services Ltd. 1 ITR 58 (Trib) it was held 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.
(c) In the case of North West Karnataka Road Transport Corporation 22 DTR 237 it was decided that assessee liable to deduct tax at source (TDS) from the salaries paid to its employees, shall not be treated as assessee in default, to the extent of the amount of gratuity which is exempt u/s. 10(10) of the Act, even if gratuity is paid under the provisions of the Payment of Gratuity Act, 1972 or otherwise.<br>
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(d)In the case of CIT v Marubeni India (P) Limited 165 Taxmann 467 it was decided that employer had to deduct TDS at average rate from the month in which employee will submit the details of the previous employer in the Form 12B.
(e)Short deduction of tax under section 192 for any reason would justify action of the AO in treating the employer as assessee in default – Drawing & Disbursing Officer v CIT 115 ITD 411.
(f) In the case of B J Service Company Middle East Limited v ACIT 297 ITR 141 it was held that non resident employee was paid salary and tax paid by the company. Held that it was a monetary perquisite requiring salary to be grossed up at multiple stages and it did not come under the ambit of section 10(10C).<br>
(e)Short deduction of tax under section 192 for any reason would justify action of the AO in treating the employer as assessee in default – Drawing & Disbursing Officer v CIT 115 ITD 411.
(f) In the case of B J Service Company Middle East Limited v ACIT 297 ITR 141 it was held that non resident employee was paid salary and tax paid by the company. Held that it was a monetary perquisite requiring salary to be grossed up at multiple stages and it did not come under the ambit of section 10(10C).<br>
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(g)In the case of CIT v Tej Quebecor Printing Limited 281 ITR 170 it was made very clear that TDS to be done at the time of payment of salary.
(h)In the case of Max Muller Bhawan 268 ITR 31 it had been made clear that TDS u/s 192 is applicable to part time employees also. This includes doctors and teachers also.
Section 194A
(a)In the case of Madhusudan Shrikrishna vs. Emkay Exports 188 Taxmann 195 it has been decided that once decree is passed, it is a judgment debtor of the Court, which culminates in to final decree being passed which has to be discharged only on payment of amount due under said decree and therefore judgment debtor is not liable to deduct tax at source on interest component of decree.
(b)Interest u/s 1 94A to be deducted on the interest payable on delay payment of compensation. This was decided in the case of Baldeep Singh v UOI 199 ITR 628. Same was further confirmed in the case of University of Agricultural Sc V Fakiragowda 325 ITR 239 and Sant Ram v Union of India 328 ITR 160.<br>
(h)In the case of Max Muller Bhawan 268 ITR 31 it had been made clear that TDS u/s 192 is applicable to part time employees also. This includes doctors and teachers also.
Section 194A
(a)In the case of Madhusudan Shrikrishna vs. Emkay Exports 188 Taxmann 195 it has been decided that once decree is passed, it is a judgment debtor of the Court, which culminates in to final decree being passed which has to be discharged only on payment of amount due under said decree and therefore judgment debtor is not liable to deduct tax at source on interest component of decree.
(b)Interest u/s 1 94A to be deducted on the interest payable on delay payment of compensation. This was decided in the case of Baldeep Singh v UOI 199 ITR 628. Same was further confirmed in the case of University of Agricultural Sc V Fakiragowda 325 ITR 239 and Sant Ram v Union of India 328 ITR 160.<br>
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(c)In case of Supreme court judgment of CIT v Century Building & Industries Limited 293 ITR 194 it was held that any interest payment moved by company is liable to deduct TDS u/s 194A.
(d) In the case of CIT v S K Sundaramier & Sons 240 ITR 740 it was decided that TDS u/s 1 94A is deducted on gross amount and not on any net amount.
(e)Compensation which was measured as interest is not liable for TDS u/s 194A. This was decided in the case of Ghaziabad Development Authority V Dr. N K Gupta 258 ITR 337.
(f)In the case of Viswapriya Financial services and securities Limited v CIT 258 ITR 496 it was held that any monthly return in whatever name is interest.
In case of CIT v United Insurance Co Ltd 325 ITR 231 it was decided that Interest paid by insurance companies to accident victims is subject to TDS.<br>
(d) In the case of CIT v S K Sundaramier & Sons 240 ITR 740 it was decided that TDS u/s 1 94A is deducted on gross amount and not on any net amount.
(e)Compensation which was measured as interest is not liable for TDS u/s 194A. This was decided in the case of Ghaziabad Development Authority V Dr. N K Gupta 258 ITR 337.
(f)In the case of Viswapriya Financial services and securities Limited v CIT 258 ITR 496 it was held that any monthly return in whatever name is interest.
In case of CIT v United Insurance Co Ltd 325 ITR 231 it was decided that Interest paid by insurance companies to accident victims is subject to TDS.<br>
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(h)In case of G.M. Punjab Roadways 178 Taxmann1 12 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.
(i)In case of ITO v Executive Officer cum secretary 6 taxmann.com 68 it was held that assessee makes a provision of interest in its account, provision of section 1 94A applicable.
(j)Payments to teachers/ lecturers/ staff is covered u/s 192 and not u/s 194J – Principal Sri Sathya Sai College for Women Vs ITO (ITAT Jaipur) (ITA No.684, 685 & 686/JP/2018) (k) TDS deductible on Salary Paid to missionary teacher irrespective of subsequent use – Fr. Sabu P.Thomas Vs Union of India (Kerala High Court) (WP(C).No. 22299 of 2014) (l) TDS U/s. 192 deductible on car running & maintenance expenses paid to staff – TCG Lifesciences Pvt. Ltd. Vs ITO (ITAT Kolkata); I.T.A. Nos. 1234 & 1236/Kol/2016 (m) TDS not deductible on salary to Nuns/Fathers/Priests – Institute of the Fransican Missionaries of Mary Vs Union of India (Madras High Court); W. P. No. 37565 of 2015 (n) Salary reimbursement cannot be disallowed for Non-Deduction of TDS – Pr. CIT Vs. M/s .ITD Cem india JV (Bombay High Court); ITA No. 1706 of 2016<br>
(i)In case of ITO v Executive Officer cum secretary 6 taxmann.com 68 it was held that assessee makes a provision of interest in its account, provision of section 1 94A applicable.
(j)Payments to teachers/ lecturers/ staff is covered u/s 192 and not u/s 194J – Principal Sri Sathya Sai College for Women Vs ITO (ITAT Jaipur) (ITA No.684, 685 & 686/JP/2018) (k) TDS deductible on Salary Paid to missionary teacher irrespective of subsequent use – Fr. Sabu P.Thomas Vs Union of India (Kerala High Court) (WP(C).No. 22299 of 2014) (l) TDS U/s. 192 deductible on car running & maintenance expenses paid to staff – TCG Lifesciences Pvt. Ltd. Vs ITO (ITAT Kolkata); I.T.A. Nos. 1234 & 1236/Kol/2016 (m) TDS not deductible on salary to Nuns/Fathers/Priests – Institute of the Fransican Missionaries of Mary Vs Union of India (Madras High Court); W. P. No. 37565 of 2015 (n) Salary reimbursement cannot be disallowed for Non-Deduction of TDS – Pr. CIT Vs. M/s .ITD Cem india JV (Bombay High Court); ITA No. 1706 of 2016<br>
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Section 194C
(a) Tests laid down to determine when contract manufacturing will amount to a contract of sale for section 194C TDS in the case of CIT vs. Glenmark Pharmaceuticals 324 ITR 199.
(b) In case of Sands Advertising Communication (P) Ltd v DCIT ITA No 790 Bang dated 22-1-2010 it had been decided that when an advertising agency reimburse advertising charges to the accredited advertising agency for release of its advertisements in newspaper, provisions of section 1 94C have no role to play.
(c)In case of Entertainment One India Ltd. vs. ITO 39 DTR 26 it was held that Finance agreement of assessee with producer /director of films is not a contract within the meaning of section 1 94C, but only a financing arrangement therefore neither section 194C nor section 194J is applicable for composite contracts for financing film project.
(d)In case of Mythri Transport Corporation vs. ACIT 124 ITD 40 it was held that the payment made to lorry owners at par with payments made towards salaries, rents etc, therefore, payment made to hired vehicles would not be considered as towards sub¬contractor with lorry owners. As the provisions of section 194C is not applicable payment made cannot be disallowed by applying the provision of section 40(a)(ia).<br>
(a) Tests laid down to determine when contract manufacturing will amount to a contract of sale for section 194C TDS in the case of CIT vs. Glenmark Pharmaceuticals 324 ITR 199.
(b) In case of Sands Advertising Communication (P) Ltd v DCIT ITA No 790 Bang dated 22-1-2010 it had been decided that when an advertising agency reimburse advertising charges to the accredited advertising agency for release of its advertisements in newspaper, provisions of section 1 94C have no role to play.
(c)In case of Entertainment One India Ltd. vs. ITO 39 DTR 26 it was held that Finance agreement of assessee with producer /director of films is not a contract within the meaning of section 1 94C, but only a financing arrangement therefore neither section 194C nor section 194J is applicable for composite contracts for financing film project.
(d)In case of Mythri Transport Corporation vs. ACIT 124 ITD 40 it was held that the payment made to lorry owners at par with payments made towards salaries, rents etc, therefore, payment made to hired vehicles would not be considered as towards sub¬contractor with lorry owners. As the provisions of section 194C is not applicable payment made cannot be disallowed by applying the provision of section 40(a)(ia).<br>
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(e)The provisions of section 1 94© is well applicable to the work assigned by an event management company. Same was decided in the case of EMC v ITO in case Nos. ITA Nos. 2269 dated 20-1-2010 MUM.
(f) In the case of East India Hotel Ltd V CBDT 179 Taxmann 17 it was held that Misc Services provided by hotels does not constitute work under section 194C.
(g) In case of CIT v Cargo Linkers 179 Taxmann.com 151 no TDS on Clearing & Forwarding agent.
(h)In case of BDA Ltd V ITO 281 ITR 999 it was decided that supply of Printed label is supply not work.
In case of Dy. CIT vs. Laxmi Protein Products P. Ltd 3 ITR 768 (Ahd.)(Trib) it was held that when payment made to laborer through their representative,<br>
(f) In the case of East India Hotel Ltd V CBDT 179 Taxmann 17 it was held that Misc Services provided by hotels does not constitute work under section 194C.
(g) In case of CIT v Cargo Linkers 179 Taxmann.com 151 no TDS on Clearing & Forwarding agent.
(h)In case of BDA Ltd V ITO 281 ITR 999 it was decided that supply of Printed label is supply not work.
In case of Dy. CIT vs. Laxmi Protein Products P. Ltd 3 ITR 768 (Ahd.)(Trib) it was held that when payment made to laborer through their representative,<br>
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(i)single payment not exceeding Rs. 20000/-. Tax need not be deducted at source.
(j) In the instant case, assessee hired trucks for a fixed period on payment of hire charges which were utilized in its business of civil construction. There was no agreement for carrying out any work or to transport any goods or passengers from one place to another. Hiring of trucks for the purpose of using them in assessee’s business did not amount to contract for carrying out any work as contemplated in s.194C. It was held that once the contract was not for carrying out any work, the provisions of s.194C were not attracted and no disallowance u/s. 40(a)(ia) can be made. (Satish Aggarwal & Co. 27 DTR 34.)
(k)Payments made by assessee society to the truck owners who are its members after receiving the payments from the companies for transporting their goods are not subject to TDS u/s. 194C(2), as there is no sub contracts with the said companies on behalf of its members. Judgment of Ambuja Darla Kashlog Mangu Transport Co± op. Society 2009) 31 DTR 49 (HP).<br>
(j) In the instant case, assessee hired trucks for a fixed period on payment of hire charges which were utilized in its business of civil construction. There was no agreement for carrying out any work or to transport any goods or passengers from one place to another. Hiring of trucks for the purpose of using them in assessee’s business did not amount to contract for carrying out any work as contemplated in s.194C. It was held that once the contract was not for carrying out any work, the provisions of s.194C were not attracted and no disallowance u/s. 40(a)(ia) can be made. (Satish Aggarwal & Co. 27 DTR 34.)
(k)Payments made by assessee society to the truck owners who are its members after receiving the payments from the companies for transporting their goods are not subject to TDS u/s. 194C(2), as there is no sub contracts with the said companies on behalf of its members. Judgment of Ambuja Darla Kashlog Mangu Transport Co± op. Society 2009) 31 DTR 49 (HP).<br>
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In the case of The East India Hotels Ltd. & Anr. . 223 CTR 133 it was held that 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.
(m) In the case of Shemaroo Video (P) Ltd. 31 SOT 65, 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. 1 94C and hence no TDS was required.<br>
(m) In the case of Shemaroo Video (P) Ltd. 31 SOT 65, 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. 1 94C and hence no TDS was required.<br>
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(n) As the payments were made directly to drivers or truck owners by assessee and through suppliers and further they were charging commission from truckwals and not from the assessee. Further it was found that no payment exceeding Rs. 20000/- was paid to truck owners or drivers, provisions of s. 1 94C can not be made applicable. This was deciced in the case of Bhoruka Roadlines Ltd. 117 ITD 311.
(o) In the case of Dewan Chand 17 DTR 337 Payments made by the assessee to the employees employed by it on daily wage basis cannot be said to be a contractual payment, as such the assessee in such cases was not required to deduct tax from such payments u/s. 1 94C of the Act. Where the asses see had produced confirmation from the parties to whom payments were made, confirming the fact that they have included the amount received from the assessee as their income and paid taxes thereon, the assessee cannot be treated as assessee in default under the provisions of s. 201(1) of the Act for non deduction of tax at source.
(p) Mumbai High court in the case of Mukta Arts Limited 31 SOT 244 decided that Provisions of s. 1 94C would not apply to the film financing arrangements.<br>
(o) In the case of Dewan Chand 17 DTR 337 Payments made by the assessee to the employees employed by it on daily wage basis cannot be said to be a contractual payment, as such the assessee in such cases was not required to deduct tax from such payments u/s. 1 94C of the Act. Where the asses see had produced confirmation from the parties to whom payments were made, confirming the fact that they have included the amount received from the assessee as their income and paid taxes thereon, the assessee cannot be treated as assessee in default under the provisions of s. 201(1) of the Act for non deduction of tax at source.
(p) Mumbai High court in the case of Mukta Arts Limited 31 SOT 244 decided that Provisions of s. 1 94C would not apply to the film financing arrangements.<br>
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In case of Samanwaya 34 SOT 332 it was held that Labour sardars could not be called labour contractors, within the meaning of s. 1 94C(2), hence provisions of s. 40(a)(ia), can not be made applicable.
(r) Supply of outsourced manufactured goods by contract manufacturers constituted outright sale and not contract of work within the scope of s. 1 94C, hence assessee was not liable to deduct tax at source from the purchase price of goods paid by assessee to contract manufacturers, therefore, such payment could not be disallowed by invoking s. 40(a)(ia). It has been decided in the case of Tureg Marketing (P) Ltd. 112 TTJ 343.
(s) In case of Bhagwati Steels 326 ITR 108 it was held that assessee not paid any amount to procurement agencies on account of transportation, interest or storage charges – No liability for deduction of tax u/s 194C.<br>
(r) Supply of outsourced manufactured goods by contract manufacturers constituted outright sale and not contract of work within the scope of s. 1 94C, hence assessee was not liable to deduct tax at source from the purchase price of goods paid by assessee to contract manufacturers, therefore, such payment could not be disallowed by invoking s. 40(a)(ia). It has been decided in the case of Tureg Marketing (P) Ltd. 112 TTJ 343.
(s) In case of Bhagwati Steels 326 ITR 108 it was held that assessee not paid any amount to procurement agencies on account of transportation, interest or storage charges – No liability for deduction of tax u/s 194C.<br>
26
(t) Since the assessee , a transporter was not liable to get his accounts audited under section 44AB.,in the immediately preceding assessment year , he was not required to deduct tax at source under section 194C from the payments could not be disallowed under section 40(a) (ia) on account of non deduction of TDS. This was decided in the case of ITO v Dhirubhai Dajibhai Patel 133 TTJ (Ahd) (UO) 1.
(u) Section 194C TDS on Advertisement Expenses paid to News Paper Agencies – Mehra Eyetech Pvt. Ltd. Vs Add. CIT (ITAT Mumbai); ITA No. 1760/Mum/2019 (v) Retention money taxable in year of contract condition fulfilment – DCIT Vs EMC Limited (ITAT Kolkata); ITA No. 2149/Kol/2017 (w) No TDS on harvesting charges paid on behalf of farmers as agent – Parry Sugar Industries Limited Vs DCIT (ITAT Bangalore); ITA No. 2814/Bang/2018 (x) Section 194C TDS not applicable on terminal handling charges – DCIT Vs Keshodwala Foods (ITAT Rajkot); ITA No. 1133/Rjt/2010<br>
(u) Section 194C TDS on Advertisement Expenses paid to News Paper Agencies – Mehra Eyetech Pvt. Ltd. Vs Add. CIT (ITAT Mumbai); ITA No. 1760/Mum/2019 (v) Retention money taxable in year of contract condition fulfilment – DCIT Vs EMC Limited (ITAT Kolkata); ITA No. 2149/Kol/2017 (w) No TDS on harvesting charges paid on behalf of farmers as agent – Parry Sugar Industries Limited Vs DCIT (ITAT Bangalore); ITA No. 2814/Bang/2018 (x) Section 194C TDS not applicable on terminal handling charges – DCIT Vs Keshodwala Foods (ITAT Rajkot); ITA No. 1133/Rjt/2010<br>
27
Section 194H
(a)In case of CIT vs Singapore Airlines Limited 319 ITR 29 Airlines selling tickets to travel agents and amounts realized by travel agents in excess of net fare retained by them under passenger sales agency agreement. Same amounts to commission and TDS to be deducted on it. However free tickets does not comes under commission.
(b)In case of Vodafone Essar Cellular Ltd. vs. ACIT 35 DTR 393 it had been decided that margin earned by the assessee company on supply of prepaid SIM cards and recharge coupons etc was in the nature of commission and therefore the assessee service provider is liable to deduct tax at source under section 1 94H. Same was also confirmed in the case of Idea Cellular Limited in case no. ITA Nos. 146 of 2009 dated 19-2-2010 Delhi.
(c) In the case of CIT v Director, Prasar Bharati 325 ITR 205 it was held that Payment made by Doordarshan to advertisement agencies in the form of discount held as commission.<br>
(a)In case of CIT vs Singapore Airlines Limited 319 ITR 29 Airlines selling tickets to travel agents and amounts realized by travel agents in excess of net fare retained by them under passenger sales agency agreement. Same amounts to commission and TDS to be deducted on it. However free tickets does not comes under commission.
(b)In case of Vodafone Essar Cellular Ltd. vs. ACIT 35 DTR 393 it had been decided that margin earned by the assessee company on supply of prepaid SIM cards and recharge coupons etc was in the nature of commission and therefore the assessee service provider is liable to deduct tax at source under section 1 94H. Same was also confirmed in the case of Idea Cellular Limited in case no. ITA Nos. 146 of 2009 dated 19-2-2010 Delhi.
(c) In the case of CIT v Director, Prasar Bharati 325 ITR 205 it was held that Payment made by Doordarshan to advertisement agencies in the form of discount held as commission.<br>
28
(d) The assessee sold the products billing them at gross amount and trade discount was given at the rate of 50% or 30% or 17.20% as the case may be. The net amount was shown as price payable and sales tax was collected on the said amount. Held that trade discount debited by the assessee in its accounts is not covered u/s 194H. Since there was no liability to deduct tax, the disallowance u/s. 40(a)(ia) was deleted. It had been decided in the case of S.D. Pharmacy Pvt. Ltd. Case No. ITA Nos. 948/Coch/2008, A.Y. 2005-06, dt. 5-5- 2009.
(e) In case of Jahangir Biri Factory (P) Ltd. 126 TTJ 567 Payment of Biri binding charges made through Munshis who are part of the labourers can not be considered as commission in terms in Expln (i) to s. 1 94H, therefore the said payment could not be disallowed u/s. 40(a)(ia).
In case of ITL Tours and Travels (P) Limited v ITO 7 taxmann.com 75 it was decided that In order to bring service or transaction within expression ‘ Commission and Brokerage’ u/s 194H element of Agency must be present.<br>
(e) In case of Jahangir Biri Factory (P) Ltd. 126 TTJ 567 Payment of Biri binding charges made through Munshis who are part of the labourers can not be considered as commission in terms in Expln (i) to s. 1 94H, therefore the said payment could not be disallowed u/s. 40(a)(ia).
In case of ITL Tours and Travels (P) Limited v ITO 7 taxmann.com 75 it was decided that In order to bring service or transaction within expression ‘ Commission and Brokerage’ u/s 194H element of Agency must be present.<br>
29
(g)Section 194H
TDS not applicable on Payment gateway charges paid to banks/credit card agencies – ACIT Vs. Head Infotech India Pvt. Ltd. (ITAT Hyderabad); I.T.A. No. 2372/HYD/2018
(h) Payment of Foreign Agency Commission not liable for TDS in India – M/s. Divya Creations Vs ACIT (ITAT Delhi); ITA.No. 5959/Del./2017 (i) Section 194H TDS not applies on Bank Guarantee Commission – M/s. Navnirman Highway Project Pvt. Ltd. Vs DCIT (ITAT Delhi); ITA No.117/Del./2017 (j) No Section 194H TDS on discounts on prepaid SIM Cards or Talktime – ACIT Vs Vodafone South Ltd (ITAT Chennai); ITA No. 1348 & 1349/Chny/2018
Section 194I
(a)In case of CIT v NIIT Limited 318 ITR 289 the assessee providing computer education and training under franchisee agreement under which fees collected from students by assessee and shared with Franchisee. Same is not a payment of rent and hence no TDS
(b) In case of CIT v Japan Airlines Co Ltd 325 ITR 298 it was held that landing fee & parking fee for aircraft amounts to rent.<br>
TDS not applicable on Payment gateway charges paid to banks/credit card agencies – ACIT Vs. Head Infotech India Pvt. Ltd. (ITAT Hyderabad); I.T.A. No. 2372/HYD/2018
(h) Payment of Foreign Agency Commission not liable for TDS in India – M/s. Divya Creations Vs ACIT (ITAT Delhi); ITA.No. 5959/Del./2017 (i) Section 194H TDS not applies on Bank Guarantee Commission – M/s. Navnirman Highway Project Pvt. Ltd. Vs DCIT (ITAT Delhi); ITA No.117/Del./2017 (j) No Section 194H TDS on discounts on prepaid SIM Cards or Talktime – ACIT Vs Vodafone South Ltd (ITAT Chennai); ITA No. 1348 & 1349/Chny/2018
Section 194I
(a)In case of CIT v NIIT Limited 318 ITR 289 the assessee providing computer education and training under franchisee agreement under which fees collected from students by assessee and shared with Franchisee. Same is not a payment of rent and hence no TDS
(b) In case of CIT v Japan Airlines Co Ltd 325 ITR 298 it was held that landing fee & parking fee for aircraft amounts to rent.<br>
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(c) In case of Bharat Hotels Limited 28 DTR 337 it was decided that A person who is responsible for paying to a resident any income by way of rent us required to deduct tax at source u/s. 194I at the time of credit of such income to the account of the payee even if it is not the income of the payee previous year in which it is paid; upfront fee paid by assessee to the lessor which is adjustable against 50% of the annual license fee payable to the lessor was rent and therefore assessee was required to deduct tax at source u/s. 194I at the time of the credit of such amount.
(d) TDS on Payment made to jewellery market exhibition for stall at exhibition – OTM Jewellery (P) Ltd. Vs ITO (ITAT Delhi); ITA.No.1095/Del./2017
(e) Section 194I: Rent for use of Land includes lease, sub-lease, tenancy payment – CIT (TDS) Vs Jaypee Sports International Ltd. (Allahabad High Court); ITA No. 63 of 2018
(f) Machinery rent cannot be taxed as Income from House Property for TDS deduction under wrong head – Heritage Hospitality Ltd. Vs DCIT (ITAT Hyderabad); ITA No. 874/HYD/2012<br>
(d) TDS on Payment made to jewellery market exhibition for stall at exhibition – OTM Jewellery (P) Ltd. Vs ITO (ITAT Delhi); ITA.No.1095/Del./2017
(e) Section 194I: Rent for use of Land includes lease, sub-lease, tenancy payment – CIT (TDS) Vs Jaypee Sports International Ltd. (Allahabad High Court); ITA No. 63 of 2018
(f) Machinery rent cannot be taxed as Income from House Property for TDS deduction under wrong head – Heritage Hospitality Ltd. Vs DCIT (ITAT Hyderabad); ITA No. 874/HYD/2012<br>
31
(g) TDS not deductible on Payment of Wharfage Charges – M/s. Angre Port (P) Ltd. Vs ITO (ITAT Pune); ITA No.2148/PUN/2013 (h) TDS on payment to Carrier under contracts for transporting petroleum products in business is deductible U/s. 194C and not U/s./ 194I – Commissioner of Income Tax Vs M/s Indian Oil Corporation Ltd. (Uttarakhand High Court); IncomeTax Appeal No. 37 of 2014
Section 194J (a) In case of CIT Vs Bharati Cellular Limited 210 taxmann 420 it has had been decided that payment for interconnection charges for interconnection provided through port is not liable for TDS u/s 1 94J.
(b) The summary of case of Expeditors International (India) P. Ltd 2 ITR 153 is that Payment of unlinking charges by assessee to parent company not in the nature of fees for technical services hence not liable to deduction of tax at source. Further, Reimbursement of expenditure incurred in respect of Global accounts manger cannot be treated as payment of salary. Similarly reimbursement of common expenses incurred of parent company for benefit of group concerns not liable for deduction of tax at source.<br>
Section 194J (a) In case of CIT Vs Bharati Cellular Limited 210 taxmann 420 it has had been decided that payment for interconnection charges for interconnection provided through port is not liable for TDS u/s 1 94J.
(b) The summary of case of Expeditors International (India) P. Ltd 2 ITR 153 is that Payment of unlinking charges by assessee to parent company not in the nature of fees for technical services hence not liable to deduction of tax at source. Further, Reimbursement of expenditure incurred in respect of Global accounts manger cannot be treated as payment of salary. Similarly reimbursement of common expenses incurred of parent company for benefit of group concerns not liable for deduction of tax at source.<br>
32
(c)In case of ACIT vs. Indraprastha Medical Corp. Ltd. 128 TTJ 500 it has been decided that where a hospital engaged consulting doctors and provided them with chambers with secretaries assistance and fee collected from out patients and paid to consultants each day after deducting certain amount towards rent and secretarial assistance, it was not a case of payment of professional fees and neither section 192, nor section 194 J was attracted and the hospital cannot be treated as assessee in default for not deducting tax from such payments.
(d) In the case of Dedicated Health Care Services TPA vs. ACIT 324 ITR 345 it has been decided that though a hospital by itself, being an artificial entity, is not a “medical professional”, yet it provides medical services by engaging the services of doctors and qualified medical professionals. These are services rendered in the course of the carrying on of the medical profession. S. 194J applies to payments made to non-professionals such as hospitals. CBDT Circular on TPA liability is valid except for view on penalty.<br>
(d) In the case of Dedicated Health Care Services TPA vs. ACIT 324 ITR 345 it has been decided that though a hospital by itself, being an artificial entity, is not a “medical professional”, yet it provides medical services by engaging the services of doctors and qualified medical professionals. These are services rendered in the course of the carrying on of the medical profession. S. 194J applies to payments made to non-professionals such as hospitals. CBDT Circular on TPA liability is valid except for view on penalty.<br>
33
(e) In case of CIT V Angel Broking Limited 3 ITR (Trib) 294 it has been decided that when assessee is a member of stock exchange and any payment towards VSAT charges, lease line charges or infrastructure facility etc would not amount to fees for technical service.
(f) In the land mark case of Medi Assist India TPA (P) Limited V DCIT 324 ITR 356 it was held that TPA have to deduct TDS u/s 194J on payment made to hospitals.
(g) In the case of Kotak Securities Ltd. It was decided that 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. 1 94J are not attracted and no disallowance can be made by invoking s. 40(a)(ia).<br>
(f) In the land mark case of Medi Assist India TPA (P) Limited V DCIT 324 ITR 356 it was held that TPA have to deduct TDS u/s 194J on payment made to hospitals.
(g) In the case of Kotak Securities Ltd. It was decided that 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. 1 94J are not attracted and no disallowance can be made by invoking s. 40(a)(ia).<br>
34
(h) Fees for technical services would not include purchase of material by the assessee for the purpose of imparting computer education at their centre, hence, provisions of s. 1 94J and for that purpose s. 201(1) and 201(1A) are not attracted. Taxes having been duly paid by the deductee same can not be recovered from the assessee for failure to deduct tax at source. It had been decided in the case of Frontline Software Services (P) Ltd. 24 DTR 232.
(i) In the Case No. 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. Of Pacific Internet (India) Pvt. Ltd. It was decided that Payments for bandwidth and network services cannot be said to be Technical services liable to TDS u/s. 1 94J.
(j) In the case of Mahesh Enterprise v ITO it was held that Description of payment as royalty in profit and loss account is not decesive for purpose of section 1 94J<br>
(i) In the Case No. 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. Of Pacific Internet (India) Pvt. Ltd. It was decided that Payments for bandwidth and network services cannot be said to be Technical services liable to TDS u/s. 1 94J.
(j) In the case of Mahesh Enterprise v ITO it was held that Description of payment as royalty in profit and loss account is not decesive for purpose of section 1 94J<br>
35
k) In the Landmark Supreme Court Judgment of CIT v Bharti Cellular Ltd 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 BSNL/MTNL within 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. (l) No Section 194J TDS on IUC charges paid to other telecom companies – DCIT Vs Vodafone India Ltd. (ITAT Mumbai); ITA No. 6159 & 6160/Mum/2018 (m) TDS u/s 194J Applicable on Payments by TPA to Hospitals on behalf of Insurance Companies – Family Health Plan (TPA) Ltd. Vs ITO (ITAT Chennai); I.T.A Nos. 733 to 744 /CHNY/2019 (n) TDS u/s 194J not applicable on modeling services rendered by Actor or Actress – DCIT (TDS) Vs Kodak India (P) Ltd. (ITAT Mumbai); ITA No. 4812 & 4813/Mum/2013<br>
36
(o) Sec 194J
TDS deductible on Toll Free Telephone charges (Royalty) – Vidal Health Insurance TPA (P.) Ltd. Vs JCIT (ITAT Bangalore);ITA Nos.1213 to1215/Bang/2018
Section 194LA
(a) In case of Infopark Kerala vs. ACIT 38 DTR 180 it was decided that mere issuance of notification under section 4 of the land Acquisition Act, provision of section 1 94LA was not attracted. (b) In the case of Karnail Singh v State of Haryana 326 ITR 501 it was held that Deduction of TDS on enhanced compensation of Agricultural Land u/s 194LA Others (a) In the case of Ahluwallia and Associates vs. ITO 2 ITR 582 it has been decided that Credit for tax deducted at source must be given to the assessee, though the certificate furnished by the deductor has not shown the date of payment to Central Government. (b) In case of MTAR Technologies (P) Ltd v Asst CIT 39 SOT 465 it was held that any payment is made to a non shareholder section 194 does not apply. (c) In case of Smt J Rama v CIT it was held that Law does not stipulate existence of a written contract as a condition precedent for payment of TDS (d) Once Tax is deducted at source, Amount becomes money due to Central Government and either deductor or deductee cannot appropriate amount so deducted on any ground. This had been decided in the case of ITO (TDS) v India Vision Satellite Communication Limited 7 taxmann.com 65. (e) In the case of ITO v Hans Road Carriers (P) Limited 7 taxmann.com 39 it was decided that Deduction of Tax at source is not a levy of Tax , It is merely one of the modes of collection of Tax.<br>
TDS deductible on Toll Free Telephone charges (Royalty) – Vidal Health Insurance TPA (P.) Ltd. Vs JCIT (ITAT Bangalore);ITA Nos.1213 to1215/Bang/2018
Section 194LA
(a) In case of Infopark Kerala vs. ACIT 38 DTR 180 it was decided that mere issuance of notification under section 4 of the land Acquisition Act, provision of section 1 94LA was not attracted. (b) In the case of Karnail Singh v State of Haryana 326 ITR 501 it was held that Deduction of TDS on enhanced compensation of Agricultural Land u/s 194LA Others (a) In the case of Ahluwallia and Associates vs. ITO 2 ITR 582 it has been decided that Credit for tax deducted at source must be given to the assessee, though the certificate furnished by the deductor has not shown the date of payment to Central Government. (b) In case of MTAR Technologies (P) Ltd v Asst CIT 39 SOT 465 it was held that any payment is made to a non shareholder section 194 does not apply. (c) In case of Smt J Rama v CIT it was held that Law does not stipulate existence of a written contract as a condition precedent for payment of TDS (d) Once Tax is deducted at source, Amount becomes money due to Central Government and either deductor or deductee cannot appropriate amount so deducted on any ground. This had been decided in the case of ITO (TDS) v India Vision Satellite Communication Limited 7 taxmann.com 65. (e) In the case of ITO v Hans Road Carriers (P) Limited 7 taxmann.com 39 it was decided that Deduction of Tax at source is not a levy of Tax , It is merely one of the modes of collection of Tax.<br>
37
Relevant Rules: 31AA, 37C, 37CA, 37D, 37G to 37J Relevant Forms: Forn No.13 Form No.24G Form No.27A Form No.27BA Form No.27C Form No.27D and Form No.27EQ<br>
38
“buyer “ with respect to ---- i)Sub-section (1) means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the table of sub-section (1) or the right to receive any such goods but does not include, - (A)a public sector company , the Central Government , a State Government , and an embassy, Hi gh Commission, legation, commission, consulate and the trade representation, of a foreign State and a club; or (B)a buyer in the retail sale of such goods purchased by him for personal consumption ; ii)[ ] iii)Sub-section (IF) means a person who obtains in any sale , goods of the nature specified in the said sub-section , but does not include,-<br>
39
(b) “ scrap” means waste and scrap from the manufacture or mechanical wo0rking of materials which is definitely not usable as such because of breakage ,cutting up, wear and other reasons; (c) “seller” [with respect to section (1) and sub-section (1F) means the Central Government , a State Government or any local authority or corporation or authority established by or under a Central, State or Provisional Act, or any company or firm or co-operative society and also includes an individual or a Hindu Undivided Family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed [one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately proceeding the financial year in which the goods of the nature specified in the Table in sub-section (1) [are sold]<br>
40
(A)the Central Government , a State Government and an embassy , a High Commission legation,commission, consulate and the trade representation of a foreign State; or (B)a local authority as defined in Explanation to clause (20) of section 10; or (C) a public sector company which is engaged in the business of carrying passengters.] When TCS is not applicable Section 206(1A) No collection of tax shall be made in the case of a buyer who is resident in India,if such buyer furnishes to the person responsible to collect tax,a declaration in writing in duplicate in Form 27C under Rule 37C and verified in prescribed manner to the effect that the goods referred to in Column (2) of the Table are to be utilised for the purpose of manufacturing,processing or producing articles or things or for generation of power and not for trading purpose<br>
41
The scrap sold should arise out of manufacturing or mechanical working of material. In absence of which, no requirement to collect tax at source- Navine Fluorine International Ltd. vs. ACIT (Ahmedabad ITAT) [2012] 14ITR (T) 481 Provisions of TCS not applicable to dealer of scrap–Lala Bharat Lal & Sons vs. ITO (Lucknow ITAT) (ITA No.14,15,16/LKW/2019 dtd.19.02.2020). The Tribunal in this case held, that trading in the scrap cannot be deemed to have any nexus with manufacturing and hence a trader cannot be subjected to collect of TCS on the ground that he has dealt in scrap which has been manufactured by another assessee. The Tribunal in this judgement followed the decisions given by the Gujarat High Court in Priya<br>
42
Blue Industries case and by the Ahmedabad Tribunal in Dhasawala Traders case. Lucknow Tribunal reiterated this view in M/s Wire One vs ITO (TDS). This view was also supported earlier by the Ahmedabad Tribunal in Azizbhai A Lada, Bhavnagar vs ITO (TDS) Where products obtained in course of ship breaking activity are usable as such, they do not fall within definition of scrap. Hence, not liable for TCS– CIT vs. Priya Blue Industries Pvt. Ltd. (Gujarat HC) [2016] 381 ITR 210<br>
43
Furnishing such declaration, Section 206(1B): Within seven days of the immediate succeeding month, However No time limit has been prescribed for furnishing Form No.27C by the buyer to the seller except the time limit of the seller to to collect Chandmal Sancheti vs ITO (Jaipur ITAT) (ITANo. 344&345/JP/2015) Payment : Within seven days of the immediate succeeding month 206(1C): Every person, who grants a lease or a license or enters into a contract or otherwise, transfers any right or interest in any parking lot or toll plaza or mine or quarry to another person (hereafter referred to as “licensee or leasee”) for the use of such parking lot or toll plaza or mine or quarry, for the purpose of business, shall collect tax at source at the rate of 2%.<br>
44
The provisions of this section shall not apply to mining and quarrying of mineral oil, petroleum and natural gas. The provisions of this section shall not apply if the licensee or lessee is a public sector company. Tax has to be collected by the seller at the time of debiting of the amount payable by the licensee or leasee to the account of the licensee or leasee or at the time or receipt of such amount from the licensee or leasee in cash or by issue of cheque or draft, or by any other mode, whichever is earlier<br>
45
Individual / HUF even if his turnover does not exceed Rs.1 Crore or Rs. 50 Lakhs, as the case may be are also liable to collect tax u/s. 206C(1C). For the purpose of section 206C(1C) on parking lot, toll plaza or mining or quarrying, every person [person as defined u/s. 2(31) of the Income tax Act, 1961 [,should collect TCS. Thus, the Central Govt., State Govt., not included in the definition of person u/s .2(31) cannot be made liable to collect tax at source. Shree Jagannath Temple Office is not a person u/s. 2(31). Thus, not liable to collect tax at source u/s. 206C(1C)-Shree Jagannath Temple Managing Committee vs. ACIT (Cuttack ITAT) (ITA No.197 and 198/2013)<br>
46
TCS on motor vehicle to be collected at the time of (receipt of) Retail Sale and not on sale of motor vehicle by manufacturers to dealers / distributors – CBDT Circular No. 22/2016 dtd. 08.06.2016 Receipt of Sale consideration from a dealer would be subjected to TCS under sub-section (1H) of the Act, if such sales are not subjected to TCS under sub-section (1F) of section 206C of the Act. [Para 4.5.2. (i) of the CBDT circular 17/2020] As per Para 4.5 of CBDT Guidelines vide Circular 17/2020 dated 29.09.2020–Receipt of sale consideration by a dealer is liable for TCS u/s. 206C(1H). Thus, earlier exemption given on sale of motor vehicles by manufacturers to dealers/distributors vide CBDT Circular No. 22/2016 dtd. 08.06.2016 is not relevant now since the same have been specifically included vide above Guidelines vide CBDT circular 17/2020.<br>
47
The percentages of TCS as referred to in section 206C(1), 206C(1C) and 206C(1F) shall be increased by a surcharge and health & education cess for assessment year 2020-21 Threshold limit: Motor car exceeding 10 lacs Foreign Travelling: Exceeding Seven lac for educational and medical. Hence, when the company deducts tax in the FY 2022-23 and learns that the payee has not filed his ITR for the last year, the TDS should be deducted at higher of the following: Twice the rate prescribed in the Act, i.e. 2% (2 X 1%), or 5%<br>
48
TCS Return TCS return shall be submitted in form no. 27 EQ within the time limit give below:- Quarter ending Due Date 30th June 15th July 30th September 15th October 31st December 15th January 31st March 15th May<br>
49
Guidelines for handling issues related to applications received u/s 197: In order to streamline the procedure of handling the applications received u/s 197 and disposing the same in a time bound manner in consonance with the Citizens’ charter, the commissioner of Income tax (TDS) has issued certain guidelines for the Assessing Officers. In a nutshell, these guidelines make it mandatory for the Assessing Officer to dispose of the applications u/s 197 within a time frame of 30 days from the end of the month in which application complete in ALL respect is received. The section 197 strikes a delicate balance between requirement of ensuring cash flow to the taxpayer and realizing government dues at the earliest. Taxpayers are, therefore, advised to file complete details required for processing the application in the first instance itself. This will expedite the issuance of certificate u/s 197.<br>
50
Similar to Section 197 of the Income Tax Act, 1961 provides for the facility of NIL deduction of tax at source or at a deduction at a Lower rate of tax. To avail of this benefit the assessee whose TCS is likely to be collected on certain receipts should make an application before the TCS Assessing Officer who has a jurisdiction over his/ her/ its case. The assessee/ Collectee concerned may apply for a certificate for Nil or lower deduction of TDS on their receipts in Form No 13. Delays in this matter can be avoided by filing the prescribed form correctly and submitting the required details along with the form itself.<br>
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Time Limits and Procedure of depositing TDS and Issue of TCS Certificate: Both transferee and transferor must have Permanent Account Number (PAN). Transferee is not required to hold/obtain TAN for payment of TCS. Online payment of TCS is mandatory. Online payment of challan is available on TIN NSDL website. Any sum collected shall be paid to the credit of the Central Government within a period of 7 days from the end of the month in which the deduction is made and shall be accompanied by a challan-cum-statement in Form No. 27EQ.<br>
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Assessing Officer was justified in levying fee under section 234E on account of delay in filing statements in respect of each flat, while processing such statements under section 200A. Refer Corner view Construction & Developers (P.) Ltd [2019] 109 taxmann.com 68 (Mumbai – Trib.) Where in respect of purchase of property, assessee deposited tax at source under section 194-IA and also filed a statement to that effect much prior to date when section 234E came into existence i.e. 1-6-2015, impugned order levying fee under section 234E for violation of section 200(3) was to be set aside Meghna Gupta [2018] 99 taxmann.com 334 (Delhi – Trib.)<br>
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Sec 206C(1H): Section 206C(1H) TCS on Receipt of Sale Consideration “Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section(1G) shall, at the time of receipt of such amount , collect from the buyer, a sum equal to 0.1per cent of the sale consideration exceeding fifty lakh rupees as income-tax” Nature of Transaction Receipt of Sale consideration for Sale of Goods in India by a Seller whose turnover exceeds Rs. 10 Crores in the preceding FY is liable to collect tax at source. The term goods have not been defined in the Income Tax Act, hence we may refer to Sales of Goods Act, 1930 or Goods and Service Tax Act 2017 for the meaning of goods. In both the Acts, the term “Goods” has been defined as “Goods” means every kind of movable property other than money and securities but includes actionable claims, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.<br>
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These provisions are applicable only in respect of transaction of sale of goods and do not apply to sale of services. Who is liable to collect tax at Source (TCS) under section 206C(1H) ? > Seller whose Turnover of preceding year exceeds Rs. 10 Crores. > As per Section 206C(1H) “Seller means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.” However, as per Para 2 of the CBDT Press Release dated 30th September, 2020-A seller would be required to collect tax only if his turnover exceeds Rs. 10 crore in the last financial year. (not the year of sale)<br>
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> Practically, it can be concluded that any person whose turnover exceeds Rs.10 Crores in the preceding year, shall be covered u/s. 206C(1H). From whom to collect? Buyer from whom, receipt (and not sales) exceeds Rs. 50 Lakhs, in aggregate, in a financial year. The amount on which the tax needs to be collected shall be limited only to the consideration for sale of goods actually received. The liability is triggered at the point of receipt of amount once the threshold of Rs.50 Lakhs is crossed. In the absence of sale of goods and amount received, the liability does not exist. The sale consideration can be interpreted as amount received in advance or in arrears. In case, if there is some change in valuation say under GST law then too the requirement of TCS will be qua actual consideration and not qua valuation under the GST law. Rate of Tax > 1% of the amount exceeding Rs. 50 Lakhs. (@0.075% upto 31.03.2021)<br>
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If the buyer does not provide PAN/Aadhaar number then the TCS shall be collected at 1%, instead of 0.1%. In such situation, Covid-19 related concession is also not available. > Example: If Amount received in a FY is Rs. 70 Lakhs, then TCS is applicable only on Rs.20 Lakhs. When to collect the TCS? > Section 206C(1H) provides that TCS is required to be collected at the time of receipt of the Sale consideration and not at the time of debiting the Party Ledger Account. > What about Sales made in FY 2020-21 where TCS @ 0.075% is levied on invoice ? If it’s payment is received in FY2021-22, then @0.1% will be levied. Separate accounting /collection for such shortfall would be required. > If the buyer is liable to deduct tax at source on goods purchased by him and the buyer has deducted the amount then the seller is not required to collect TCS on such transactions. Both the conditions need to be fulfilled i.e., the buyer should be liable for deduction of tax at source and has deducted such amount If the buyer does not provide PAN/Aadhaar number then the TCS shall be collected at 1%, instead of 0.1%. In such situation, Covid-19 related concession is also not available. > Example: If Amount received in a FY is Rs. 70 Lakhs, then TCS is applicable only on Rs.20 Lakhs.<br>
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>When to collect the TCS? > Section 206C(1H) provides that TCS is required to be collected at the time of receipt of the Sale consideration and not at the time of debiting the Party Ledger Account. What about Sales made in FY 2020-21 where TCS @ 0.075% is levied on invoice ?–If it’s payment is received in FY2021-22, then @0.1% will be levied. Separate accounting /collection for such shortfall would be required. If the buyer is liable to deduct tax at source on goods purchased by him and the buyer has deducted the amount then the seller is not required to collect TCS on such transactions. Both the conditions need to be fulfilled i.e., the buyer should be liable for deduction of tax at source and has deducted such amount<br>
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Tax not to be collected in certain cases > Explanation (a) to Section 206C(1H)– Buyer means a person who purchases any goods, but does not include, (A) the Central Government, a State Government, etc. (B) a local authority as defined in the Explanation to Section10(20) (C) a person importing goods into India or any other notified person > Although, no tax is to be collected from them, but the same is required to be mentioned in the quarterly TCS Statement (Form No. 27EQ) and non-disclosure of such items in quarterly TCS Statement is required to be reported by the Tax Auditor under Clause 34(b) of the Tax Audit Report. TCS is not required to be collected in respect of Export sales as the consideration for sale of goods excludes consideration towards goods exported out of India and even the definition of buyer excludes a person importing goods from India. > TCS not to be collected on Sale of immovable property as it is out of ambit of goods.<br>
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TCS on trade receivables standing in books as on 30 September 2020: The trigger point of collection of TCS is receipt of consideration for sale of goods and hence one may say that as the consideration is received on or after 01 October 2020, TCS provisions are applicable on such transactions and TCS should be collected by the seller. The CBDT has recently issued a clarification which gives an impression that in cases where goods have been sold prior to 01 October 2020 and the consideration is received on or after 01 October 2020, TCS should be collected. However, an alternate view is also possible because for this provision to be applicable both the conditions need to be satisfied: > The sale of goods is carried out i.e., sale of goods must have been actually effected and > The consideration must be received in respect of such sale. Therefore, in cases where goods have already been sold prior to 01 October 2020, TCS may not be required to be collected because these provisions are effectively operative from 01 October 2020. Needless to mention, considering that CBDT has issued a clarification that TCS should be applicable on receipt of consideration on or after 01 October, 2020 even if sale is made before 01 October 2020, litigation cannot be entirely ruled out.<br>
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Cancellation of Sale Practical difficulties may arise where advance is collected for sale of goods and TCS is remitted and subsequently the contract is cancelled and the amount is refundable. In such cases, the seller may only refund the primary sale consideration received and not the TCS amount, since such TCS amount is already credited as prepaid taxes and will appear in Form 26AS and the buyer should not insist for refund of the TCS amount as the buyer would otherwise be entitled to credit of the TCS in the return of income. Payments by third party In quite a few cases, the sale proceeds are partly paid by the Government as a release of subsidy, or the costs are funded by third-party payments. All such transactions also amount to receipt on behalf of the buyer and hence the seller will be under obligation to remit TCS. Whether turnover of Rs.10 Crores includes GST? For the purpose of determining applicability of Turnover of Rs. 10 Crores as per Explanation to Section 206C(1H), the turnover limit of Rs. 10 Crores shall be determined excluding the amount of GST collected on Sales.<br>
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How to determine the limit of Rs. 50 Lakhs? > The seller is liable to collect TCS from the buyer if the receipt of sale consideration in the financial year (including receipts before 1st October, 2020) exceeds Rs.50 Lakhs. > Section 206C(1H)– “Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1)/ (1F)/ (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1% of the sale consideration exceeding Rs.50 Lakhs as income-tax” > Further, as per CBDT Guidelines u/s. 206C(1-I) vide circular 17/2020 dated 29.09.2020 provides that the seller is liable to collect TCS if the receipt of sales consideration exceeds Rs.50 Lakhs. > As per Para 4 of the CBDT Press Release dated 30.09.2020-the threshold is based on the yearly receipt. Thus, it can be concluded that the limit of Rs.50 Lakhs is of RECEIPT and not SALE. > TCS is also required to be collected at the time of receipt of advance – Para No. 4.4.2 (ii) of CBDT Guidelines vide Circular No. 17/2020 dated 29.09.2020. > Threshold of Rs.50 Lakhs–EVERY YEAR FOR EVERY DEBTOR<br>
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Should TCS amount be included in the invoice: As such, there is no provision which mandatorily requires the seller to include the amount of TCS in the tax invoice. However, if the amount of TCS is not included in the invoice, then the buyer would not be aware of the total amount of consideration payable to the seller and therefore it would be advisable for the seller to add the TCS figure in the invoice itself and also raise an accounting entry in the books of accounts as a TCS liability even though not payable until the receipt of consideration. It may be noted that even though if the TCS amount is debited to the buyer, the liability to deposit TCS u/s 206C(1H) does not arise till receipt of consideration. Impact of Credit notes and Debit notes: If sales return/credit note/debit note is before receipt of any consideration, then the impact thereof will be included in the amount of consideration, and accordingly, on receipt of the revised consideration, the provisions of TCS would be applicable. If the amount of consideration is already received and TCS is collected and paid, no impact thereof will be required to be made at the time of passing entry for sales return/credit note/debit note. However, against the subsequent realization, if the same gets adjusted and net consideration is paid then on such net consideration TCS should be collected.<br>
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Whether TCS Provisions would be applicable if the amount of sale consideration is adjusted against the amounts payable for purchases from said party: in such a situation, though the amount is not received in cash mode, however there is a deemed receipt of consideration through indirect means i.e., through an adjustment of receivable and payables account and hence TCS should be collected under such transactions. Even a past, present or future act is valid consideration under the Contract Act and therefore consideration would be deemed to have been received on an adjustment of mutual liabilities. TCS applicable even on part receipt of consideration: M/s ABC (Turnover for the FY 2019-20 was Rs.20 Crores) from the period 01 April 2020 to 30 October 2020 has sold goods worth Rs.50 Lakhs to Mr A and the consideration has been received to M/s ABC. Thereafter, M/s ABC again sold goods worth Rs.75 Lakhs on 01/11/2020 and till 30/11/2020, M/s ABC has received only Rs.60 lakhs from Mr A. Here in this case, M/s ABC will have to consider the receipt of amount of Rs.60 lakhs inclusive of TCS and accordingly compute the amount of TCS on gross up basis as under; Amount Received / (100 + Rate of TCS) * Rate of TCS = 60,00,000/100.075 * 0.075% = Rs.4,497/-<br>
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TCS is to be collected at the time of receipt of the amount However, TCS is to computed as a % of sale consideration Basic Threshold of Rs. 50 Lakhs is provided – TCS to be collected only on amount in excess of 50 Lakhs Export and Import transactions are excluded – FA amendment Government as a buyer is excluded but government companies as seller is not excluded Applicable where sales, turnover, gross receipts in business of seller exceeded 10 Crore in immediately preceding Lower collection certificate is not possible – Not covered by sub. Section 9 If TDS deducted by buyer – TCS does not apply – Availability of trail<br>
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