Beruflich Dokumente
Kultur Dokumente
CA N. C. Hegde, Deloitte Haskins & Sells 17 April 2011 Borivli Kandivali (East) Study Circle
Contents
Overview of TDS provisions Sections 192, 194A, 194C, 194H, 194I, 194J
CIT vs. M/s Eli Lilly & Co . (India) P. Ltd.[(312 ITR 225)(SC)]
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Decision:
Subsection (3) to section 195 of the ITA states that the person responsible for making payment under subsection (1), (1A), (2) , (2A) and (2B) may at the time of making any deduction, increase or reduce the amount to be deducted for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct tax during the financial year
Subsection (3) makes it abundantly clear that if there is a failure to deduct in a financial year, the same can be deducted by way of adjustment during the financial year
Accordingly, the mandate to deduct tax u/s 192 stands extended to the end of the financial year. Accordingly, the assessee is not an assessee in default
CIT v. Enron Expat Services Inc. [2011] (330 ITR 496) (Uttarakhand)
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Issue:
Does payment to consultant doctors constitute salary or payment for professional services?
The terms and conditions in respect of the doctors under FGCs are not akin to the salaried employees. Their relationship with the hospital cannot be said to be an employer-employee relationship. Tax ought to have been deducted u/s 194J
The contract between the two parties cannot be said to be in the nature of a service contract but a contract for medical service
When there is a specific clause provided in the agreement for payment as fee for services, then there is no reason to read the said clause as fees of services and then there should not be any reason to treat the said payment by the assessee as payment of salary
ITO (TDS-1), Ahmedabad v. Apollo Hospitals International Ltd (2011-TIOL-59-ITAT-MUM)
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Decision:
SC held that the employer is not under any statutory obligation to check that the employees had actually utilized the amount paid towards travel concession or conveyance allowance
CIT vs. Larsen & Toubro Ltd [2009] (313 ITR 1) (SC)
The tax payer, an Indian company, gets its sales bills discounted from its Singapore associate companies. These companies charge discounting charges for undertaking these transactions
Issue: Whether the discounting charges are to be disallowed under section 40(a)(ia) since they are in the nature of interest and tax is not withheld by the Indian taxpayer? Decision: Interest is sum payable in respect of money borrowed or debt incurred. The bill discounting is a process in which the sale consideration receivable on sale of goods is discounted, which is not debt incurred or money borrowed. The Interest Tax Act, 1974 specifically includes discounting charges in the definition of interest. However interest defined under ITA does not include discounting charges. Wherever the legislature was conscious of the fact that even the discount of bills of exchange is to be included within the definition of interest, the same was basically so provided for, hence the omission of these words in the definition provided under the ITA, enumerates the intention of the legislator to keep the same out of the ambit of interest under the ITA.
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DCIT v. Cargill Global Trading (I) (P) Limited [2009] 34 SOT 424
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TDS from payment of interest on time deposits by banks using CBS Software
CBDT vide Circular number 3/2010 dated 2 March 2010 has clarified on the issue of deduction of tax at source from payment of interest on time deposits by banks using Core-Branch Banking Solutions (CBS) software No tax is required to be withheld where: Interest on time deposits is calculated on daily or monthly basis and for macro monitory purpose only No constructive credit is given to the depositors/ payees account Tax is required to be withheld on the income (exceeding limits specified under section 194A) where: Interest is accrued at the end of the financial year or at periodic intervals as per practice of the bank or as per the depositor's / payee's requirement or on maturity or on encashment of time deposits; whichever event takes place earlier
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Provisions of section 194-I is confined to the payment for rent on hiring of land or building, furniture but not for the transport vehicle particularly when the same is in the nature of providing and availing the transport services
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Whether hire of trucks without contract for carriage is covered under Sec 194C?
Facts: The assessee hired trucks and made payment for transportation. The AO held that the assessee was liable to deduct tax u/s 194C, in absence of which deductions had to be disallowed u/s 40(a)(ia) The above view taken by the AO was upheld by the CIT(A) but the Tribunal decided the matter in favour of the assessee. As a result appeal was filed by Revenue before the High Court contending the that total freight payments exceeded the amount stipulated u/s 194C(3) and TDS was liable to be deducted Decision: The provisions of Section 194C come into play only where either a written or oral contract between the parties for transportation and carriage of goods is established. A GR is equivalent to a contract which is envisaged for the purpose of Section 194C. However, in order to prove the applicability of Section 194C, it is further to be seen whether the contract in question has resulted in payment exceeding the prescribed limits in a financial year There is no material on record brought by the AO to prove that there was any written or oral agreement between the assessee and the transporter for carriage of goods. There is no material to establish that any payment exceeded the prescribed limits during the financial year. As per the decision of the HC in case of United Rice Mill Ltd (322 ITR 594) laid down that Section 194C cannot be invoked to hold the assessee liable for deduction of tax only on the assumption that assessee was having agreement with the parties through whom transportation of goods was carried out T L Verma & Co. Pvt. Ltd. (2011-TIOL-170-HC-P&H-IT)
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Do hire charges with respect to hire equipment automatically call for TDS u/s 194C?
Facts: As per revenue, hire charges in respect of equipment hired by the assessee contained a portion of labour charges incurred by the owners towards operation of the same. Hence it was a composite contract of hiring of vehicles/machineries along with labour. Consequently, Section 194C would apply CIT (A) took the view that, out of the total hire charges if 10% was treated as charges paid towards labour element involved and TDS had not being deducted as required, the whole sum was to be disallowed The Tribunal, on the other hand, found that the total sum paid by the assessee was only by way of hire charges for the equipment taken on hire and therefore, the relevant TDS provision applicable was only Section 194I (section 194I was not applicable in AY 2005-06; the AY under considertaion) Decision: The HC held that neither the AO nor the CIT(A) could assert that there was any material to suggest that there was any contract between the assessee and those individuals, by way of a composite contract for labour as well as hiring of the vehicles In the absence of any such acceptable material, the conclusion of the AO in treating the hiring of equipment as one falling under the category of sub-contract for provision of labour or the conclusion of the CIT(A) that at least 10% of the total payment would have been incurred by way of labour charges by the respective owners, cannot be accepted Section 194I came to provide for TDS on respect of machinery/ equipments only with effect from 1.6.2007 and not applicable to his case since it relates to AY 2005-06 D Ranthinam (2011-TIOL-150-HC-MAD-IT)
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Do facilities provided by hotels fall under the term carrying out work
Facts: The assessee offers various facilities to its guest apart from boarding and lodging The question before the Bombay High Court was whether the same should be subject to TDS u/s 194C Decision: The word carrying out work u/s 194C is limited to any work which on being carried out culminates into a product or result (reliance was placed on the decision of the SC in case of Associated Cements) Circular 681 dated 3 March 1994 to the extent it applies to a customer availing the services of a hotel, should be held contrary to section 194C The word work has to be understood in the limited sense and would extend only to the service contracts specifically included in (the then) Explanation III to section 194C East India Hotels Ltd and another v. CBDT and another (320 ITR 526)
All service contracts do not automatically fall under the purview of section 194C.
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Can discount on supply of SIM cards and recharge coupons be termed as commission?
Facts: Taxpayer has appointed distributors for rendering services, such as, getting customers for the taxpayer, collection of documents, delivery of SIM cards, collection of charges, etc Taxpayer has two types of transactions 1) Providing prepaid connections and 2) Providing post paid connections Under the post paid scheme, the taxpayer pays commission to distributors for services rendered, after withholding tax under the ITA Under the prepaid scheme, the taxpayer supplies SIM cards and recharge coupons to distributors at a discounted price The taxpayer is neither paying nor crediting any commission or charges in the account of the distributors Distributors are not bound to sell the SIM cards or recharge coupons at the Maximum Retail Price. Thus, discount cannot be treated as charges or commission. Hence, no taxes are required to be withheld from the discount given to distributors Tax cannot be recovered from the discount, as it is not paid but is reduced from the price Issues: Whether discount for supply of SIM cards and recharge coupons is commission liable to withholding of tax under the ITA?
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Can discount on supply of SIM cards and recharge coupons be termed as commission?
Decision:
Supply of SIM card is only for the purpose of rendering continued services by the taxpayer to the subscriber of the network. SIM card has no intrinsic value or use to the customer
Distributor acts as a middleman by arranging for customers, collecting documents, etc. on behalf of the taxpayer The taxpayer renders services to the subscribers based on contracts entered into between subscribers and distributors. Thus, the distributor is an agent who canvasses business for the taxpayer In substance, discount given at the time of supply of SIM Cards or recharge coupons to the distributors is payment received by the distributor for services rendered to the taxpayer Income earned by the distributor is not in course of purchase / sale of goods, but it is a consideration received for services rendered to the taxpayer
Terminology used is immaterial and payment received by the distributor is payment for services rendered, which falls within the purview of commission as per section 194H
Tax needs to be withheld under section 194H even though the discount is not paid but is reduced from the price Vodafone Essar Cellular Limited (332 ITR 255)
Discount may not paid but is reduced from the price paid to the distributor. This discount takes the form of brokerage and should be subject to TDS
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Whether difference between commercial price and published price can be classified as commission or not ?
Facts: Airlines had an agreement with agents to sell tickets at the minimum fixed commercial price which was lower than the published price However, agents could sell at a higher price subject to a maximum of published price at their discretion As per IATA rules, agents were entitled to commission at 9% on the published price Airlines deducted tax on the payment of this 9% commission. However, Revenue contended that the difference between commercial price and published price was also in the nature of commission and liable to TDS Decision: The agents of the assessee (airline) were entitled to sell tickets at any price between the fixed commercial price and the published price. As a result the assessee would have no information regarding the final rates at which tickets were sold It would be impracticable and unreasonable to accept the assessee to collect feedback from its numerous agents on the prices at which tickets are sold Thus, it was held that the difference between the commercial price and the published price could neither be considered as commission or brokerage in the hands of the agents and hence was not liable to TDS CIT v. Qatar Airways (332 ITR 253)
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Held that supplementary commissions retained by the travel agents over and above the net fare made over to Airlines is liable to tax deduction at source under Section 194H as commission and interest under Section 201(1A) is leviable in case of default Air tickets sold by airlines company to the travel agent at a concessional rate held to be a sale transaction on principal to principal basis, does not amount to commission, not liable to TDS CIT vs. Singapore Airlines Ltd. & Other airlines (22 DTR 129) (Del.) (2009)
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Further, the Tribunal observed that the assessee is placed in a position of a mere facilitator between its subscriber and the other service provider, facilitating a roaming call to be made by the subscriber. The assessee cannot be said to have used the equipment which is involved in providing the roaming facility. The assessee collects the roaming charges from its subscriber and passes it on to the other service provider. The Tribunal also relied on the clarification issued by the CBDT in Circular No.715 dated 8th August 1995 wherein the board stated that section 194I would not apply to rate-contract agreements. The Board itself has recognized that rent is something which is paid for earmarked premises, and in the case of roaming charges, a subscriber does not get any earmarked service provider and the assessee also does not commit itself to the subscriber to provide for any particular service provider. The choice of the service provider who will provide the roaming facility to the subscriber is left to the subscriber. Therefore, the payment of roaming charges by the assessee to the other service providers cannot be considered as rent within the meaning of section 194I and there was no liability on the part of the assessee to deduct tax from the same under that section.
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Payment by of roaming charges by one service provider does not fall under the definition of rent as defined u/s 194I of the ITA. If complete tax payment has been done, then there is no merit in the contention that taxes are to be recovered from the deductor.
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Payments made to NSICT were for container movement and there were no professional or technical services involved in the movements of containers
The contention was restricted only to the technical services and not towards managerial or consultancy services. AO has not pressed the later part of the Expl. 2, which deals with provision of services of technical or other personnel
The expression other personnel in this provision must fall within the category of `services of technical personnel. It cannot be considered as any personnel unrelated to the managerial, technical or consultancy services
NSICT personnel, may not have possessed some technical expertise, and hence cannot be considered as `other personnel
Both the `managerial and `consultancy services are possible with human endeavor, the word `technical should also be seen in the same light.
There should be direct and live link between payment and receipt/use of technical services/information Merchant Shipping Services Pvt. Ltd. [2011] (9 taxmann.com 17) (Mum.) To qualify u/s.194J, payment for technical services should be a consideration for acquiring or using technical know-how, simpliciter provided or should be made available by human element
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The circular is set aside to the extent it states that a failure to deduct tax on payments made by TPAs to hospitals u/s 194J will necessarily attract a penalty u/s 271C
Dedicated Health Care Services TPA vs. ACIT (324 ITR 345) (Bom.)
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Payments to non-residents would be subject to withholding tax only if the income is chargeable to tax
Facts: The revenue authorities raised an additional contention before the High Court that unless the payer makes an application to the tax officer under Section 195(2) and has obtained a permission for nondeduction of the tax at source, it was not permissible for the payer to contend that the payment made to the non-resident did not give rise to income taxable in India and that there was no need to deduct any tax
Payments to non-residents would be subject to withholding tax only if the income is chargeable to tax
Decision:
Sums chargeable under the provisions of the ITA would refer to such amounts, which should have an element of income in them as required under the provisions of the ITA, and the treaty provisions, and hence would be liable to tax under the ITA
The expression sum chargeable under the provisions of the ITA has to be read in conformity with the charging provisions, i.e., Sections 4, 5 and 9
Where the payment made by the resident to the non-resident was an amount which was not chargeable to tax in India, then no tax is deductible at source even though the assessee had not made an application
The application of Section 195(2) pre-supposes that the person responsible for making the payment to the non-resident considers that tax is payable in respect of some part of the amount to be remitted to a non-resident, but is not sure as to what should be the portion so taxable or the amount of tax to be deducted The obligation to deduct tax at source is limited to the appropriate proportion of income chargeable under the ITA forming part of the gross sum of money payable to the non-resident The SC rejected the contention of the department, that the assessee make an application in every case of remittance even when the income has no territorial nexus with India or is not chargeable in India GE India Technology Centre P.Ltd. v. CIT and another (327 ITR 456) (Supreme Court) A payer making a remittance to a non-resident, could make an application to the tax officer, if he not sure as to what should be the portion so taxable or is not sure as to the amount of TDS
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Refund of tax deducted u/s 195 to the deductor liable to interest u/s 244A?
Facts: The assessee is a company based in Singapore. It made payments for obtaining a right from G to broadcast various cricket matches in various countries including India and did not withhold any tax from the payments made The revenue held that the payments made to G are in the nature of Royalty and hence liable to tax in India. The assessee was held to be assessee in default for non deduction of tax at source. The CIT(A) and the Tribunal held that the payment are not liable to tax
Pursuance of the Tribunal order, the assessee applied to the AO for NIL withholding tax certificate u/s 195(2). The AO directed the assessee to withhold tax @10.96% in respect of payments made to GCC. The assessee accordingly deduced the tax at source
Aggrieved by the order of the AO, the matter carried to CIT(A) and the CIT(A) by following its own order held that the assessee is not liable to withhold tax at source in respect of payments made to G. The Tribunal confirmed the order passed by the learned CIT(A) While giving effect to the first appeal late order, the assessee was given refund of the taxes withheld without any interest u/s 244A. Against this order the assessee appealed before the CIT(A) who held that the assessee is entitled to get interest on refund u/s 244A
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Refund of tax deducted u/s 195 to the deductor liable to interest u/s 244A?
Decision 1:
Firstly the payer is not a resident of India and secondly the liability to pay such Royalty has not been incurred in connection with and was not borne by the PE of the payer in India. Therefore, there being no economic link between the payment of Royalty and Indian PE , the royalty does not arise in India having regard to the provisions of Article 12(7) of the Treaty
Hence even if it is assumed that the payment for broadcasting cricket constitutes Royalty, such royalty does not arise in India within the meaning of provisions of Article 12(7) of the Tax Treaty Decision 2: The deduction of tax is not voluntarily on the part of the assessee but as a result of the order passed by the AO u/s 195. When the deduction was made by the assessee in pursuance of the order of the AO passed u/s 195 and the refund was made as a result of the order passed by the CIT(A) and falls under the provisions of section 240 It is clear from the order of this Tribunal in case of Star Cruise that it had decided this issue after considering the decision in the case of Godrej Industries L td V/s DCIT and held that the payment made by the assessee on demand under the provisions of the ITA and the refund also become due to the assessee under the provisions of the ITA. When it has been held that the refund become due as per the provisions of ITA, the provisions of section 244A are applicable on the refund made to assessee and accordingly the assessee is entitled for interest u/s 244A DDIT (International Taxation) v. MSM Satellite Satell i te (Singapore) P Ltd Set Satellite (2010-TII-159-ITAT-MUM-INTL)
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The taxpayer filed an application under section 195(2). No Objection Certificate was granted permitting no deduction of tax in respect of the payments made to the Japanese company.
The AO held that the payment made to the Japanese company was assessable to tax as fees for technical services and that the taxpayer was liable to deduct tax at source..
Issues:
Whether the payment of daily overseas allowance by the taxpayer to the Japanese company and the expenses incurred by the taxpayer on the Japanese engineers during their stay in India were in the nature of fees for technical services?
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There was no evidence on record to substantiate the assumption that part of the remittance was retained by the Japanese company as a surplus which amounted to commercial profits. In the absence of any evidence on record, it would not be appropriate to assume that the entire money received from the taxpayer was not dispersed among the Japanese engineers.
The High Court observed that the certificate granted under section 195(2) of the ITA was never cancelled under section 195(4) of the ITA, in absence of which the taxpayer was not required to deduct tax at source and could not be treated as assessee in default. If the taxpayer was not required to deduct tax at source and could not be declared assessee in default, the question whether the payment was in the nature of fees for technical services or in the nature of reimbursement for the expenses incurred or whether the Tax Treaty overrides the provisions of the ITA, need not be gone into Swaraj Mazda (10 taxmann.com 178 ) (Punjab & Haryana HC) If the assessee is freed from the responsibility to deduct tax on a certain payment, the nomenclature of that payment is irrelevant
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Issues:
What is the characteristic of the payment made to the overseas entity?
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The Tribunal held that the payment made by the assessee to the Netherlands company was nothing but hire charges
Section 195 provides for deduction of tax at source when the payment is made to non-resident which is chargeable to tax under the ITA. Therefore, if the payment which made to foreign company was chargeable to tax, the assessee had to deduct tax at source
For the purpose of taxing to income of the foreign company, the foreign company shall have a PE in India. Hiring equipment in the territory of India on could not be construed as a PE of a foreign company. For the purpose of PE of a foreign company, the foreign company should have a permanent place in order to control its business activity. Merely because the equipment was equipped with place for residence of its crew and operator and installed with the latest communication facilities, it does not mean that it was a PE
In the absence of any PE, the payment made by the assessee to MA was not liable to be taxed in India, and, therefore, there was no requirement of deduction of tax under section 195 DDIT v. Dharti Dredging & Infrastructural Ltd (9 taxmann.com 327) (Hyd ITAT)
Equipment hired from an overseas entity as such cannot be held to be the PE of the entity.
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If the profits of the past 3 years are not available , will the mechanism under Rule 28AA fail? Can an application u/s 197 rejected by the AO never be revised? Does non filing of e-TDS returns result in rejection of an application u/s 197?
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Non availability of financial statements of the past 3 years cannot result in failure of the mechanism under Rule 28AA. Rejection by the AO of an application u/s 197 is eligible for revision u/s 264 of the ITA.
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Decision: The Delhi Tribunal in the case of Ms Corp held that income for the right to use (RTU) of packaged software should be regarded as royalty income taxable in India. It held that the real transaction of the granting of the licence in respect of copyrights in computer programmes had been camouflaged by entering into a chain of the agreements between MS Corp and the group entities. On an in-depth analysis, it was evident that the end users made payments in respect of the granting of licence of copyright in computer programmes. Hence, the payments made by end-users were taxable as royalty in the hands of G. Gracemac Corporation, M/s. Microsoft Corporation, M/s Microsoft Regional Sales Corporation I. T. vs Asstt. Director of Income-tax ([2011] 8 ITR (Trib) 522)
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The AO disallowed the above on the grounds that they were covered u/s 40(a)(i) and the assessee was liable to deduct tax on the same.
The CIT(A) upheld the action of the AO. Issues: The contention of the assessee before the AO. Was that the above mentioned payments made tare not in the nature of royalty, fees for technical services or relate to any item of expenditure covered u/s 40(a)(i)
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As regards the subscription charges, the Tribunal relied on its own decision in the assessees own case where it was held that the information was available on subscription to anyone willing to pay .It was copyrighted information and could not be passed on to anyone else. There was no license granted to the assessee to use in any manner or quote to anyone else. The access was restricted to specific individuals named by the assessee. The recipient did not have any PE in India. Further such an access to data base could not fall within the scope of Article 12(3)(a), as found in the DTAA with USA.
As regards the provisions for warranties, the Tribunal relied on its own decision in the assessees own case where it was held that the assessee is required to render post sales customer services in the nature of claims within the warranty period. Though no precise base is indicated by the assessee, yet it can be considered to be reasonable having regard to the claim made in the part. provision made for the warranty liability was an ascertained liability and that it could not be treated as a contingent liability. Infosys Technologies Ltd. v. DCIT (10 taxmann.com 1) (Bang ITAT) Payments to foreign entities towards bandwidth and subscription charges are not covered under the purview of section 40(a)(i) of the ITA. Provision for warranties is not a contingent liability
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As per the provisions of the ITA tax deduction has to match in time the earlier of payment or accrual
Hence TDS need not march alongside the corresponding income which may be offered to tax by the tax payer on accrual or receipt as the case may be As a result there is a time mismatch between the tax deduction and the accrual of tax liability. However, section is very clear. It provides for availability of tax credit in the year for which the corresponding income is assessable. ITO Business Ward II (4) v. M/s Shri Anupallavi Finance & Investments (2011-TIOL-78-ITAT-MAD)
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Credit for TDS to the deductee if refund has been granted to the deductor
Facts: The assessee a tax payer of the USA, was in the business of supply of copyrighted software for telecommunication projects. It received consideration from R for the supply of software R made an application to the AO to make remittance without TDS since the payment was for copyrighted article and not a copyright. This request was declined. R deducted tax as per the directions of the AO and deposited it with the govt. R issued a TDS certificate to the assessee R was successful in appeal for NIL TDS and was granted full refund of taxes paid The assessee claimed credit for the said tax deducted by R in its return of income. The AO held that since the tax had been refunded to R, the TDS certificate was not valid and the assessee would not get credit for the tax. Issue: Can the lawful implications of a valid TDS certificate can be declined if R has been refunded the taxes deposited with the govt?
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Credit for TDS to the deductee if refund has been granted to the deductor
Decision: The Tribunal held that all the requirements for grant of TDS had been complied with. The fairness of the procedures was not questioned by the AO The refund to the deductor is not prescribed under the law, but appears to be an administrative exercise. Approval from the assessee was not taken before granting refund to R. This cannot curtail the rights of the assessee Since the taxes have been deducted from the payment made to the assessee and it is also in receipt of TDS certificate, the credit for TDS cannot be declined on the basis of an administrative action of refund which is neither envisaged by the provisions of the ITA nor in the control of the assessee. Tribunal directed the AO to grant credit to the assessee on the basis of original TDS certificates produced and in accordance with the provisions of the ITA uninfluenced by any refunds subsequently granted to R
The Tribunal observed that the above directions should not be construed to affect the remedies that the tax department may pursue qua the tax deductor
Lucent Technologies GRL LLC v DCIT (9 taxmann.com 182) (Mumbai ITAT) Refund made to tax deductor, even if wrongful, has no adverse impact on rights of a person from whose income taxes are so deducted and to whom tax deduction certificate under section 203 is already issued
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The Tribunal held that the Head Office and Branch Office filed a consolidated return of income and assessment was done accordingly. Therefore the inter se transactions have to be considered as having not actually taken place
The deduction and payment of tax at source by the Branch Office in such circumstances will constitute payment of tax by the assessee as there is no outside recipient of the interest
Section 199 provides that the benefit of TDS shall be allowed to the recipient of the income in the year in which the income on which such tax was deducted, is assessable
If the departments contention was accepted that the assessee should not be allowed the benefit of TDS against its tax liability it would mean that the tax actually paid by the assessee to the Central Government would never be adjusted against any tax liability
Every deduction of tax at source pre-supposed, the existence of two distinct persons and the taxability of income in the hands of the recipient. If the payer and receiver of an amount was the same person, naturally the amount of tax deducted and paid by the assessee would partake of the character of tax paid by the assessee against its tax liability. Thus the AO was not justified in initiating rectification proceedings on this count
ADIT, Mumbai Vs M/s Antwerp Diamond Bank If the payer and receiver of an amount is the same person, tax deducted and paid by the payer would be considered as tax paid as against its tax liability
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The Kolkata High Court was required to adjudicate on the issue of tax deductibility of the interest paid by the Indian branch of ABN to its HO, under the provisions of the India Netherlands tax treaty.
The Kolkata High Court indicated that there were principally two issues that needed to be considered in the appeal: First, whether the interest paid was to be allowed as a tax deduction in computing the profits of the Indian branch?; and Second, whether the Indian branch was required to withhold tax under section 195 of the Act, while paying the interest to the HO? The Kolkata High Court has held that the interest paid by the Indian branch of ABN to its HO was tax deductible in the hands of the branch while computing the profits of the branch, and the branch was not required to withhold tax on the interest paid to the HO as the interest was not chargeable to tax in India under the provisions of the India-Netherlands tax treaty. ABN AMRO Bank NV (Kolkata High Court) 23 Dec, 2010
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Other Developments
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Payment made to overseas agent of overseas artistes does not take the character of payment to the artistes but is taxable as business income of the agent
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Interest u/s 234B due to lower deduction as per an order issued u/s 195
Facts: Assessee a non-resident company received royalty from its Indian subsidiary and offered the same to tax. It had also received income from the subsidiary for providing IT infrastructure supply services and IT support On an application u/s 195(2) by the Indian subsidiary the A.O directed that 20% of the same was chargeable to tax in India. Accordingly, the subsidiary deducted tax @ 20% of the gross receipts AO concluded that not only the gross receipts were chargeable to tax in India but also the other payments including employee salaries and equipment and maintenance charges were taxable in India as royalty at the rate of 15 %. AO raised a demand for tax as well as interest on the advance tax payable but not paid. CIT(A) confirmed the order of the AO. CIT(A) held that if its plea were to be accepted, the deductee would not be required to pay interest u/s 234B and would also not be liable to pay interest u/s 201(1A) because it has acted in compliance with the withholding order u/s 195(2), thereby causing loss of revenue to the exchequer Issue: Is the assessee liable to interest u/s 234B for the difference in tax payment due to lower deduction under a 195 order?
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Interest u/s 234B due to lower deduction as per an order issued u/s 195
Decision:
The assessee has not approached the deductor to deduct the tax at lower rate. It is the deductor who approached the department claiming that the payments to be made to the assessee are not chargeable to tax in India and to determine the chargeability.
where all payments made to non-resident are subject to deduction of tax at source u/s 195, the interest u/s 234B is not leviable on the non-resident. M/s Texas Instruments Incorporated v DDIT (International Taxation) (2011-TII-16-ITAT-BANG-INTL)
When tax has been deducted at the rate specified in an order u/s 197, the assessee cant be held liable to pay interest u/s 234B on account of short deduction as may be held at the time of assessment
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TDS on reimbursements
Amounts received towards reimbursement of expenses can, under no circumstances, be regarded as a revenue Receipt and is not chargeable to income-tax (Reliance was placed on the decisions of the Kolkata HC in the case of Dunlop Rubber Co. Ltd and that of the Delhi HC in the case of Industrial Engineering Projects)
CIT v. Siemens AG (310 ITR 320)
In case of Danfoss Industries the AAR held that was held that payments to a foreign company under a cost sharing arrangement was tax deductible as the same was a consideration for rendering of service and not a reimbursement. The AAR also held that an element of profit is not essential ingredients of receipt to be taxable as income and even assuming that fees charged by an overseas entity from the resident entity is equivalent to the expenses incurred by the resident entity in providing the services, it would then be a case of quid pro quo for the service fees and not a case of reimbursement of expenses. Danfoss Industries Pvt.Ltd (268 ITR 1) and Timken India Limited (273 ITR 67)
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Where payments to foreign technicians were made outside India for services rendered outside India and no tax was deducted there from the said payments cannot be disallowed under section 40(a)(i)
There is no such requirement in section 199 that credit of TDS is to be allowed only after confirmation is received from the issuer of the TDS certificates
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Recent Amendments
Recent amendments
Instruction on section 200 Instruction regarding parameters for processing e-TDS returns [F.No.275/73/2009-IT(B)] dated 8-12-2010 In the present system of processing e-TDS returns, the returns are processed online and mismatch report showing defaults is generated. Based on these reports, the AO issues show cause notices to the deductors Substantial returns are pending where deducteewise default due to short deduction is less than Rs.10/-
It has been decided that where the default on account of short deduction is less than Rs.100/- for each deductor the demand is rounded off to zero; and
After considering the above if the deductorwise demand/default of Rs.100/- or less will be ignored for further action However, the officers have been instructed to ensure that the short deduction should not become habitual Instruction No.6/2010 issued by CBDT on 9 August 2010 issued to curb the indiscriminate issuance of 197 certificates Instruction No.8/2006 dated 13-10-2006 laid down that certificate of lower/NIL deduction u/s197 are not to be issued indiscriminately and prior administrative approval of the concerned Range head shall be obtained before issue of each certificate Instruction 7/2009 read with F.No.275/23/2007-IT(B) laid down monetary limits for prior adminitrative approval of the CIT-TDS or DIT- International Taxation. Such certificates are issued manually
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Recent amendments
It is now instructed that certificates u/s 197 shall be generated and issued by the AO mandatorily through the ITD system only. In case the certificate cannot be generated on the date of issue, the AO shall upload the data on the system within 7 days of manual issue The manual system of issuing certificates had the following issues: No check as to whether such certificate has been issued by the authorized/competent AO having jurisdiction No information available as regards number of certificates issued or the quantum of revenue involved. No systematic reference number which could be amenable to verification. It is not possible to ascertain the veracity of claim, of the deductor about no/low deduction having been made on the strength of a 197 certificate actually issued by the department
Issue of certificates u/s 197 vide the ITD system shall have the following benefits: Complete information of he deductor and deductee will be available with the department This information will be useful in processing e-TDS returns The non-deduction defaults detected by the system when processing the TDS returns would reduce substantially There will be a control on the number of certificates issued
Amendment under Finance Act, 2011 (insertion of section 194LB) w.e.f. 1st June 2011, notified infrastructure debt fund will deduct tax at source at the rate of 5% (plus applicable surcharge & cess) on interest payable to a non-resident at the time of credit or payment, whichever is earlier..
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Recent amendments
Amendment to Rule 28AA (Certificate for deduction at lower rates or no deduction of tax from income other than dividends)
Now in order to obtain a lower/NIL deduction certificate, is it necessary for the AO to be satisfied that the existing and estimated tax liability of the applicant justifies the deduction of tax at lower rate or no deduction of tax.
The mechanism of arriving at the rate of tax deduction has been eliminated. The AO shall determine the rate of tax deduction after considering the following: Tax payable on estimated income of the previous year relevant to the AY; Tax payable on the assessed or returned income of the last three previous years; Existing liability under the ITA and Wealth-tax Act,1957; Advance tax payment for the AY relevant to the previous year till the date of making application. Tax deducted at source for the AY relevant to the previous year till the date of making application under sub-rule (1) of rule 28; and Tax collected at source for the AY relevant to the previous year till the date of making application under sub-rule (1) of rule 28.
The certificate shall be issued direct to the person responsible for deducting the tax under advice to the person who made an application for issue of such certificate
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Recent amendments
Amendment to Rule 31A (Quarterly statement of deduction of tax under sub-section (3) of section 200)
The deductor at the time of preparing statements of tax deducted will be required to furnish the following additional particulars besides his PAN, TAN, PAN of deductees, particulars of taxes paid to the Central Government:
amount paid/credited on which tax was not deducted in view of the issue of certificate of no deduction of tax under section 197 by the AO of the payee;
amount paid or credited on which tax was not deducted on payments made to transporters who have provided their PAN.
Notification 41/2010 dated 31 May 2010 w.e.f April 1, 2010 1. Due dates for payment of TDS
Recent amendments
2. In the case of a company or a person (other than a company) to whom the provisions of tax audit are applicable, TDS must be remitted electronically (by way of internet banking facility or debit card) to the RBI or SBI or any authorized bank accompanied by an electronic income-tax challan
Quarterly filed of TDS returns Statement of deduction of tax under section 192 Form no. 24Q Statement of deduction of tax under other sections 4. In case of the deductee being a non-resident or a foreign company or resident but not ordinarily resident Form no. 27Q In case of all other deductees Form no. 26Q
3.
If the number of deductees / collectees records in a statement for any quarter are twenty or more, the statements are required to be furnished electronically Quarter ended Due date Requirements of the forms
30 June
30 September 31 December
15 July
15 October 15 January
TAN of deductor
PAN of deductor PAN of all deductees Particulars of the tax paid to the Central Government, including Challan identification number
31 March
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15 May
Recent amendments
5. Timelines for issue of TDS certificates
Deduction u/s 192 Form No. 16 Requirements of form Valid PAN of the deductee Valid TAN of the deductor Challan identification number in case of payment through bank Receipt number of the relevant quarterly TDS statement(s) Due date By 31 May Time for furnishing the form Periodicity Annual
16A
Same as above
Periodicity Quarterly
Due date Within 15 days from the due date for furnishing the quarterly TDS statements
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Recent amendments
6. The deductor may use digital signatures to authenticate Form 16
7. Once digitally signed, the contents of the certificate are not amenable to change The certificates must have a control number and a log of such certificates must be maintained by the deductor Part A dealing with basic information regarding the deductor and employee and the summary of tax deducted of source; If an assessee is employed by more than one employer during the year, each of the employers are required to issue Part A of the certificate;
8.
The provision for issue of Form 16AA in cases of salaries not exceeding Rs. 150,000 is not contained in the amended rules
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Recent amendments
New sub-sections have been added to Section 201 w.e.f 01.04.2010
201(3) No order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India, at any time after the expiry of: 2 years from the end of the financial year in which the statement is filed in a case where the statement referred to in section 200 4 years from the end of the financial year in which payment is made or credit is given, in any other case
Provided that such order for a financial year commencing on or before 1 April 2000 may be passed at any time on or before the 31st day of March , 2011
201(4) The provisions of sub-clause (ii) of sub-section (3) of section.153 and of Explanation to Sec153 shall, so far as may, apply to the time limit prescribed in sub-section(3)
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Recent amendments
Finance Act 2010 has increased the interest u/s 201(1A) rate w.e.f. 1 July 2010
Existing
1% 1%
New
1% 1.5%
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Q&A
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