understanding tax deducted at source with latest case laws

8/2/2019 Understanding Tax Deducted at Source With Latest Case Laws

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Understanding Tax deducted at source with

latest case laws:

PART - II

In the part I of the article Understanding TDS with case laws published on February 2011 now we

should move ahead and should discuss the latest judicial development in the area of TDS.

Trade Discount : In the case of S.D. Pharmacy Pvt. Ltd. ITA Nos. 948/Coch/2008, A.Y. 2005-06,

dt. 5-5- 2009. It was held that trade discount are not in the nature of commission and hence noTDS is required to be deducted u/s 194H of the act. This was again confirmed in the case of AddCIT v Pearl Bottling (P) Limited.

Verification of tax declaration of employees : In the case of ITI Limited 183 taxmann 219, the

Supreme Court held that an employer is under no obligation to collect and examine the supportingevidence to a declaration submitted by an employee to the effect that he has actually utilised the

amounts for the specified purposes in deciding the liability to TDS u/s. 192.

Employees Transport : In the case of Transwork Information Services Ltd (Now Aditya Birla

Minacs Worldwide Limited) 1 ITR 58 the Mumbai ITAT decided that Employer providingcomposite free Bus pick up and drop facility to employees, not taxable as perquisites. Value of

facilities enjoyed by all employees as it is impossible of computation, computation machinery fails

hence the employer cannot be treated as assessee in default for failure to deduct tax at source.Again in the case of ACIT vs. Accenture Services P. Ltd. TIOL 618 ITATMum. 295 / (2010) 42-

B BCAJ, it was held that the assessee entered into agreements with various transport service

providers. Under the agreements entered into, the service provider was to provide transport serviceat particular locations for transportation of assessees employees to different destinations and

locations mentioned in the agreement. The transport service provider had to provide vehicles alongwith the requisite staff and relevant facilities, full maintenance and repairs of vehicles, etc. The

assessee deducted the tax at source under section 194C, the Assessing Officer was of the view thatthe payments were covered under section 194I, The Tribunal held that the payment made by the

assessee for hiring vehicles for transportation of its employees qualifies for TDS under section

194C and not under section 194I. This was again confirmed in the case of Lotus valley EducationSociety v ACIT & Ahemdabad Urban Development Authority v ACIT.


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Hotels : Facilities / amenities made available by a Hotel to its customers do not constitute work

within the meaning of s. 194C and consequently, Circular No 681 dt. 8th March, 1994 to the extentit holds that services made available by a hotel to its customers are covered u/s. 194C must be held

to be bad in law and is liable to be quashed. This was decided in the case of The East India HotelsLtd. & Anr. 223 CTR 133.

Manufacturing of CDS: In the present case, the DVDs etc. were manufactured by entrepreneursin 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 ofthe assessee with entrepreneurs could not be termed as works contract within the scope of s. 194C

and hence no TDS was required. Refer Shemaroo Video (P) Ltd. 31 SOT 65.

Stock Exchange Fees : Transaction fee paid to stock exchange on the basis of volume oftransaction is payment for use facilities provided by stock exchange and not for any services, either

technical or managerial, hence, provisions of s. 194J are not attracted and no disallowance can be

made by invoking s. 40(a)(ia). Refer, Kotak Securities Ltd. 24 DTR 214.

Interest on claims : In the case of G.M. Punjab Roadways 178 Taxman 112 it was held that

assessee a department of State Government, is liable to deduct TDS on interest paid, along withcompensation to victims as per the order of courts / motor accident claims Tribunal. Same was

again confirmed in the case of Sant Ram v Union of India 328 ITR 160. Again in the case ofNational Insurance Co. Ltd. vs. Smt. Draupadibai & Ors, it was held that Where the Motor

Accident Claim Tribunal apportionated the compensation amount and interest payable to each

claimants. The interest income of each of the claimant is to be taken into account separately forapplying the limit prescribed under section 194A(3)(ix) for the purpose of deducting tax at source

under section 194 A of the Act. The same had been again confirmed in the case of United India

Insurance Co Ltd v Ramanlal & Ors 56 DTR 407.

Financing arrangements : Provisions of s. 194C would not apply to the film financingarrangements. Refer, Mukta Arts 31 SOT 244.

Bandwidth Charges : Payments for bandwidth and network services cannot be said to be

Technical services liable to TDS u/s. 194J. Refer, Pacific Internet (India) Pvt. Ltd. ITA Nos. 1607


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to 1609/Mum/2006, Bench D, A.Y. 2003-04 to A.Y. 2005-06 BCAJ p. 795, Vol. 40-B, Part 6,

March 2009. Again in the case of CIT v Bharti Cellular Ltd 44 DTR 190 (SC). It was held that

Department having not adduced any expert evidence to show that any human intervention isinvolved during the process when calls takes place so as to bring the payments of interconnect

charges /access/pot charges made by the assessee to BSNAL/MTNL within the ambit of fees for

technical services under section 194J, matter is remitted to AO to examine a technical expert andto 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 inthe case is yet to be decided.

Labour sardar : In the case of Samanwaya 34 SOT 332 (Kol). It was held that Labour sardars

could not be called labour contractors, within the meaning of s. 194C(2), hence provisions of s.

40(a)(ia), can not be made applicable.

Enhanced Compensation : Deduction of TDS on enhanaced compensation of Agricultural Land

u/s 194LA. Refer, Karnail Singh v State of Haryana 326 ITR 501.

Doctors : Assessee hospital having engaged the services of doctors on the basis of agreementswhereby the doctors are free to treat the patients at the hospital at their own discretion and time,

without any supervision and control of the assessee and they are not on the pay roll of PF

payments, there is no element of employer and employee relationship and therefore, the doctors areto be treated as consultants and tax has to be deducted under section 194J from payments made tothem and not under section 192. Refer, Dy. CIT vs. Yashoda Super Speciality Hospital 133 TTJ

17. Same was confirmed again in the case of Appollo Hospitals 9 Taxmann.com 95.

Salary : Sub section (3) of section 192 permits the person obliged to deduct tax to makeadjustments in case of excess or deficient and also authorizes adjustment even in case of total

failure to deduct tax during the financial year and therefore, assessee is not liable to pay interest

under section 201(IA) for not deducting tax at source from salary payments in several months,

when it has deducted tax in the remaining months. Refer, CIT vs. Enron Expat Services Inc 235CTR 198.

Bank Interest : Bank making for notional provision for half yearly interest on account of

cumulative deposit shown in general ledger reversed on next working day. Interest credited to


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provisioning account for macro monitoring. Interest not due and payable on that day. Deduction

of tax not obligatory. Refer, Bank of Maharashtra vs. ITO 6 ITR 824.

Roaming Charges : In the case of Vodafone Essar Limited v DCIT 9 Taxmann.com 31, it washeld that Payment of Roaming charges made by Vodafone essar ro other mobile service providers

cannot be considered as rent within meaning of explanation of section 194 I.

Re-Insurance : In the case of Tata AIG General Insurance Co. Ltd. vs. ITO 43 SOT 215, it washeld that assessee, a general insurance company, entered in to an arrangement with one B for

facultative reinsurance. As per said arrangement, assessee was liable to pay certain percentage of

premium as reinsurance inward commission to B. Assessee was receiving only net premium on

reinsurance from B. Profit commission, if any, was shared between assessee and B in certain

percentage. Assessing Officer held that assessee was liable to deduct tax on reinsurancecommission paid to B under section 194D. The Tribunal held that provisions of section 194D were

not applicable to payment of reinsurance commission made by assessee to B.

Shipping Freight Charges : Provisions of sec 194C do not apply to shipping freight charges paid

by an exporter to shipping agents of non resident shipping companies. Refer, DCIT v Hasmukh J

Patel 10 Taxmann.com 229.

Franchisee : Fees shared by an operator of study center with its franchisees under a licence

agreement would not attract provisions of sec 194C. Refer, Carrer Launcher. 10 Taxmann.com

242.

Separate Material Contract : In the case of Karnataka Power Transmission Co Limited v ACIT,it was held that There would be no TDS obligation on the part of assessee under sec 194C for

making payments towards supply of material portion of a divisible contract. Further, in the case of

S. T. Reddiar & Sons vs. Dy. CIT, 129 ITD 475 / 135 TTJ 480 / 49 DTR 326 (Coch.)(Trib.), it

was held that It was noted from records that a small friction of total expenditure was in form oflabour charges, and as such, it was difficult to say that contract was for supply of labour or work

and would rather be categorized as one for purchase of goods, though some labour work stoodperformed. As it was not a case of contract for service or labour, provision of section 194C cannot

be applicable consequently disallowance wasdeleted. (A. Y. 2005-06)


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Sportsperson : Amounts paid to foreign team for participation in match in India in any shape ,

either as prize money or as administrative expenses , is income deemed to have accrued in India

and is taxable under section 115BBA and thus , section 194E is attracted. However ,paymentsmade to umpires or match referees do not come with in purview of section 115BBA because

umpires and match referee are nether sportsmen (including an athletic) nor are they non resident

sports association or institution so as to attract provisions contained in section 115BBA andtherefore , liability to deduct tax at source under section 194E does not arise.( Asst Year

199697).. Refer, INDCOM v. CIT (TDS) (Cal) 335 ITR 485

understanding tax deducted at source with latest case laws

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