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					Case Laws & Case Studies

        - Tax Deducted at Source


CA. N. C. Hegde


2 June 2007                        1
Contents

Uniform deduction of tax
Exempt allowances
Payments by way of adjustment
Contract for Sale – Printing Charges

Contractor & Sub contractor payments

Reimbursement to C & F Agents

Reimbursement under Agency

Element of Agency

Rent on Plant & Machinery

Regular Contract vis-à-vis Rate Contracts
                                            2
Contents

Internet Connectivity charges – Technical Services?

Reimbursement of Expenses

Tax paid by Payee – non/short deduction

Time Limit under section 201




                                                      3
Case Study 1

FACTS



• An assessee employer is liable to deducted tax at source
  under section 192.


• Deduction of tax of the employees was not uniform
  during the year; very negligible in the initial months and
  high amount in the last months.


• AO passed order levying interest under section 201(1A)
  on the grounds that tax was not properly deducted.



                                                               4
Case Study 1

ISSUES



• Whether the Assessing Officer has rightly levied interest
  on non-uniformity of TDS deducted?



CASE LAWS


 Vinsons v. ITO, 89 ITD 267 (Mum)
 Grasim Industries Ltd. v. ITO, 92 TTJ 944 (Jodh)
 Secy. Board Of Secondary Education, Rajasthan v. ITO, 93 TTJ
 256 (Jaipur)

                                                                 5
Case Study 2

FACTS



• The assessee company (employer) deducted tax under
  section 192 treating leave travel expense as exempt on
  the basis of declarations filed by the employee.
• The assessee did not obtain any documentary evidence
  to treat LTA as exempt.
• AO passed order under section 201(1) treating ‘assessee
  in default’ having regard to non-verification of travel
  payments proof.




                                                            6
Case Study 2

ISSUES



• Is the AO’s order justified in treating the assessee as
  ‘assessee in default’ and levy interest u/s 201(1A)?


CASE LAWS


 DCIT v. HCL Infosystems Ltd. 282 ITR 263
 Savani Financials Ltd. v. ITO, 1 SOT 111
 Lintas India Ltd. v. Ass. CIT, 5 SOT 310
 DCIT v. Excel Industries Ltd., 5 SOT 235


                                                            7
Case Study 3

FACTS


• G Ltd is a construction company engaged in the business
  of construction etc.
• At the initiation of the job work, the client provides G
  Ltd. some interest bearing ‘mobilization and plant
  advance’, which is to be repaid by the end of the contract
  along with interest.
• G Ltd. submits the running account bills on monthly basis
  depending on the completion of contract.
• Against this the client recovers the principal + interest
  amount and thus G Ltd. does not actually pay any
  interest.
• Since no direct payment of interest made, NO TDS
  deducted.

                                                               8
Case Study 3

ISSUES

• Is the contention of assessee correct?
• Whether tax is required to be deducted at source under
  section 194A- ‘Interest other than interest on securities’?
• What are the other implications of such non-deduction?



CASE LAWS


 Raymond Limited V. DCIT 86 ITD 791.
 Kanchanganga Sea Foods Ltd. v. CIT 265 ITR 644


                                                                9
Case Study 4

FACTS

• Assessee engaged in business of imports and/or exports,
  engages services of Clearing & Forwarding agents.
• Payments to such C&F agents comprise of the following:
      Reimbursement of freight paid to shipping companies or
       airlines.
      Reimbursement of freight on local transportation.
      Reimbursement of import or export clearing expenses like
       payments to Port Trust, Airport Authorities of India,
       miscellaneous charges, etc.
      Reimbursement of bonded warehousing charges.
      Reimbursement of Customs duties and Octroi.
      Reimbursement for Crane and Machinery charges to Port
       Trust etc.
      Agency service charges.                                    10
Case Study 4

ISSUES



• Whether any tax is liable to be deducted on any of the
  above payments to C&F agents?
• If the agent has already deducted TDS on freight
  payment to the Indian Shipping Co., then whether the
  importer/exporter also needs to deduct tax on the
  payments made to the agents and if so then on what
  amount?
• When C&F agent deduct tax and pays it to the
  exchequer, the payment would be on his own TDS
  account or his clients’ account number?


                                                   Contd……

                                                             11
Case Study 4

CASE LAW



 CIT v. Industrial Engineering Projects Pvt. Ltd., 202 ITR
 1014 (Del.)
 CIT v. Dunlop Rubber Co. Ltd, 142 ITR 493 (Cal.)
 Raymond Ltd. 86 ITD 791 (Mum.)
 Associated Cement Co. Ltd.(SC) 201 ITR 435




                                                              12
Case Study 5

FACTS

• The assessee is a pharmaceutical company, engaged in
  manufacturing and selling business.
• It procures packing material like plastics wrappers,
  containers, cardboard boxes etc from the vendors
  (manufacturers) as per assessee’s desired specifications
  viz. brand name, name & address, designs, trademarks
  etc.
• Similarly, payments are also made to printing and
  stationary vendors who supply printed letterheads,
  business cards, sales and other printed literature where
  the printing is done as per the assessee’s specifications.
• Vendor’s charge excise duty and sales tax on such items.


                                                               13
Case Study 5

ISSUES

• Whether TDS is required to be deducted under section
  194C for payments made as printing charges?



CASE LAWS


 BDA Ltd. v. ITO (TDS), 281 ITR 99 (Mum.)




                                                         14
Case Study 6

FACTS



• G Ltd. is engaged in the business of engineering and
  construction.


• G Ltd enters into execution of construction contracts.


• G Ltd has made certain payments for carrying out certain
  ancillary work undertaken for the purpose of executing
  the above contracts.




                                                             15
Case Study 6

ISSUES



• Whether the payments made by G Ltd should be treated
  as payments for main contract or as sub-contract for
  deduction of tax at source u/s 194 C?



CASE LAWS


 Datta Digamber Sahakari Kamgar Sanstha Ltd. V. ACIT
 83 ITD 148 (Pune)
 ITO V. Rama Nand & Co. And Others 163 ITR 702

                                                         16
Case Study 7

FACTS

• Assessee, a Govt. establishment procured milk from
  various Sanghs etc and sold it in the market through milk
  centres run by the appointed agents.
• Agents sold the goods at the price fixed by the assessee.
• Assessee used to reimburse these agents @ Re.0.90 per
  litre towards transport cost, container cost and chilling
  charges.
• Assessee had given the nomenclature as Commission for
  such payments.
• AO held to deduct tax u/s 194H as payments for
  commission.



                                                              17
Case Study 7

ISSUES

• Is the said transaction based on ‘principal-agent’
  relationship?
• Whether any TDS is required to be deducted u/s 194H?




CASE LAWS


 Government Milk Scheme v. ACIT [2006] 98 ITD 306




                                                         18
Case Study 8

FACTS

• B Ltd is engaged in the business of providing cellular
  mobile telephone services through its distributors.
• It sold SIM and other pre-paid cards at a fixed rate
  [below market price] to such distributors for ultimate
  sale to customers.
• As agreed, all rights, title, ownership and property rights
 in such cards would all time vest with B Ltd.
• Assessee claimed such price difference as discount
  allowed and not as commission defined in Expl. u/s 194H
• AO treated it as default and levied interest under section
  201(1) and 201(1A).



                                                                19
Case Study 8

ISSUES

• Is the AO’s claim justified in treating it as commission?
• Whether provisions of section 194H gets attracted??



CASE LAWS


 ACIT v. Bharti Cellular Ltd. 105 ITD 129 (Cal.)
 Hindustan Coca-Cola Beverages (P.) Ltd. v. ITO [2005]
 97 ITD 105 (Jp.)




                                                              20
Case Study 9

FACTS


• X Ltd. is in the business of running a call centre.
• Contract is entered with transport contractor for
  transporting the employees of X
• X Ltd. uses the bus or van and such other means of
  transport for this purpose.
• The payments made by X Ltd to transport contractor are
  fixed hire charges .
• TDS is deducted by X u/s 194 C.
• AO is of the view that payments are in nature of ‘rent’
  under section 194I, as defined by Tax Law Amendment,
  2006.


                                                            21
Case Study 9

ISSUES

• Is the stand taken by the AO is correct?




CASE LAW & REFERENCE


 Circular No. 558 dated 28.3.1990




                                             22
Case Study 10

FACTS

• PQR Ltd., the assessee, is engaged in the business of
  providing airline services.
• Co. frequently requires hotel rooms for accommodation
  of its pilots and crew members.
• Co. books rooms and makes payments for hire of rooms.
• PQR Ltd. has entered into ‘rate-contracts’ with some and
  with others the nature of contract is such that hotels are
  under an obligation to provide accommodation to PQR
  Ltd.
• TDS is deducted under section 194C.




                                                               23
Case Study 10

ISSUES



• Is PQR Ltd. required to deduct tax under section 194-I or
  whether the co. is justified in deducting under section
  194C?



CASE LAWS


 Krishna Oberoi and another v. UOI [2002] 257 ITR 105
 (AP)
Circular No. 5/2002 dtd. 30-7-2002, 194I does not apply
 to Rate Contracts.

                                                              24
Case Study 11

FACTS

• G Ltd. is a manufacturer.
• Company has made payments to an Indian entity
  towards the Internet connectivity, Vo-Data card charges
  and Domain registration charges.
• No TDS is deducted on such payments made.
• Company has a view that the payments made are not in
  terms with ‘payment for technical services’ as covered
  under section 194J.
• However, CCIT treats the payments made as ‘fees
  received for providing technical services’ and deduct tax
  at source.



                                                              25
Case Study 11

ISSUES



• Is G Ltd correct in its stand that the payments made to
  providers of internet connectivity, facility of Vo-Data card
  or domain registration charges are out of the purview of
  ‘fees for technical services’?
• Whether TDS should be deducted on such payments?


CASE LAW


 Skycell Communications Ltd (251 ITR 53) [Mad.]



                                                                 26
Case Study 12

FACTS


• The invoice raised on the assessee was inclusive of
  professional charges and service tax thereon and
  reimbursement of actual expenses.
• No TDS deducted on the reimbursement of expenses.
• Under ‘any sum paid’ as referred to in Sec.194J,
  reimbursement of actual expenses cannot be deducted
  out of the bill amount for the purpose of tax deduction.
  [Circular: No. 715 dtd. 8-8-1995]
• AO relied on CBDT circular and levied interest u/s
  201(1A).




                                                             27
Case Study 12

ISSUES



• Whether TDS will be deductible on gross value of bill or on
  net?
• Will the answer be different if separate bills are raised for
  both?




CASE LAW


 ITO v. Dr. Willmar Schwabe India (P) Ltd. , 3 SOT 71.


                                                              28
Case Study 13

FACTS

• A Ltd., the assessee, entered into a lease agreement
  with B Ltd. for taking premises on lease with a separate
  agreement on hire of furniture.
• A Ltd. fails to deduct tax at source under section 194-I
  on the lease payments made to the payee.
• However B Ltd. while filing his return of income declared
  the said receipt of income and paid taxes thereon.
• Assessing officer issued notice under section 201(1) &
  201(1A) levying interest for non deduction of TDS.




                                                              29
Case Study 13

ISSUES

• Whether the AO can issue such a notice on A Ltd.?
• If yes, is he liable to pay tax?
• If not, is he liable to pay interest?
• If yes, what is the period for which interest is payable?



CASE LAWS


 CIT v. Adidas India Marketing Pvt. Ltd. , 288 ITR 379
 CIT v. Rishikesh Apartments Co-op Housing Soc. Ltd.
 253 ITR 310,316 (Guj.)

                                                              30
Case Study 14

FACTS


• A Ltd. delayed in depositing the tax deducted at source
  into Government’s account for the assessment years
  1988-89 to 1996-97.
• For the above stated Ass. yrs. the Assessing Officer
  passed orders dated 25.5.2000 levying interest under
  section 201(1A) on the grounds of such delay.
• The assessment and other proceedings for all those
  years has been completed much earlier.
• Appeal was filed by A Ltd. saying no such interest could
  be levied after lapse of such a long time.



                                                             31
Case Study 14

ISSUES

• Whether in absence of the prescribed time limit for
  initiation and completion of proceedings under the Act,
  initiation of proceedings should be within reasonable
  time?
• What can be the reasonable time period of levy of
  interest under section 201(1A) for delay in deposit of
  TDS?
• Whether AO can levy/order interest u/s 201(1A)?


CASE LAWS
 Raymond Woollen Mills Ltd. 57 ITD 536 (Mum.)
 Century Textiles & Industries Ltd. 13 SOT 507 (Mum.)

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Questions?


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Thank You!




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