Seminar on Direct Taxes
at Jaipur Branch of ICAI
P.C. Parwal ,FCA
Email : email@example.com
Cell : 98298-88804
Importance of TDS provisions
Recent Amendment in TDS
Section 194C w.e.f. 01.10.2009
Section 200A/ 201(3) w.e.f. 01.04.2010
Section 206AA w.e.f. 01.04.2010
Recent Issues in TDS
Time limit for passing order u/s 201(1)/201(1A)
Listing fees/ other payment to stock exchange
Period of Interest u/s 201(1A)
Discount offered on SIM cards to PMA‘s
Clearing & Forwarding charges
Reimbursement of expenses
Payment to Non resident
Low cost & effective tool for collection of
tax by government
More focus by department on TDS compliances
Disallowance u/s 40(a) (i)/ 40(a)(ia)
Heavy interest liability/ penalty for non compliance
Number of regulatory provisions
Rates of TDS- Sec. 194C
Individual, HUF 1%
Other than Individual, 2%
Transport Operator Nil, if PAN No. furnished
Transport operator means a person engaged in the business
of plying, hiring, leasing goods carriage.
Tax deductor to furnish to prescribed authorities prescribed
particulars in prescribed forms. However, no form prescribed
Work shall include:-
(Explanation (iv)(e) section 194C
Manufacturing or supplying a product according to the requirement
or specification of a customer by using raw material purchased from
( but does not include manufacturing or supplying a product
according to the requirement or specification of a customer by using
raw material purchased from other person, as such a contract is a
‗contract for sale‘)
If Material is purchased from such customer, then TDS is to be
made on full invoice value except where the value of material is
shown separately in the invoice [Section 194C(3)]
Sec. 200A- Processing of
Statements of TDS
Following adjustments can be made during computerized processing :-
- any arithmetical error
- an incorrect claim
After making adjustments:-
- tax and interest would be calculated
- sum payable or refundable to the deductor will be determined
- intimation will be sent to the deductor within 1 year from the
end of the F.Y. in which statement is filed
- board may make a scheme for centralized processing of
statements of TDS
Refund of excess TDS prior to 01.04.2010, can be claimed in terms of
Circular No. 2/2011 dt. 27.04.2011 / 285 dt. 21.101980 6
SECTION 201(3) - TIME LIMIT FOR PASSING ORDER U/S 201(1)
No order shall be made u/s 201(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—
(i) two 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 has been filed;
(ii) four 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 the 1st day of April, 2007 may be passed at any time on or
before the 31st day of March, 2011.
Time limit for initiation of proceedings u/s 201/ 201(1A)
State of Punjab Vs Bhatinda Dist. If no period of limitation prescribed, a statutory
Co operative Mill Union Ltd (2007) authority must exercise its jurisdiction within a
11 SCC 363 (SC)
NHK Japan Broad Casting Even though period of 3 yrs would be
Corporation reasonable period u/s153, period of 4 yrs would
305 ITR 13 (Del.) (HC)
be a reasonable time for initiating proceedings
Mahindra & Mahindra Ltd. DCIT Maximum time limit for initiating &completing
122 TTJ 577 (Mum)(SB) proceedings u/s 201(1) has to be at par with
time limit available for initiating and
CIT vs. Hutchion Essar Proceedings u/s 201 can be initiated not beyond
323 ITR 230 (Del) (HC) four years of the relevant F.Y.
RSRDC ITAT Jpr. Bench Period of 4 yrs. from the end of the relevant
F.Y. is reasonable time for initiation &
completion of proceedings u/s 201(1).
Sec. 206AA- Requirement of furnishing PAN
If any persons whose tax is to be deducted at source does not give
PAN to deductor then TDS shall be deducted at higher of the
• the rate specified in relevant provisions of this Act; or
• the rate in force [ i.e. rate mentioned in Finance Act]
No declaration u/s 197A valid unless PAN furnished by applicant
No certificate u/s 197 shall be granted unless application made
contains PAN of the applicant
Deductee to furnish PAN to the deductor & both shall indicated
the same in bills, correspondences, vouchers and other documents
Where PAN provided to deductor is invalid or does not belong to
deductee, it shall be deemed that PAN has not been furnished by the
Whether non furnishing of PAN No. by Non Resident would attract
Section 206AA starts with Non Obstante Clause.
Rule 114C provides for class or classes of person to
whom Section 139A (PAN) shall not apply
Clause (b) to Rule 114C(1) excludes Non Resident
referred in Section 2(30)
Rule 114C also excludes obtaining PAN No. by Central
Govt., State Govt., Consular Offices & person having
agriculture income only.
DCIT Vs. Asset Alliance Securities Pvt. Ltd.
M/s Alchemy Share & Stock Broker Pvt Ltd. Vs. DCIT
FACTS OF THE CASE
Assessee, a Corporate Member of BSE & NSE, debited expenses on
account of ISDN / Lease line charges, Stock Exchange expenses,
Transaction charges and VSAT charges to the P & L Account and claimed
that they were payable for the services provided by the Stock Exchange
with regard to transactions in securities.
AO took the view that these are in the nature of fee for technical services
and hence assessee ought to have deducted TDS u/s 194J on them.
Whether payments made by the assessee on account of ISDN / Lease
line charges, Stock Exchange expenses, Transaction charges and VSAT
charges to the stock exchanges amount to fees for technical services
and the assessee ought to have deducted tax u/s 194J
Stock Exchange is authorized to collect the VSAT and lease
line charges from the Members & pass them on to the service
provider (DOT). Thus, it is in nature of reimbursement of
expenses incurred by the Stock Exchange in lieu of
infrastructure and trading facilities provided by the Exchange
to the Members, thereby not liable for TDS u/s 194J
Transaction charges & stock exchange expenses paid by a
Member to the Stock Exchange on the basis of the volume of
transactions is a payment for the use of the facilities provided
by the Stock Exchange and not for any services, either technical
or managerial, thereby not liable for TDS u/s 194J.
Judgments relied on
Skycell Communications Ltd. vs. DCIT 251 ITR 53 (Mad) (HC)
CIT vs. Bharti Cellular Ltd. (2009) 319 ITR 139 (Del) (HC)
Kotek Securities Vs ACIT (2008-TIOL-689-ITAT-Mum)
Assessee provides Payment of National
Mobile Telephone Roaming charges
National GSM Roaming Agreement
use of their
Thereby providing roaming facility
Whether payment of National Roaming Charges by the assessee
to the other cellular service providers for facilitating national
roaming services to its mobile subscribers attracts TDS liability
u/s 194I for use of equipment or U/s 194J to be treated as fees
for technical services
Vodafone Essar Ltd. Vs. CIT (Mum) 49 DTR 450
‘Rent’ means any payment by whatever name called under any lease, sub
lease or tenancy or ‘any other agreement or arrangement for the use of’..
the assets mentioned therein.
The emphasis is on the ‘use’ and not whether there is a transfer or not
of any interest in the property. It is not necessary that there should be a
transfer of interest in the equipment owned by IDEA or Airtel in favour of
the assessee herein before the payment of roaming charges is termed as
‘rent’ within the meaning of Explanation (i) of section 194-I of the Act.
Use of equipment by assessee or assessee's subscriber???????????
The assessee has collected the roaming charges from its subscriber who has
the roaming facility, but as the roaming call methodology shows, thereafter
the assessee has little role to play and everything is left to the subscriber.
At the most, the assessee is placed in a position of a mere facilitator
between its subscriber and the other service provider, facilitating roaming
call to be made by the subscriber. The assessee collects the roaming charges
from its subscriber and passes it on to the other service provider
The assessee cannot be said to have used the equipment which is
involved in providing the roaming facility.
CBDT in Circular No.715 dated 8th August 1995 has
recognized that rent is something which is paid for
In 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.
The message which is flashed on the cell phone of the subscriber gives the
names of the service providers which have a roaming agreement with the service
provider with whom he is registered and he can choose any of them during the
period of his stay to other place.
There is no commitment either by the assessee or by the other service provider
with whom it has entered into a roaming agreement, to make the space available
to the subscriber whenever demanded.
Thus, the payment made by the subscriber through the assessee as roaming
charges cannot be considered to be rent & no liability on assessee to deduct
TDS u/s 194I .
Whether provisions of TDS u/s 194J applicable to interconnection charges paid
by cellular companies for availing technical services
Whether any human element involved in providing such port services by the
PSU telecom comp. to the assessee so as to make it qualify as 'technical services'
CIT Vs. Bharti Cellular Ltd. 330 ITR 239 (SC)
No expert evidence from Department side to show how human intervention
takes place, particularly, during the process when calls take place. This
requires expert evidence.
Examine as to whether any human intervention is involved when the service
provider's "allotted capacity" gets exhausted and it wants ―additional
capacity" on an urgent basis
Interconnect Agreement based on obligations and counter obligations, which
is called "revenue sharing contract". Section 194J not attracted in case of
"revenue sharing contract― as per assessee. Submission not accepted by
Department & not examined by the Tribunal
Question of human intervention not raised by Dept. before CIT or Tribunal
or Civil Appeals. Keeping in mind the larger interest, case remitted to AO
For what period interest u/s 201(1A) can be levied on the tax
deductor where deductee has discharged his tax obligation
What would be the position if the tax deductee has no liability of
tax or he has paid more advance tax then the due tax
M/s Hindustan Coca Cola Beverage Pvt. Ltd. VS. CIT 293 ITR 226 (SC)
CBDT Circular No. 275/201/95-IT(B) dt. Jan 29, 1997 declares
No demand visualized under section 201(1) of the Income- tax Act should be
enforced after the tax deductor has satisfied the officer-in-charge of TDS, that
taxes due have been paid by the deductee-assessee.
However, this will not alter the liability to charge interest under section
201(1A) of the Act till the date of payment of taxes by the deductee-assessee or
the liability for penalty under section 271C of the Income-tax Act‖
CIT Vs. Bharti Cellular Ltd. 330 ITR 239 (SC) Para 12
No levy of interest u/s 201(1A) for non-deduction of TDS
No loss of revenue.
TDS not been deducted by the payee but the tax has been paid by
Question of law remitted to AO for fresh adjudication. Hence, no
levy of penal interest prior to the date of fresh adjudication order
CIT Vs. Eli Lilly 312 ITR 225 (SC) Para 34
Interest u/s 201(1A) is compensatory measure for withholding the
tax which ought to have gone to the exchequer.
Levy of interest is mandatory and the absence of liability for tax
will not dilute the default.
As far as the period of default is concerned, the period starts from
the date of deductibility till the date of actual payment of tax by the
Bansal Parivahan (India) (P) Ltd. Vs. ITO
53 DTR 40 (2011) (Mumbai‘B‘)
Golden Stables Lifestyle Center Pvt. Ltd. Vs. CIT
Whether disallowance u/s 40(a)(ia) is warranted if TDS is
deposited before the due date of filing of ITR
Amendments carried out in Finance Act, 2008 in Sec.40(a)(ia) for
extending time limit for deposition of TDS of the last month was with
retrospective effect. This shows that the amendment was curative in nature
brought into to ameliorate the hardship caused on account of nominal delay in
payment of the TDS
Amendment brought in by the Finance Act, 2010, totally replaced the
earlier amendment and extends the time limit for all TDS payable throughout
the year. This also has been introduced as a curative measure and therefore
would apply to earlier years also.
Therefore, no disallowance of expenditure in respect of which TDS has
been paid by the assessee before the due date of filling of the return.
ITO Vs. Jay Bharat Maruti Ltd.
Whether TDS is to be deducted at the time of actual payment of Commission to the
assessee-company's Directors or at the time of crediting the accounts of the
Assessee debited commission to the accounts during F.Y. 06-07 but the tax was
deducted at source in the month of April following the A.Y. AO charged interest
in respect of late deduction of tax at source.
Payment of commission in nature of payment of salary and part and parcel of
the salary payable to the directors. In case of salaries, tax was deductible at the
time of payment and not at the time of crediting the same to the commission
Commission payable on the basis of profit earned by the assessee company,
which could be ascertained on finalization of accounts and certification thereof
by the board of directors. This could be done only after the close of the F.Y.
Ajmer Zila Dugdh Utpadak Sangh Ltd. Vs. ITO
30 DTR 418(ITAT) (Jpr. Bench)
Sale of Milk to distributors – Whether fixed margin is commission
liable for deduction of TDS u/s 194H
Assessee purchasing milk, processing it & supplying milk & milk
products to various distributors with whom assessee entered into
Facts show that ownership stood transferred to distributor
when it takes the delivery
It is established that it was a case of direct sale & not the sale
Stock is shown in the accounts as their own stock & not
Thus, relationship of assessee is on Principal Basis & not
principal agent basis
Section 194H not attracted
CIT Vs. Idea Cellular Ltd.
325 ITR 148 (HC) (Del.)
Whether discount offered by the cellular operators to ―Prepaid
Market Associates‖ (PMAs ) on SIM Cards is liable for deduction
of tax at source u/s 194H
Assessee – Principal to Principal Relationship
Distributors buys the Sim Cards at certain price & has freedom to sell
them at their own price
AO - Principal & Agent relationship
Distributors were required to display the SIM Cards and Recharge
Coupons in such a manner that they appeared to be owned by the
PMAs were not allowed to sell competitors' products, to file monthly
Assessee had the right to terminate the agreement.
Distributors are linking agents in the chain of delivery of services to
consumers . Service can’t be sold or purchased and it can only be
Clause 25(d) of the Agreement states that on termination or expiry of
the agreement, the PMAs will discontinue the marketing of its products
and will return the unsold stock to the assessee which will pay for such
unsold stocks. In case of sale, there cannot be any such obligation to
receive back the unsold stocks
Clause 25(f) lays down that on termination of agreement, PMA or its
authorized retailer appointed by it, is not entitled to any compensation
for cost or expenses incurred by it in either setting up or promotion of its
business, etc. No such clause was required in case of 'sale'
ISSUE 11 NMDC Ltd. Vs. ACIT 7 ITR (Trib.) 690 (Viz)
Whether in view of the provisions of Exim policy, which debars the
assessee from direct export of Iron ores, can it be held that MMTC
has exported goods on behalf of assessee and the transaction between
the assessee and the MMTC was not on principal to principal basis
and hence provisions of section 194H are applicable on services
charges of 3% retained by MMTC
MMTC has exported the goods to the foreign buyers in its
capacity as principal and not as the agent of the assessee. MMTC is
responsible for the bad debts, if any
MMTC has issued Form H under Sales tax Act and also the
Disclaimer certificate to enable the assessee to claim deduction u/s
80HHC and the claim made by the assessee was also allowed.
Responsibility taken by the assessee for operations connected with
export upto the level of the shipment of the goods cannot be taken as
the deciding factor in determining the nature of the contract
between the assessee and MMTC
It is well settled law that in any agency agreement, an agent can
act on behalf of the principal only in respect of those transactions
which the principal is entitled to carry on directly without the
assistance/help of the agent, i.e. even in the absence of an agent, the
principal should be entitled to carry on the said transaction. In the
instant case there is no dispute with regard to the fact that the
assessee herein is not entitled to export the iron ore with Fe content
of 64% and above. Since the assessee is disentitled to export the
goods, it cannot be possible to say that the goods were exported by
MMTC on behalf of the assessee on a principal to agent basis.
Whether service fees/discount/merchant discount rate (MDR)/ commission
retained by credit card acquiring bank when card is lodged with them by the
shopkeeper for collection of amt. against sale of goods to the customers liable
foe deduction of TDS u/s 194H . Alternatively, is it liable for deduction of
TDS u/s 194J
Credit Card Association
Converts the Credit Card Issuing Bank/ Install EDC Mach.
Lodges card with bank
credit card into Credit Card Acquiring Bank
functional Raises bill Issues Card
after retaining Purchase goods through credit card
Cards –AMEX, Diners, Master/VISA Card
Acquiring Bank provide acquiring services/payment processing services to
shopkeepers in terms of agreement between Bank, Shopkeeper & CCIB for
which service fees/commission charged
Acquiring bank exchange funds with issuing bank on behalf of the
shopkeeper hence section 194H attracted
Assessee is otherwise falling u/s 194J
In respect of Amex/ Diners club card, there are only 3 parties i.e.
customer, shopkeeper and CCA/CCIB/CCAB. All the three parties work
independently. No one is agent of another.
In respect of Master Card/ Visa Card, there are 4parties i.e. CCA,
CCIB/CCAB, customer & shopkeeper . If CCIB & CCAB are different
person, they settle their account at their own as per their internal
understanding. Shopkeepers is not at all concerned whether they are one
person or different person as he is concerned only with the bank who
installed EDC machine at his premises.
The assessee shopkeeper has no concern with CCA or credit card issuing
bank neither the assessee is concerned when the banker realizes the
payment from the customer or from where it gets the funds.
Charges paid by the assessee shopkeeper to the bank is most akin to
collection charges or bill discounting charges. Circular No. 65 dated 02-09-
1971 clarifies that when bills are discounted, bank acts on its own behalf
and not on behalf of others. Similar is the situation in present case.
Funds are ultimately realized by the acquiring/issuing bank from the
customers. The realization of the funds from the customer is not on behalf
of the shop keeper. Had it been so, the bank would have recovered the
unrealized amount of customer from the shopkeeper.
Section 194J not applicable as the payment after retaining service fees/
discount/MDR/ commission by converting the credit card into functional
currency is not a fees for rendering any managerial, professional, technical
or consultancy service.
CIT VS. CARGO LINKERS 218 CTR 695 (DEL.) (HC)
Payment of freight
Charges to assessee
C& F Agent
Pay the collected freight Commission to assessee
charges to airlines
Whether the assessee is liable to deduct TDS u/s 194C on
payment made to Airlines
Contract is actually between the Exporter & the Airline
Assessee a C&F Agent is only an intermediary who books the cargo for
& on behalf of the Exporters
C&F Agent is not “person responsible” for deduction of TDS u/s 194C
ISSUE 14 HMS REAL ESTATE (P.) LTD., IN RE (2010) 325 ITR 71 (AAR)
Development of Preparation of
progr., master plan design development
& concept designs drawings
INDIAN COMPANY implementati
Reimbursement of expenses supervision
Services are in nature of FTS as it transfers technical plans & designs
Scope & Object of the contract
The essence of transaction is to obtain “design & consultancy services” & not
merely sale of designs & drawings
AAR also highlighted the inference to the definition of
FTS in India- US tax treaty
No TDS on reimbursement of expenses
Whether the moment there is remittance to the Non Resident by any
person , obligation to deduct TDS u/s 195 arises
GE Technology Centre (P.) Ltd. Vs. CIT 327 ITR 456 (SC)
Van Oord Acz India (P.) Ltd. Vs. CIT 323 ITR 130 (Del.)
CIT Vs. Samsung Electronics Co. Ltd & Ors. 227 CTR 335 (Kar.) - Against
Most important expression in section 195(1) consists of words ―Chargeable
under the provisions of the Act‖.
Payer bound to deduct TDS only if sum paid is assessable to tax in India
Section 195 also covers composite payments which have an element of
income embedded or incorporated in them. Thus, liability to deduct TDS on
composite payment also if chargeable under the Act.
Application to the AO for determining the amt. on which TDS has to be
deducted if the payer considers that whole of the amt. would not be the income
chargeable in case of recipient [section 195(2)]
In Vodafone International Holdings B.V, Vs. Union of India 329 ITR 126 (Bom.)
following findings were given:-
Section 195 is attracted to any person responsible for paying such a sum to a
The provisions of section 195 of the Act are in the nature of a machinery
provision enacted in order to effectuate the collection and recovery of tax.
Given a sufficient territorial connection or nexus between the person sought to be
charged and the country seeking to tax him, income-tax may extend to that person
in respect of his foreign income.
The connection can be based on residence or business connection within the taxing
State or the situation within the State of an asset or source of income from which
the taxable income is derived.
Once the nexus is shown to exist, the provisions of section 195 would operate.
Even though the revenue laws of a country may not be enforceable in another,
that does not imply that the courts of a country shall not enforce the law against
the residents of another within their own territories.
Whether liability to deduct TDS u/s 195 arises on payment of
Commission made to the foreign agents of Indian Exporters
DCIT Vs. Sanjiv Gupta 50 DTR 225 (2011)
As per CBDT Circular No. 23 dt. 23.07.1969 & Circular No. 786
dt. 07.02.2000 , no TDS u/s 195 required to be deducted with
regard to payment of commission to foreign agents.
Circular No. 7 dt. 22.10.2009 withdrawing the above circulars
operative only from 22.10.2009 & not prior to that date
Where a circular issued earlier created vested right in the tax
payer & such right is sought to be curtailed or withdrawn by a
subsequent circular, then such subsequent circular will not have a
P.C. Parwal ,FCA
5th Floor, Milestone Building, Tonk Road, Jaipur
Cell : 98298-88804