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Tax Deduction at Source Seminar on Direct Taxes at Jaipur by zhangyun

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									 Seminar on Direct Taxes
at Jaipur Branch of ICAI
      on 14.05.2011
                  Presented By
               P.C. Parwal ,FCA
         Email :
              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
  Roaming Charges
  Period of Interest u/s 201(1A)
  Section 40(a)(ia)
  Directors Commission
  Discount offered on SIM cards to PMA‘s
  Clearing & Forwarding charges
  Credit cards
   Reimbursement of expenses
   Payment to Non resident
Low cost & effective tool for collection of
 tax by government
 More focus by department on TDS compliances
 TDS Survey
 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
               (w.e.f 01.10.2009)
             RECIPIENT                    RATES
          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
  till date
        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
such customer
    ( 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
                  (w.e.f. 1.04.2010)
 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
                        w.e.f. 01.04.2010

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.
                                  ISSUE 1
  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)
                                 reasonable period.
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
                                 completing reassessment
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
                             (w.e.f. 01.04.2010)
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
following rates:-
• 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
                           ISSUE 2

Whether non furnishing of PAN No. by Non Resident would attract
                          section 206AA

 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.
                                 ISSUE 3

           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
                            Other Cellular
Payment of
                            providers for
                             use of their
                                       Thereby providing roaming facility
                             Subscribers of

  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
                             earmarked premises
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 .
                                     ISSUE 5
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
                                  ISSUE 6
  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
the recipient.
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
                                  ISSUE 7

            Bansal Parivahan (India) (P) Ltd. Vs. ITO
                 53 DTR 40 (2011) (Mumbai‘B‘)
         Golden Stables Lifestyle Center Pvt. Ltd. Vs. CIT
                  2010-TIOL-596-ITAT -Mum
 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.
                                  ISSUE 8
                       ITO Vs. Jay Bharat Maruti Ltd.
                         2011-TIOL-226-ITAT- Del.
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
payable account
 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.
                            ISSUE 9
           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
through agent.
 Stock is shown in the accounts as their own stock & not
consignment stock
 Thus, relationship of assessee is on Principal Basis & not
principal agent basis
                     Section 194H not attracted
                          ISSUE 10
                   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
                            sales return
        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.
                                     ISSUE 12
    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
                                                               Issues Franchisee
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
currency &
makes payment
after retaining                                               Purchase goods through credit card
service fees/
discount/MDR/                                     Shopkeeper/Merchant
                   Cards –AMEX, Diners, Master/VISA Card
                            AO VIEW
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
                             Assessee‘s View
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)
                              FOREIGN COMPANY
         Development of                                       Preparation of
        progr., master plan                                 design development
        & concept designs                                        drawings
                                INDIAN COMPANY                      implementati
                                                                        on &
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
                                  ISSUE 15

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.
                             ISSUE 16

   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
retrospective effect.
       THANK YOU
                  Presented by
                P.C. Parwal ,FCA
5th Floor, Milestone Building, Tonk Road, Jaipur
               Cell : 98298-88804

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