Tax Deduction and Collection at Source

Transcription

1 (iii) Ravi Kumar aged 67 years derived ` 6,00,000 as salary from his employer, XYZ Ltd. for the year ended The following details are provided by him to the employer: Particulars ` Loss from self-occupied house property at Mumbai 2,00,000 Net loss from let-out property 2,00,000 Net loss from business activity 1,00,000 Interest income from bank 3,20,000 [CA Final Nov 2016] (i) As per Sec. 194A, income paid by way of interest on compensation amount awarded by Motor Accident Claim Tribunal is liable for tax 10%, where the aggregate amount of such income paid during the financial year does not exceed ` 50,000. In the given question, amount of ` 80,000 towards interest on compensation is only credited to the account of payee by Motor Accident Claim Tribunal and not paid. So no tax is to be deducted at source. (ii) As per section 194LA, any person responsible for paying to a resident any consideration on account of compulsory acquisition of immovable property other than the agricultural land, shall at the time of payment of such consideration, deduct 10% on such consideration. However, no tax shall be deducted if the amount of consideration does not exceed ` 2,50,000 during a financial year. In this case, the amount paid to Mr. B does not exceed ` 2,50,000 and therefore, the payer is not liable to deduct tax on such consideration. (iii) As per section 192(2B), the employer shall deduct tax considering the other incomes of the employee under the different heads, where an employee has furnished statement of such other incomes also. However, for determining the estimated income of an employee, losses other than the loss under the head Income from House Property shall not be considered. XYZ Ltd. is required to deduct tax at source on the salary of ` 6,00,000 paid to Ravi Kumar as under: ` ` Salary 6,00,000 Interest from bank 3,20,000 Less: Income from House Property Loss from self-occupied property 2,00,000 Loss from let-out property (Note) NIL 1,20,000 Total Income 7,20,000 Tax on ` 7,20,000 56,500 Add: Health & Education 4% 2,260 Tax to be deducted at source 58,760 As per Sec. 71(3A), as inserted by Finance Act, 2017, loss from house property can be set-off against other income, only to the extent of ` 2,00,000 for any assessment year. Practical Question 23: M/s Avtar Limited entered into an agreement for the warehousing of its products with ABC Warehousing and deducted tax at source as per provisions of section 194C out of warehousing charges paid during the year ended on The Assessing Officer, while completing the assessment for A.Y of Avtar Limited asked the company by treating the warehousing charges as rent as defined in section 194-I and asked the company to make payment of 39.69

2 difference amount of TDS with interest. It was submitted by the company that the recipient had already paid tax on the entire amount of warehousing charges and therefore, now the difference amount of TDS cannot be recovered. However, it will make the payment of due interest on the difference amount of TDS. Examine critically the correctness of the action or the treatment given. [CA Final May 2017] Section 201 provides that the payer (including the principal officer of the company) who fails to deduct the whole or any part of the tax on the amount credited or payment made to a resident payee shall not be deemed to be an assessee-in-default in respect of such tax if such resident payee has furnished his return of income under section 139; has taken into account such sum for computing income in such return of income; and has paid the tax due on the income declared by him in such return of income, and the payer furnishes a certificate to this effect from an accountant in such form as may be prescribed. However, where the payer fails to deduct the whole or any part of the tax on the amount credited or payment made to a resident and is not deemed to be an assessee-in-default under section 201(1) as mentioned above, interest under section 201(1A)(i) p.m. or part of month, shall be payable by the payer from the date on which such tax was deductible to the date of furnishing of return of income by such resident payee. Therefore, M/s Avtar Limited shall not be required to pay the difference tax in case the above mentioned conditions are fulfilled. However, the assessee shall be liable to make payment of interest from the date on which such tax was deductible to the date of furnishing of return of income by ABC Warehousing. Therefore, the submission of the assessee company, in this case, is correct. Practical Question 24: Jashan Hotels Pvt. Ltd., engaged in the business of owning, operating and managing hotels, allowed its employees to receive tips from the customers, by the virtue of their employment. The tips were also collected directly by the hotel-company from the customers, when payment was made by them through credit cards. The hotel-company thereafter disbursed the tips to the employees. The Assessing Officer treated the receipt of the tips as income under the head salary in the hands of the various em ployees and held that the company was liable to deduct tax at source from such payments under section 192. Since the company had not deducted tax at sources on such payments, the assessing officer treated the company as an assessee -in-default under section 201(1) of the Act. Discuss the correctness of the action of the Assessing Officer. [CA Final Nov 2017] Issue involved: The issue under consideration is whether tips received by the hotel from customers who made payment through credit card and distributed to employees would constitute as salary to attract the provisions for TDS u/s 192. Provisions applicable: Section 192 provides obligation to deduct tax at source only to person responsible for paying any income under the head salaries and such person is only the employer. Further as per sec. 201, if any person who is liable to deduct TDS does not deduct the whole or any part of the tax or after deducting fails to pay the tax, he shall, be deemed to be an assessee in default. Analysis: The facts of the case are similar to the facts in ITC Ltd. v. CIT (2016) 384 ITR 14, wherein the above issue came up before the Supreme Court. The Apex Court observed that the person who is responsible for paying the 39.70

3 employee is not the employer at all, but a third party, namely, the customer. Thus, income from tips would be chargeable in the hands of employees as Income from Other Sources and therefore, section 192 would not get attracted. The Supreme Court further observed that the tips paid by the employer to the employees had no reference to the contract of employment at all as they were received by the employer in a fiduciary capacity as trustee for payments which is later on disbursed to the employees for service rendered to the customer. So there wa s no reference to the contract of employment when these amounts were paid by the employer to the employee. The Supreme Court, therefore, held that there is no liability on the assessee company to deduct tax at source u/s 192 and hence, it cannot be treated as an assessee in default for non-deduction of tax at source from the amount of tips collected and distributed to its employees. Conclusion: Thus, applying the rationale of the Supreme Court ruling to the present case, there is a no liability to the Jashan Hotels Pvt. Ltd to deduct tax at source u/s 192 on the payment of tips which is received from the customer and passed on to the employee. Further assessee company shall not be treated as assessee in default u/s 201(1). Therefore action taken by the assessing officer is not correct in the eyes of law. Practical Question 25: Syed & Co., a dealer in motor cycles conducted motor cycle race on the occasion of its 25 th year anniversary. The prize was given to first 3 winners by way of a luxury motor cycle which was worth ` 2,00,000 each. The assessee did not deduct tax at source on the prize given to the winners. The Assessing Officer treated the assessee as an assessee in default and passed order under sections 201(1) and 201(1A). The assessee seeks your advise on the validity of the order and other legal consequences. Advise. [CA Final (Old) May 2018] Issue involved: The issue under consideration is whether the assessee can be treated as an assessee in default u/s 201 where he fails to deduct tax at source in respect of winnings which are wholly in kind u/s 194B. Provisions applicable: As per Sec. 194B, the person responsible for paying any income by way of winnings which are wholly in kind shall, before releasing the winnings, ensure that the tax has been paid in respect of said winnings. Also, Sec. 201 provides that where any person is liable to deduct to tax at source does not deduct the whole or any part of the tax or after deducting fails to pay to tax, he shall, be deemed to be an assessee default. Analysis: The facts of the case are similar to the case of CIT v. Hindustan Lever Ltd. (2014), where the Karnataka High Court observed that Sec. 194B read with Sec. 201 do not cast any duty to deduct tax at source where the winnings are wholly in kind. If the winnings are wholly in kind, as a matter of fact, there cannot be any deduction of tax at source. The word "deduction" in this provision postulates a reduction or subtraction of an amount from a gross sum to be paid and payment of the net amount thereafter. Where the winnings are wholly in kind the question of deduction of any sum therefrom does not arise and in that eventuality, the only responsibility, as cast u/s 194B, is to ensure that tax is paid by the winner of the prize before the prize or winnings are released in his favour. Therefore, the High Court held that proceedings u/s 201 cannot be initiated against the assessee. The High Court, therefore, held that proceedings u/s 201 cannot be initiated against the assessee. Conclusion: By applying the above rationale, the action of the A.O. to treat the assessee as assessee in default on the ground that the assessee did not deduct tax at source on the prize given to the winners is not correct. However, 39.71

4 instead of treating an assessee as assessee in default, there may be other legal consequences. The other legal consequences may be that the assessee may be subjected to penalty equal to the amount of tax not paid u/s 271C by the Joint Commissioner and may also be subjected to rigorous imprisonment u/s 276B for a term which shall not be less than 3 months but which may extend to 7 years and with fine. Practical Question 26: Amin Co. (P) Ltd. is a dealer of motor cars manufactured by Zeet Ltd. Amin Co. (P) Ltd. paid through banking channel ` 110 lakhs to Zeet Ltd. for purchase of cars in January Of the total motor cars so purchased, 4 motor cars cost ` 11 lakhs each and 7 motor cars are for the balance amount. Decide whether any TDS I TCS provisions will apply. Will your answer be different if Amin Co. (P) Ltd. is not a dealer of motor cars and had acquired the same for the purpose of plying cars on hire? [CA Final (Old) May 2018] If Amin Co. (P) Ltd. is a dealer: As per Sec. 206C(1F), every person who receives any amount from sale of a motor vehicle exceeding ` 10,00,000 shall at the time of receipt of such income, collect from the buyer 1% of such amount as income tax. However, there is no requirement to collect tax at source on sale of motor vehicles by manufacturers to dealers/distributors. Here, the seller i.e. Zeet Ltd. is a manufacturer and the buyer i.e. Amin Co. (P) Ltd. is a dealer and therefore, no tax is required to be collected at source, since the provisions of TCS are not applicable on sale of motor vehicles by manufacturer to dealers. If Amin Co. (P) Ltd. has acquired the motor cars for plying them on hire: If the motor vehicles are purchased by Amin Co. (P) Ltd. for the purpose of plying them on hire, then the position would be different. The total cars purchased are 11 out of which 4 motor cars cost ` 11 lakhs each and remaining 7 costs total of ` 66 lakhs i.e. less than ` 10 lakhs each. Therefore, the TCS provisions shall be applicable only in respect of 4 motor cars, since it cost exceed ` 10 lakhs and no tax is required to be collected in respect of balance 7 cars. Practical Question 27: Mr. Ramesh is employed in Raghu Ltd. as senior executive. He availed leave travel assistance (LTA) of ` 60,000 in January He did not produce any evidence for the expenditure incurred. His salary income (computed) before allowing exemption for LTA is ` 12,50,000. Mr. Ramesh claimed interest on moneys borrowed for acquisition of his residential house of ` 96,000 but did not produce the name, address and PAN of the lender. As employer, how will you treat the claim of exemption of LTA and deduction of housing loan interest claimed by Mr. Ramesh? [CA Final (Old) May 2018] As per Sec. 192, the employer shall, for the purposes of estimating income of the assessee or computing tax deductible, obtain from the assessee the evidence or proof of particulars of prescribed claims (including claim for setoff of loss) under the provisions of the Act in such form and manner as may be prescribed. Rule 26C provides for the evidence or particulars which the employee is required to furnish to the employer in respect of claims made by him for the purpose of estimating his income or computing the amount of tax deduction at source. Where the employee makes a claim in respect of Leave Travel Concession, he is required to produce evidence of expenditure incurred to the employer. In respect of claim made for deduction of interest under the head Income from House Property, the employee is required produce the particulars of name, address and PAN of the lender

5 However, in this case, the employee Mr. Ramesh did not produce any evidence for expenditure incurred in respect of claim of Leave Travel Concession. Also, he did not produce the particulars the name, address and PAN of the lender in respect of claim made for deduction of interest under the head Income from House Property. Therefore, the employer may do not consider such claims of Mr. Ramesh. Practical Question 28: Discuss the TDS/TCS implications if any, for the following transactions. What is the amount payable to the payee: (i) X is a bookmaker and Mr. Y is a punter. On , B has won ` 50,000 in Horse Race 1 and suffered a loss of ` 20,000 in Horse Race 2. (ii) Mr. Santosh has let out his house property on a monthly rent of ` 60,000 from to Mrs. Preeti. (iii) H Ltd., a manufacturer of luxury cars sold 50 cars on to NMP Ltd. its dealer, each car cost ` 20 Lakhs. (iv) AKL Ltd., a third party administrator on behalf of an Insurance Company has settled medical bills of ` 5,00,000 submitted by Kay Hospitals Ltd. from a patient under a cashless scheme. [CA Final (New) May 2018] (i) As per Sec. 194BB, any person, being a bookmaker or a holder of license for the horse racing, who is responsible for paying to any person any income by way of winnings from horse race in amount exceeding ` 10,000 shall, at the time of payment thereof, deduct tax at 30%. Here, B has won ` 50,000 in Horse race 1 and therefore, X being a bookmaker is required to deduct tax at 30% on ` 50,000. However, B has suffered a loss of ` 20,000 in Horse race 2 and therefore, no tax is required to be deducted at source in respect of such loss. Therefore, Mr. X is liable to deduct tax of ` 15,000 (` 50,000 x 30%) from winnings of ` 50,000 and the net amount payable to B shall be ` 15,000 (` 50,000 - ` 15,000 - ` 20,000). (ii) As per Sec. 194-I, any person, not being an individual or HUF whose total sales or gross receipts from business/profession does not exceed the limits under clause (a) or (b) of Sec. 44AB in the immediately preceding financial year, making payment to a resident any income by way of rent, shall at the time of credit or payment, whichever is earlier, deduct tax 10% for the use of, inter alia, land or building or land appurtenant to the building. However, no deduction shall be made where the amount of rent does not exceed ` 1,80,000 during a financial year. In this case, if it is assumed that the total sales or gross receipts of Mrs. Preeti exceeds the limits under clause (a) or (b) of Sec. 44AB in the immediately preceding financial year, then she will be made liable for deduction of tax at source u/s 194-I in respect of rent paid to Mr. Santosh. But since, the total amount of rent paid does not exceed ` 1,80,000 during the F.Y , she is not liable for deduction of tax at source u/s 194-I. Alternative: As per Sec. 194-IB, any individual or HUF other than those whose total sales or gross receipts from the business/profession exceed the limits under clause (a) or (b) of Sec. 44AB in the immediately preceding financial year, making payment to a resident any income by way of rent exceeding ` 50,000 for a month or part of the month during the previous year, shall deduct tax 5%. The tax shall be deducted at the time of credit of rent for the last month of the previous year or the last month of tenancy (if the property is vacated during the year) or at the time of payment thereof, whichever is earlier

6 In this case, if it assumed that the total sales or gross receipts of Mrs. Preeti does not exceed the limits under clause (a) or (b) of Sec. 44AB in the immediately preceding financial year, then she will be liable for deduction of tax at 5% on ` 1,50,000 (` 60,000 + ` 60,000 + ` 30,000) in respect of amount of rent paid or payable to Mr. Santosh in the month of March i.e. last month of the previous year or at the time of payment, whichever is earlier. Therefore, net amount payable to Mr. Santosh shall be ` 1,42,500 (` 1,50,000 x 95%). (iii) As per Sec. 206C(1F), every person who receives any amount from sale of a motor vehicle exceeding ` 10,00,000 shall at the time of receipt of such income, collect from the buyer 1% of such amount as income tax. However, no tax is required to collected tax at source on sale of motor vehicles by manufacturers to dealers. In this case, H Ltd., a manufacturer of luxury cars sold 50 cars costing ` 20 lakhs each to NMP Ltd., its dealer. Since, H Ltd. has sold the cars to its dealers, no tax is required to be collected at source by H Ltd. Therefore, NMP Ltd. is required to pay only ` 20,00,000 to H Ltd. (iv) As per Circular No. 8/2009, Third Party Administrators (TPAs) who are making payment on behalf of insurance companies to hospital for settlement of medical/insurance claims, etc., under various schemes including cashless schemes, are liable to deduct tax at source u/s 10%. Therefore, AKL Ltd. is required to deduct tax at 10% in respect of settlement of medical bills of ` 5,00,000 submitted by Kay Hospitals Ltd. from a patient under a cashless scheme. Therefore, net amount payable to Kay Hospitals Ltd. shall be ` 4,50,000 (` 5,00,000 x 90%)