Overview of TDS. Malad Goregaon CPE Study Circle. CA. N. C. Hegde 19 September 2010

Transcription

1 Overview of TDS Malad Goregaon CPE Study Circle CA. N. C. Hegde 19 September 2010

2 Contents Overview of TDS provisions Important issues relating to TDS Recent developments in TDS Non residents & TDS Certificate for Reduction at Lower Rate Tax Audit & TDS Tax credit Other developments Appendix 2

3 Sec 192 TDS on Salary 3

4 Responsibility of correctness of employee claims Case Law CIT vs. Larsen & Toubro Ltd (313 ITR 1) (SC) Leave Travel Allowance - The employer should check whether the amounts were actually spent and be responsible for not having deducted tax at source on the amount additionally liable on the savings, if any made by the employee SC held that the employer is not under any statutory obligation to check that the employees had actually utilized the amount paid towards travel concession or conveyance allowance 4

5 TDS not deducted uniformly Case Law Dolphin Drilling Ltd. vs. ACIT (29 SOT 612) (Del.) Vinsons vs. Third ITO (89 ITD 267) (Bom.) The employer had deducted very negligible amount as tax from salary of employees in the initial months and high amount of tax in the last months i.e. the taxes were not deducted uniformly during the year AO levied interest under section 201 (1A) saying the assessee failed to deduct taxes properly Held that TDS installment of each month need not necessarily be accurate. The assessee reasonably estimated the annual income and deducted tax on it. Hence interest was held to be levied incorrectly 5

6 Conveyance allowance vis-à-vis free transport service by the employer Case Law Transworks Information Services Ltd. vs. ITO (126 TTJ 900)(Mum.) Facts Whether an employee can claim benefit of both conveyance allowance and transport facility provided by the employer? The AO contended that employees cannot enjoy double benefit by way of conveyance facility and transport allowance and such use of transport facility would be in the nature of perquisite liable to tax under section 17(2) (iii) Decision It is not possible to compute the value of the facility attributable to each employee since it is provided collectively throughout the year. Computation mechanism fails. The collective transport benefit would not be taxable as a fringe benefit under the FBT regime 6

7 Chargeability u/s 234B-234C when tax liability already discharged by employer Case Law CIT vs. Emilio Ruiz Berdejo & Others (32 DTR 27) (Bom.) Employer company having already discharged tax liability along with interest u/s 201(1A) owing to default in TDS, no interest can be charged u/s 234B or 234C from the assessee-employee 7

8 Extra-Territorial Jurisdiction of Provisions of the Income Tax Act Case Law CIT vs. M/s Eli Lilly & Co. (India) P. Ltd. (312 ITR 225)(SC) Indian Supreme Court ruled that an Indian company is responsible for withholding tax on remuneration paid to its expatriates by a foreign company outside India if the services are rendered solely in India The SC has held that the provisions of Section 192 have extra-territorial jurisdiction when salaries taxable u/s 9(1)(ii) are payable outside India 8

9 Sec 194A TDS on Payments of interest 9

10 TDS from payment of interest on time deposits by banks using CBS Software CBDT vide Circular number 3/2010 dated 2 March 2010 has clarified on the issue of deduction of tax at source from payment of interest on time deposits by banks using Core-Branch Banking Solutions (CBS) software No tax is required to be withheld where - Interest on time deposits is calculated on daily or monthly basis and for macro monitory purpose only No constructive credit is given to the depositor s/ payees account Tax is required to be withheld on the income (exceeding limits specified under section 194A) where- Interest is accrued at the end of the financial year or at periodic intervals as per practice of the bank or; as per the depositor's / payee's requirement or on maturity or on encashment of time deposits; whichever event takes place earlier 10

11 Sec 194C TDS on Payments to Contractors 11

12 Amendment in Section 194C Scope of term work modified to inter alia exclude contract in the nature of contract manufacture (w.e.f ) Manufacturing or supplying a product according to the requirement or specification of a customer by using 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 material purchased from a person, other than such customer. Contract shall include sub-contract (w.e.f. 1 October 2009) 12

13 Sale of goods vs. works contract Case Law Glenmark Pharmaceuticals Ltd. vs. ITO (TDS) (324 ITR 199) (Bom.) Facts The assessee entered into an agreement on principal to principal basis with a third party for manufacturing of certain pharmaceutical products The assessee agreed to supply their formulations and specifications. The manufacturer used his own resources and paid excise duty and tax The manufacturer affixed the trademark of the assessee on the articles produced. The property in the finished goods passed to the assessee only on delivery 13 Contd

14 Sale of goods vs. works contract Issue Whether contract of work or contract for sale? Held The Bombay High Court held that this was a case of sale of goods and not that of a works contract and hence no liability for TDS on payments to manufacturers 14

15 Expansion of scope of work u/s. 194C Case Law East India Hotel Ltd. (179 Taxman 17) (Bom.) Services like beauty salon, barber, shop, car rental, laundry/valet, health club etc. rendered by a hotel to its customers alongwith various other facilities/amenities provided with hotel room does not constitute carrying out any work within the meaning of section 194C of the Act Similar ratio served and can be applied to other service contracts as well Circular 681 was quashed to the extent it held that section 194C applies to customers to the hotel availing facilities/amenities made available 15

16 Clearing & Forwarding Agents-Scope of 194C Case Law CIT vs. Cargo Linkers (179 Taxman 151)(Del.) Facts Assessee was carrying on business of clearing & forwarding agents and booking cargo for transportation abroad for various airlines operating in India and collected freight charges from exporters who intended to send goods through a particular airline and paid amount to airline or its general agents and for services rendered assessee charged commission from airlines. Decision Since the contract was actually between the exporter and airline and the assessee was only an intermediary, it was not a person responsible for witholding tax in terms of Section 194C. 16

17 Provisions of s. 194C would not apply to the film financing arrangements Case Law Mukta Arts v. ACIT(TDS) (31 SOT 244) Facts Assessee made certain payments of advances without deduct tax at sources and held assessee in default under provisions of section 201(1) and 201(1A) of the Act Decision The High Court observed that the refund based and interest bearing advances or loans which are given by the assessee were linked to the specific film. 194C provisions are not applicable to such a film financing arrangement. 17

18 Sec 194H - TDS on Commission, Brokerage, etc. 18

19 Principal to agent & Principal to Principal transactions Case Law CIT vs. Bharti Cellular Ltd. (294 ITR 283) (Kol.) The tribunal observed that the assessee was strictly regulating the manner of the business operations by the distributors, while selling the cards. Hence the price difference was a payment of commission by the assessee to its distributors liable to TDS u/s 194H Idea Cellular Ltd (26 DTR 237) (Hyd.) Held that transactions between the assessee, a cellular service provider and the distributor for prepaid cellular connections and recharge coupons were on a principal to principal basis (legal relationship of seller and purchaser) and not on principal to agent basis. And therefore the margins allowed to the distributors on prepaid cards was not commission and hence section 194H was not applicable 19

20 Principal to agent & Principal to Principal transactions Case Law M/s Sweet Chariot Cafe Vs ACIT (ITA No. 849 & 850) (Bang) Facts The assessee entered into a marketing arrangement to sell its products and collected a net payment (after deduction of commission). No tax was deducted u/s 194H The ledger extract in the assessee s books revealed that electricity charges in a shopping mall were being met by the assessee Decision As the assessee had failed to prove that the relation was on a principal to principal basis, the difference amount was in the nature of commission and hence section 194H was applicable 20

21 Commission and Supplementary Commission received by travel agents (1) Case Law Around the World Travels & Tours Pvt. Ltd. vs. UOI (141 Taxman 53) (Mad.) It was held that tax should be deducted at source under Section 194H on amount available to agents being difference between airfare fixed by Airlines and price at which agents are enabled to sell tickets CIT vs. Singapore Airlines Ltd. & Other airlines (22 DTR 129) (Del.) (2009) Held that supplementary commissions retained by the travel agents over and above the net fare made over to Airlines is liable to tax deduction at source under Section 194H as commission and interest under Section 201(1A) is leviable in case of default Air tickets sold by airlines company to the travel agent at a concessional rate held to be a sale transaction on principal to principal basis, does not amount to commission, not liable to TDS 21

22 Commission and Supplementary Commission received by travel agents (2) F. No. 275/70/2009-IT (B) issued by the CBDT on 22 December 2009 CBDT vide a recent instruction clarified that the Commission and supplementary commissions received by the travel agents from airlines are subject to TDS u/s 194H Whether the tickets sold by airline companies to the travel agents at concessional rates be considered as commission for the purpose of instruction? ~ Not clarified 22

23 Sec 194I - TDS on Rent 23

24 Infrastructure claims paid to franchisees vs. Rent u/s 194I Case Law CIT vs. NIIT Ltd. (184 Taxman 472) (Del.) Facts The assessee company is engaged in the business of providing computer education and training and for that purpose, it had entered into various agreements with the franchisees for running the education centers at various metro cities. The assessee company for the purpose of convenience, had categorised the fees shared (i) as marketing claim and (ii) as infrastructure claim Contention of the Revenue AO treated the infrastructure claims paid to the franchisees as rent paid and held that the assessee company was liable to deduct tax u/s 194I 24 Contd

25 ..Infrastructure claims paid to franchisees vs. Rent u/s 194I Decision Held that the agreement was in fact a franchisee agreement and it could not be said that the rent was being paid by the assessee company to the licensee franchisee. There was no payment of rent by the assessee company to the licensees/franchisees and hence the provisions of section 194I cannot be made applicable. 25

26 Sec 194J TDS on Fees for Professional or Technical Fees 26

27 Payment for Broadband Services Case Laws CIT, Delhi v. Bharti Cellular Ltd. (Civil appeal no. 6691) (SC) (2010) Idea Cellular Ltd vs CIT (121 TTJ 352) (Del.) Pacific Internet(India)(P) Ltd vs ITO (27 SOT 523) (Mum.) CIT vs Bharti Cellular Ltd (210 Taxation 420) (Del.) Decision Payment for interconnect charges, bandwidth and network operating facilities availed by the assessee from other telecommunication concerns being standard facilities are not includible in technical services within the meaning of Section 194J Technical services are covered u/s 194J only if human element is involved Technical services without the human element are outside the scope of section 194J SC has opined that Fees for technical services has same meaning as in Expl.2 to Sec.9(1)(vii) and is to be interpreted in a narrower sense It is essential to find out whether human intervention takes place to judge whether technical services are rendered. For this purpose expert evidence is required Accordingly the Apex Court has directed the Assessing Officer (TDS) to arrive at a decision with the help of technical expert from Department within 4 weeks after giving opportunity to assessee 27

28 Purchase of Brand-amounts to Royalty Case Laws ACIT vs. Frontline Software Services (P) Ltd (24 DTR 232) (Indore) The payments made to NIIT for allowing the use of trademark and providing copyrighted material, proprietary information and a substantial body of technical knowhow relating to the location, design and operation of the computer centers are technical services covered by section 194J However, the payments made for courseware consumables, educational aids are not technical services and not covered by 194J 28

29 Payment for using technology vs. payment for using equipment using technology Case Laws Canara Bank vs. ITO (117 ITD 207) (Ahmd.) Payment made for availing services of MICR centre run by SBI for identifying, reading and clearing cheques through special kind of machines involving human skills constitute technical service u/s 194J 29

30 Payment towards common services Case Law CIT v/s. Fortis Health Care Ltd. (181 Taxman 257) (Del.) The money received by the assessee was reimbursement of expenses incurred by the assessee in respect of common services extended by the assessee The expenses incurred by the assessee were equivalent to the monies received No income would arise to the assessee if the expenses are set-off, since there is a direct nexus between the receipt and the expense 30

31 Third Party Administrator s(tpa s)-scope u/s 194J Case Laws Medi Assist India TPA Pvt. Ltd. vs DCIT (184 Taxman 359) (Kar.) The TPA providing health insurance claim services makes payment to hospitals for rendering medical services to the policy holders. It is not necessary that the services are required to be rendered by TPA. Services can also be said to have been provided if they are provided through someone else on the request of TPA. The TPA who is the authority to pay to hospital is required to deduct tax at source under section 194J Circular No. 8 dated CBDT clarified, after the above decision, on application of Section 194J on transactions by TPA s with hospitals. CBDT clarified that the payments made by TPA s on behalf of insurance companies to hospitals for settlement of medical/ insurance claims under various schemes are liable to deduct tax at source under section 194J. 31

32 Third Party Administrator s(tpa s)-scope u/s 194J Case Laws Dedicated Health Care Services TPA vs. ACIT (324 ITR 345) (Bom.) Facts The TPA provides services such as hospitalization services, cashless access services, processing and settlement of claims The TPA makes payment to hospitals for rendering medical services to the policy holders Decision Though a hospital by itself, being an artificial entity, is not a medical professional, it provides medical services by engaging the services of doctors and qualified medical professionals. These are services rendered in the course of the carrying on of the medical profession The TPA is required to deduct tax at source under section 194J Circular No. 8/2009 dated is applicable The circular is set aside to the extent it states that a failure to deduct tax on payments made by TPAs to hospitals u/s 194J will necessarily attract a penalty u/s 271C 32

33 Transaction fees paid to stock exchange Case Laws Kotak Securities Ltd. Vs ACIT (25 DTR 214) (Mum.) Transaction Fee paid to stock exchange on the basis of volume of transaction is payment for use of facilities provided by the stock exchange and not for any services, either technical or managerial Provisions of Section 194J are not attracted No disallowance can be made by invoking section 40(a)(ia) 33

34 Description in profit & loss account is not decisive Case Laws Mahesh Enterprises Vs ITO (I.T.A. No. 180)(Mum.) Description of payment as royalty in profit and loss account is not decisive for the purpose of section 194J The true nature of the payment has to be gathered from the terms of the agreement, if any, entered into between the parties as well as their conduct and all the surrounding circumstances 34

35 Rent for the use of plant and machinery Section 194J or Section 194I??? Under which section would tax be deductible when composite rent is paid for building & plant Section 194 J Royalties (@ 10%) Section 194 I Rent (@ 2%) Royalty definition includes: the use or right to use, any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB Rent means: any payment, for the use of: machinery; or plant; or equipment; or furniture; or fittings 35

36 Non residents & TDS 36

37 Agency commission payable to foreign agents(1) CBDT vide Circular No. 7 dated 22 October 2009 has withdrawn the Circular No. 23 dated 23 July 969 ( Circular 23/1969) which clarified if a non-resident has a business connection in India, it is only that portion of the profit which can reasonably be attributed to the operations of the business carried out in India, which is liable to income-tax Issue Whether agency commission payable to the foreign agents of Indian exporters is liable for withholding tax??? 37

38 Agency commission payable to foreign agents(2) Circular No. 23/1969 and the subsequent Circular 786/2000 were merely clarified the position under section 9 of the Act. The payment to non-resident agent does not accrue or arise in India if The non-resident agent operates outside India The payment is direct remitted abroad The transaction is on principal to principal basis Since, provisions of section 5(2) and section 9 are unchanged the withdrawal of Circular 23/1969 will not impact the principles laid down by the judicial precedents till date Income of a non-resident by way of interest, royalties or fees for technical services shall be deemed to accrue or arise in India (and hence liable to tax in India) whether or not the nonresident has rendered services in India. 38

39 Sales by non-residents through agents in India Issue Subsequent to withdrawal of Circular 23/1969, whether tax is required to be deducted in respect of sales by non-residents through agents in India? Implications No income deemed to be accrue or arise in India if No activities/operations are carried out in India The contracts to sell are made outside India The sales are made on principal-to-principal basis In case non-resident has some operation in India, then the taxable income shall be limited to the extent of operations being carried out by the non-resident in India 39

40 Deduction of tax u/s. 195 Case Law GE India Technology Centre Private Ltd. [Civil Appeal Nos of 2010] Facts The revenue authorities raised an additional contention before the High Court that unless the payer makes an application to the tax officer under Section 195(2) and has obtained a permission for non-deduction of the tax at source, it was not permissible for the payer to contend that the payment made to the non-resident did not give rise to income taxable in India and that there was no need to deduct any tax Issues before the SC Whether the HC was right in holding that the moment there is remittance the obligation to deduct tax at source arises Whether merely on account of such remittance to the non-resident abroad by an Indian company, could it be said that income chargeable to tax under the Act arises in India 40

41 ...Deduction of tax u/s. 195 Ruling of SC Section 195 imposes a statutory obligation on any person responsible for paying to a non-resident, any interest (not being interest on securities) or any other sum (not being dividend) chargeable under the provisions of the Act, to deduct income tax at the rates in force A person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the Act. Sums chargeable under the provisions of the Act would refer to such amounts, which should have an element of income in them as required under the provisions of the Act, and the treaty provisions, and hence would be liable to tax under the Act Section 195 contemplates not merely pure income payments, but also covers composite payments which has an element of income embedded or incorporated in them The expression sum chargeable under the provisions of the Act has to be read in conformity with the charging provisions, i.e., Sections 4, 5 and 9 41

42 ...Deduction of tax u/s. 195 Ruling of SC Where the payment made by the resident to the nonresident was an amount which was not chargeable to tax in India, then no tax is deductible at source even though the assessee had not made an application The application of Section 195(2) pre-supposes that the person responsible for making the payment to the non-resident considers that tax is payable in respect of some part of the amount to be remitted to a non-resident, but is not sure as to what should be the portion so taxable or the amount of tax to be deducted The obligation to deduct tax at source is limited to the appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the non-resident The SC rejected the contention of the department, that the assessee make an application in every case of remittance even when the income has no territorial nexus with India or is not chargeable in India A payer making a remittance to a non-resident, could make an application to the tax officer, where he not sure as to what should be the portion so taxable or is not sure as to the amount of tax to be deducted 42

43 Time limit for passing order (Sec. 201 r.w.s. 195) Case Law Mahindra & Mahindra Ltd. vs. DCIT (313 ITR 263 ) (AT) (Mum.) Person responsible for paying TDS not to be treated as assessee in default if recipient pays tax or is chargeable to tax under the Act, but may be liable for interest An order passed u/s 195 r.w.s 201(1) or 201(A) of the Act cannot be held as barred by limitation in law, if it is not passed within four years from the end of the Financial Year 43

44 Certificate for lower deduction of tax at source 44

45 Certificate for lower deduction of tax at source (1) Instruction No.7/2009 issued by CBDT on 23 December 2009 Issued to curb the indiscriminate issuance of 197 certificates Procedural Compliance Prior administrative approval of the CIT(TDS) should be taken (where the cumulative amount of tax foregone by non-deduction/lesser rate of deduction of tax arising out of certificate under Section 197 during a financial year for a particular assessee exceeds Rs. 50 lakh in for Delhi, Mumbai, Chennai, Kolkatta, Bengaluru, Hyderabad, Ahmedabad, Pune and Rs. 10 lakh for other places. Once the CIT(TDS) gives his approval of the above, a copy of it has to be endorsed invariably to the jurisdictional CIT 45

46 Certificate for lower deduction of tax at source (2) Instruction No.6/2010 issued by CBDT on 9 August 2010 Issued to curb the indiscriminate issuance of 197 certificates Procedural Compliance 197 certificates are at present being issued manually rather than through the ITD system Certificates u/s. 197/206C(9) shall be generated and issued by the AO mandatorily through ITD system only In case due to certain reasons, it is not possible to generate the certificate through the system on the date of its issue, the AO shall upload the necessary data on the system within 7 days of the date of issue (manually) of the certificate This procedure is put in place to maintain centralized data of issue of such certificates and facilitate better processing of the TDS / TCS returns filed by the deductors 46

47 Certificate for lower deduction of tax at source Manual system No check as to whether such certificate has been issued by the authorized/competent assessing officer having jurisdiction No information available as regards number of certificates issued or the quantum of revenue involved. No systematic reference number which could be amenable to verification. It is not possible to ascertain the veracity of claim, of the deductors about no/low deduction having been made on the strength of a 197 certificate actually issued by the department Issue of certificate u/s 197 through the system Entire information about the deductor and deductee, nature of payment (related section), the lower rate authorized, dates of validity of certificate and quantum of payment would be available to the department The information (as above) can be used while processing the TDS returns and matching the data provided by the deductor in TDS return The information/statistics would help the CBDT in taking an informed policy decision on the issue in future 47

48 Tax Audit & TDS 48

49 Amendment to Section 40(a)(ia) To provide that no disallowance will be made if, after deduction of tax during the previous year, the tax has been paid on or before the due date of filing of return of income. Amendment is with retrospective effect from Assessment Year Financial year (Existing provision) (New provision) Timeline for payment of TDS Tax deductible during April to February Tax deductible during March 31 March September September

50 Disallowance u/s 40(a) (ia) Whether 40 (a) (ia) attracted in case of short deduction / non-deductions on items capitalised: Mumbai Bench of the ITAT YES Spaco Carburetors (I) P. Ltd. v/s. ACIT (3 SOT 798) (2005) Delhi Bench of the ITAT NO SMS Demag (P.) Ltd. v/s. DCIT (38 SOT 496) (2010) Whether 40 (a) (ia) applies to a case of short deduction: Decision of the Madras Bench of the ITAT in the case of Frontier Offshore Exploration (314 ITR 193) (2009) 50

51 Disallowance u/s 40(a)(ia) Case Law Teja Constructions vs. ACIT(ITA NO. 308) (Hyd.) The tribunal held that where the income of the assessee having been determined by resorting to estimation, there is no scope for any further disallowance under section 40(a)(ia) or otherwise Indwell Construction vs. CIT (232 ITR 776) (AP) Where the books of account have been rejected, the Revenue cannot rely on the same books of account for addition of an exact amount of expenditure in the P&L a/c 51

52 Disallowance u/s 40(a)(i) Case Law CIT Vs. Siemens Aktiongesellschaft (310 ITR 320) (Bom.) Reimbursement of expenses is not taxable in India Mahindra & Mahindra (313 ITR 263) (Bom.) Reimbursement of expenses is not income; and therefore cannot be treated as other sum chargeable to tax within the meaning of section 40(a)(i) of the Act 52

53 Tax Credit 53

54 Tax Credit ~ Recent Amendments (1) Amendment by Notification No. 28/2009 dated 16 March 2009 Applicable from 1 of April 2009 Based on the principle that the person who is chargeable for income should get the tax credit Pre-amendment provisions Tax authorities often deny TDS credit to the tax payer even though Income is assessable in his hands Authorities take different views in similar situations - litigation to obtain TDS credit 54

55 Tax Credit ~ Recent Amendments (2) Post-amendment provisions TDS credit to be allowed to persons other than deductee where relevant income is assessable in the hands of such other person Deductee to file a declaration with the deductor containing all relevant details of person to whom income belongs TDS credit shall be given based on the information furnished by the deductor with the income tax authority & information in return in respect of claim for credit TDS Credit shall be given if Rule 37BA(1) and Rule 37BA(4) Tax is deducted and paid to the credit of the Central Govt. When the details furnished by the deductor tallies with the deductee.(utn Matches) Risk Management Strategy of the Board-vets the credit of TDS as provided by the assessee. 55

56 Tax Credit ~ Conditions for grant of credit Declaration to be filed with deductor Name, address and PAN of person to whom credit is to be given Payment or credit in relation to which credit is to be given Reasons for giving credit to such person Credit to be given on the basis of Information relating to deduction of tax furnished by the deductor to the incometax authority Information in the return of income in respect of claim for credit Other conditions Credit for TDS shall be given for the assessment year in which such income is assessable Where income is assessable over a number of years, credit for TDS shall be allowed in those years in the same proportion in which income is assessable to tax 56

57 Tax Credit ~ Cases where Rule shall apply Income of the deductee is included in the total income of another person under section 60, 61, 64, 93, 94 Income of the deductee being an AOP/trust is assessable in the hands of the members/trustees Income from asset held in name of deductee, being a partner of a firm/karta, is assessable as income of the firm/ HUF. Income from a property, deposit, security, unit or share held in the deductee s name but owned jointly -income is assessable in joint owners hands in same proportion as their ownership of the asset 57

58 Year of chargeability of income & grant of credit for TDS Case Laws Varsha G. Salunke (98 ITD 147) (Mum.) (TM) Sections 198 and 199 do not in any way change the year of assessability of income The AO is required to verify whether the assessee has offered the income pertained to the TDS certificate before giving credit If the AO finds that this has not been done, the credit must be deferred Credit for TDS will be given only in the year in which income is to be assessed 58

59 Year of chargeability of income & grant of credit for TDS Case Laws Pradeep Kumar Dhir Vs ACIT (303 ITR 45) (CHD) The assessee maintains accounts on cash basis The AO has given credit for TDS on proportionate basis with respect to the income assessable for the year There was difference of opinion between the members of the bench. Hence, appeal was heard by a Division Bench Decision Held that income must be computed as per the method regularly followed by the assessee. Cash system of accounting cannot be disputed Credit for TDS is to be allowed as per section 199 AO rightly allowed credit for TDS on a pro rata basis The credit for the balance amount mentioned in the TDS certificate is to be allowed in the year in which such income is disclosed or otherwise found to be assessable 59

60 Method of accounting followed by the assessee Case Laws Vimla Sonwane (212 ITR 489) (BOM.) Facts The assessees are co-owners of some plots Two plots were given on lease one plot at Rs. 9 lakhs per year and another plot at Rs. 6 lakhs per year Lessees filed proceedings for fixation of Standard Rent The assessees do not maintain regular account books and do not follow the mercantile system of accounting The AO added the lease money in the total income on accrual basis on the basis of agreed rent 60

61 Method of accounting followed by the assessee Decision Option regarding adoption of system of accounting is with the assessee and not with the it department The assessee in indeed free even to follow different methods of accounting for income from different sources in an appropriate case The department cannot compel the assessee to adopt the mercantile system of accounting Other relevant case laws CIT vs. Smt. Sumatibai M. Dhanwatey (212 ITR 492) (BOM) Reliance Industrial Infrastructure Ltd. V. Jt CIT (75 TTJ 606) (TBOM) 61

62 Credits available in Form 26AS The credits available in the tax statement confirm that: the tax deducted/collected by the deductor/collector has been deposited to the account of the government; the deductor/collector has accurately filed the TDS/TCS statement giving details of the tax deducted/collected; bank has properly furnished the details of the tax deposited by the assessee If the payee s PAN is not correctly provided in the TDS/TCS statement filed by the deductor, the details of TDS/TCS cannot be posted into Form 26AS In future, this consolidated tax statement (Form 26AS) can be used as proof of tax deducted/collected and the tax directly paid along with the income tax return However, as of now, for claiming the credit for tax deducted/collected at source one may be required to enclose TDS/TCS certificates (Form 16/16A) issued by the deductor. 62

63 Other developments 63

64 Mandatory quoting of PAN w.e.f. 1 April 2010 (1) Finance (No.2) Act of 2009 makes PAN compulsory in case of TDS eligible payments. Failing to that, deductor will have to deduct taxes at higher rate Where PAN is not provided by the deductee on or after , rate applicable in all cases would be 20% or higher rate in force No Surcharge, Education cess and Secondary Higher Education cess needs to be added while deducting TDS w.e.f No certificate for NIL or lower withholding of taxes will be issued if the application filed under section 197 does not contain the PAN of the payee 64

65 Mandatory quoting of PAN w.e.f. 1 April 2010 (2) CBDT vide Press Release dated 20 January 2010 has been advising payers to intimate payees (including non-resident payees) to obtain and furnish their PAN in order to avoid tax withholding at a higher rate. The requirement for PAN should be applicable only when the obligation to withhold tax arises. 65

66 Due dates for payment of TDS Notification no. 41/2010 dated 31 May 2010 w.e.f 1 April 2010 Amount paid / credited Old Provisions On 31 March 31 May Due date of deposit of TDS On any other day 7 th of the next month New Provisions In the month of March 30 April In other months 7 th of the next month In the case of a company or a person (other than a company) to whom the provisions of tax audit are applicable, TDS must be remitted electronically (by way of internet banking facility or debit card) to the RBI or SBI or any authorised bank accompanied by an electronic income-tax challan 66

67 Finance Act 2010 Requirement to issue TDS and TCS certificates reinstated Increase in the threshold limits for non-deduction of tax w.e.f 1 July Section Nature of payment Existing limit (Rs.) Proposed limit (Rs.) 194B Winnings from lottery or crossword puzzle 5,000 10, BB Winnings from horse race 2,500 5, C Payment to contractors -For single transaction -For aggregate of transaction during the year 20,000 50,000 30,000 75, D Insurance commission 5,000 20, H Commission or Brokerage 2,500 5, I Rent 1,20,000 1,80, J Fees for professional or technical services 20,000 30,000 67

68 Amendment in Section 201 w.e.f New sub-sections have been added to Section (3)- No order shall be made under sub-section (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) 2 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; (ii) 4 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 1 April 2000 may be passed at any time on or before the 31st day of March, (4)- The provisions of sub-clause (ii) of sub-section (3) of section.153 and of Explanation to Sec153 shall, so far as may, apply to the time limit prescribed in sub-section(3) 68

69 201(1A) ~ Increase in interest rate for delay/ failure to deposit withholding tax Finance Act 2010 has increased the interest rate w.e.f. 1 July Interest on late deduction/deposit of tax Interest from the date when tax deductible to actually deducted Interest from the date when tax actually deducted to actually paid Existing New 1% 1% 1% 1.5% 69

70 Q&A 70

71 Appendix 71

72 Recent amendments in I.T. Act (1) Increase in threshold limit for non-reduction of tax at source for certain sections Proposed by Finance Act 2010 w.e.f 1 July 2010 Section 194A clause amended w.e.f Section 194C-whole section amended w.e.f Section 194I-change in TDS rates w.e.f Section 197A- no TDS in certain cases w.e.f Section 200(3)- w.e.f Section 200A-processing of statements of TDS (new section) w.e.f Section 201(1A) increase in interest rate - Proposed by Finance Act 2010 w.e.f 1 July

73 Recent amendments in I.T. Act (2) Section 201(3)and 201(4)-new sections w.e.f Requirement to issue TDS and TCS certificates reinstated Section 206AA Requirements to furnish PAN by deductee (new section) w.e.f

74 Recent amendments in TDS Rules Re-instatement of earlier rules with retrospective effect from 1 April 2009 Notification No. 9/2010 dated 18 February TDS Credit u/s Income Tax (6th Amendment) Rules, 2009 [Notification No. 28/2009 dated ] Furnishing of information in relation to TDS u/s 195(6) - Income Tax (7th Amendment) Rules, 2009 [Notification No. 30/2009 dated ]. This amendment has been kept in abeyance for the timebeing. Amendment of TDS Challan, certificates and statements - Income Tax (8th Amendment) Rules, 2009 [Notification No. 31/2009 dated implementation now deferred to instead of ] This amendment has been kept in abeyance for the timebeing. Income Tax (6th Amendment) Rules, 2010 Notification No. 41/2010 dated 31 May

75 Quarterly TDS statements u/s 200 Statement of deduction of tax under section 192 Form no. 24Q Statement of deduction of tax under other sections In case of the deductee being a non-resident or a foreign company or resident but not ordinarily resident - Form no. 27Q In case of all other deductees - Form no. 26Q If the number of deductee s / collectee s records in a statement for any quarter are twenty or more, the statements are required to be furnished electronically Quarter ended Due date Requirements of the forms 30 June 15 July TAN of deductor 30 September 15 October PAN of deductor PAN of all deductees 31 December 15 January Particulars of the tax 31 March 15 May paid to the Central Government, including challan identification number 75

76 TDS Certificate to be furnished (1) Notification no. 41/2010 dated 31 May 2010 w.e.f 1 April 2010 Deduction u/s Form No. Requirements of form Valid PAN of the deductee Valid TAN of the deductor Challan identification number in case of payment through bank Receipt number of the relevant quarterly TDS statement(s) Any other provision Time for furnishing the form Periodicity Annual Due date By 31 May 16A Same as above Periodicity Quarterly Due date Within 15 days from the due date for furnishing the quarterly TDS statements 76

77 TDS Certificate to be furnished (2) The deductor may use digital signatures to authenticate Form 16 Once digitally signed, the contents of the certificate are not amenable to change The certificates must have a control number and a log of such certificates must be maintained by the deductor Form 16 now has two parts: Part A dealing with basic information regarding the deductor and employee and the summary of tax deducted of source; If an assessee is employed by more than one employer during the year, each of the employers are required to issue Part A of the certificate; Part B dealing with details of salary and tax deducted / paid. Part B may be issued by each of the employers or the last employer at the option of the assessee The provision for issue of Form 16AA in cases of salaries not exceeding Rs. 150,000 is not contained in the amended rules 77