Tax Deduction at Source Recent Issues

Transcription

1 Tax Deduction at Source Recent Issues Gautam Nayak Chartered Accountant BCAS Lecture Meeting 21 st November 2007

2 Recent Amendments With effect from Definition of rent u/s.194i amended to include payments for use of machinery, plant, equipment, furniture, fittings, whether or not owned by payee applicable for use either separately or together Section 194J extended to royalty[s.9(1)(vi)], and noncompete payments [s.28(va)] 2

3 Recent Amendments.. With effect from TDS deductible from interest on 8% Savings (Taxable) Bonds 2003 exceeding Rs.10,000 Limit u/s.194a increased to Rs.10,000 where payer is a bank/ post office (for notified scheme) TDS u/s.194c extended to individual/huf (main contractor) who was liable to tax audit in earlier year no TDS on payments for personal purposes Rate of TDS on Commission or Brokerage increased from 5% to 10% 3

4 Recent Amendments. With effect from TDS u/s.194i reduced to10% for rent of machinery/ plant/ equipment Rate of TDS u/s.194j increased from 5% to 10% With effect from Interest u/s.201(1a) amended from 12% per annum to 1% per month or part thereof 4

5 Recent Amendments Some Issues What payments now remain outside the purview of TDS? Sale of Goods Circular No.13 of 2006 dated BDA Ltd. v. ITO(TDS) 281 ITR 99(Bom) CIT v. Dabur India Ltd. 283 ITR 197(Del) Electricity Commr. Of Sales Tax, MP vs. MPSEB, Jabalpur (1969) 1 SCC 200 (SC) electricity is goods Software - Licence for Shrink Wrapped is Goods - TCS v. State of AP 271 ITR 401(SC) 5

6 Recent Amendments Some Issues Payments outside the purview of TDS. Statutory payments fees, cess, taxes, etc. Services using technology telephone, internet, etc. Skycell Communications Ltd. v. Dy. CIT 251 ITR 53 (Mad) Hutchison Telecom East Ltd. v. ACIT 16 SOT 404 (Kol) leased line charges? Clearing house charges, stock exchange charges, demat charges? Subscription to databases? 6

7 Recent Amendments Some Issues Hire charges of plant/machinery/ equipment covered by both s.194i and s.194j which section to apply? Applicability of section 194I to pure unconnected lease of movables Specific provision vs. General provision 7

8 Recent Amendments Some Issues Hire of ship which section applicable s.194c, s.194i or s.194j? Bareboat Charter Klaus Vogel Commentary Royalty Bareboat Charter cum Demise West Asia Maritime Ltd. v. ITO 109 TTJ (Chen) 617 royalty ship is equipment Voyage Charter Transportation contract vs. contract of hire Disposal and Control over vessel Bombay HC decision in INSA s case 39D BCAJ 555 (Aug 07) - Ship is not plant for s.194i 8

9 Recent Amendments Some Issues Time Charter Disposal and Control over vessel under whose instruction is the master of the vessel VAT - Great Eastern Shipping Co. Ltd. v. State of Karnataka 136 ITR 519 (Kar) tug with crew given for use by port trust maintenance by owner transfer of right to use CIT v. Pompuhar Shipping Corpn. Ltd. 282 ITR 3 (Mad) hire, not contract for work (pre 194C amdt) Poompuhar Shipping Corpn. Ltd. v. ITO 108 TTJ (Chen) 970 Ship is equipment qua the business - terms of agreement use & hire of vessel 9

10 Recent Amendments Some Issues Hire of machinery/car with operator/driver s.194c, s.194i or s.194j? Contract of transportation v. contract of hire Control and Disposal over machinery/vehicle CBDT Circular No.558 dated , 183 ITR (St.) 158 VAT implications 10

11 Recent Amendments Some Issues Which section applicable s.194a, s.194i or s.194j to: Hire purchase payments Whether hire (rent) or finance with interest? Muthoot Leasing & Finance Ltd. 84 ITD 477 (Coch) Finance lease charges Whether rent or finance with interest? 11

12 Impact of e TDS & e Filing Credit for TDS on basis of TDS returns filed Form 26AS online view Entry of TDS details in tax return practical difficulties Grant of refunds verification of TDS for refunds exceeding Rs.25,000 Remedy if TDS return not filed by deductor or PAN not correctly mentioned Applicability of Bombay HC decision in Yashpal Sahni v. Rekha Hajarnavis 293 ITR

13 Recent Notifications PAN details required 90% for salaries, 70% for others, for e TDS returns after Can deductor be made liable for penalty for late filing if details not furnished by deductees? Is there any penalty at all for late filing Crest Communication Ltd. v. ADIT 111 TTJ 93 (Mum) Penalising all deductees for default by few Minimum no. of PAN not required for s.195 returns Notification No.238/2007 dated e TDS returns mandatory w.e.f for all persons subject to tax audit for earlier year & in cases where deductees records exceed 50 13

14 Amount on which tax deductible Whether tax is to be deducted on amount inclusive of service tax or excluding service tax? Nature of service tax tax payable by the service provider Similar to excise duty Whether manner of accounting for service tax would make a difference? 14

15 Assessee in Default & Interest u/s. 201(1A) Hindustan Coca- Cola Beverage P. Ltd. v. CIT 293 ITR 226 (SC) CBDT Circular No.275/201/95- IT(B) dated Tax cannot be recovered from deductor if paid by deductee Interest only till date of payment of tax by deductee When tax can be regarded as paid advance tax paid, self assessment tax paid, return filed? Position as regards s.40(a)(ia) disallowance if tax paid by deductee and not deducted by deductor 15

16 Certificates u/s.197 CBDT Instruction No.8/2006 dated Assessing Officers are issuing certificates for lower deduction or no- deduction of tax at source under s.197(1) indiscriminately and in contravention of the methodology and procedure laid down.. Certificates to be issued strictly as per manner prescribed under rules 28AA & 28AB with prior administrative approval of Range JCIT/Addl. CIT Practical Experience 16

17 Manner of Credit for TDS Recipient following cash system S.199 credit for TDS in year income assessable Whether TDS to be treated as income received in year of deduction? If so, whether credit for pro- rata TDS or entire TDS? Pardeep Kumar Dhir v. ACIT 109 TTJ (Chd) (TM) 445 Amount of receipt Rs.2,05,592 TDS thereon Rs. 11,413 Receipt included in income Rs. 11,413 TDS credit claimed Rs. 11,413 TDS credit allowed by ITAT Rs

18 Manner of Credit for TDS Recipient following cash system Varsha G. Salunkhe 98 ITD 147 (Mum)(TM) Sections 198 and 199 do not in any way change the year of assessability of income Neither income could be added nor credit given in relevant assessment year Assessee following project completion method Toyo Engineering India Ltd. v. JCIT 100 TTJ 373 (Mum) Nexus between TDS & income is notional/conceptual rather than specific/immediate Since WIP impregnated with element of income, credit in that year in which included in WIP 18

19 TDS on Interest on Securities When Deductible? If due date of payment of interest not 31 st March, entry passed by issuer for interest accrued Whether TDS to be deducted at time of credit on 31 st March? Payee not known, may change till due date Tax deductible at time of payment Industrial Development Bank of India v. ITO 293 ITR (AT) 267 (Mum) 19

20 Franchise Arrangements Payments to Franchisees by Franchisor S.194C (for work) or 194I (usage of space)? ITO v. Bhasin Motors India (P.) Ltd. 16 SOT 319 (Del) Discount allowed on sale of SIM cards whether commission? ACIT v. Bharati Cellular Ltd. 294 ITR (AT) 283 (Kol) Payments to Franchisor by Franchisees If payment as percentage of turnover, royalty/fts (s.194j)? Common Advertisement reimbursement s.194c? 20

21 Bill Discounting Charges Whether interest within the meaning of s.2(28a) and therefore liable for deduction u/s.194a? ITO v. Kanha Vanaspati Ltd. 108 TTJ (Del) 816 Borrowing of money or sale of assets? Does recourse make a difference? CBDT Circular No.65 dated not considered Where bills discounted, and payment made immediately to holder, property in bill passes to bank net payment made by bank is price paid for the bill 21

22 Payments to Clearing & Forwarding Agents Whether fees for professional or technical services or whether contract of work? Services relating to storage, dispatch, transportation, loading & unloading C & F agent not professional CIT v. Jeevanlal Lallubhai & Co. 206 ITR 548 (Bom) whether manager? Hindustan Lever Ltd. v. ACIT 4 SOT 785 (Del) National Panasonic India (P.) Ltd. v. Dy.CIT 94 TTJ (Del) 899 Glaxo Smithkline Consumer Healthcare Ltd. v. ITO 12 SOT 221 (Del) 22

23 Thank You! 23