TDS(SOME PRACTICAL ISSUES)AjayWadhwaFCA, LLBTel: [email protected]
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Sec 201(1)If anassesseefails to deduct tax at source or having deducted fails to pay, then such person shall be deemed to be anassesseein default.Objective is to recover the Tax/shortfall.Sec 201(1A)Simple interest –Compensatory-at the rate of 1% or 1.5% shall be payable who does not deduct or after deducting fails to pay the tax.Only when person declare to beassesseein default.Sec 221(1)First holdassessee-in-default to the extentof amount of tax payable. Sec 220(2)No penalty if default was for good & sufficient reason.
Consequences of failure of non deduction& non payment of TDS
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4. Sec 271CFailure to deduct tax at source will attract penalty u/s 271C. Reproducing the relevant portion of section:“(1) If any person fails to—(a) deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B; or(b) pay the whole or any part of the tax as required by or under—(i) sub-section (2) of section 115-O; or(ii) the second proviso to section 194B,then, such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct or pay as aforesaid.”Contrary decisionin the case of US Technologies International (P.) Ltd.[2010] 195 Taxman 323 (Kerala) wherebywasheld thatfailure to deduct tax at source or failure to remit recovered tax, both will attract penalty u/s 271C.CBDT circular - clarificationwef01.04.1987 - amendment100% of sum equal to the amount of tax which a person failed to deduct or pay.Sec 273B – Reasonable cause to be established.
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Genuine +BonafideBelief : Eli Lilly & Company (India) Pvt. Ltd[2009] 312 ITR 225 (SC)Mistake of Accountant-Affidavit Filed : US Technologies (P) Ltd.[2010] 195 Taxman 323 (Kerala)Non consideration of the plea raised by theassesseeabout the existenceof reasonable cause vitiate the order.- Woodward Governors India (P.) Ltd.[2002] 253 ITR 745 (Delhi)Cause to be shown for the entire delay.Hindustan Steel Ltd. vs. State of Orissa.[1972] 83 ITR 26 (SC)Difference between Good & Sufficient Reason and ReasonableCause:Paucityof funds and financial stringency have been considered good & sufficient reasons for inability to pay the tax demanded.ChembaraPeak Estates Ltd.[1990] 183 ITR 471 (Kerala)
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Meaning of Reasonable Cause
Sec 276B :Failure to pay tax deducted at sourceProsecution guidelines instruction no. F.No.285/90/2013-IT (Inv.) dated 07.02.2013Standard OperatingProceedurefor prosecution of cases of TDS/TCS defaults.Prosecution even in absence of determination of liability.PNB Finance 157 ITR 385 (Delhi)Result of penalty and interest proceedings not to impact prosecution.Universal Supply Corporation 206 ITR 222 (Rajasthan)Kingfisher Airlines Ltd. [2014] 265 ITR 240 (Karnataka)
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Prosecution
Compounding Guidelines-279(2) dated 23.12.2014:Compounding not matter of Right.Category A & B.276B- Category A.Generally not compounded if offence of compounding requested on 3 occasions or more.3% per month/part of month of amount of tax in default - Date of deduction till deposit.Same offences again- 5% per monthCompounding Charges: Compounding fees+ Prosecution establishment expenses + Litigation expenses + Counsels fees (Establishment 10% of Compounding fees.
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Not following HC decision under garb of protecting interest of revenue – Contempt u/s 2(b) of Contempt of Courts Act 1971.(a)KamalakshiFinance Corporation Ltd. 1991 (55) ELT 433 (SC)(b) E.I.DupontIndia (P.) Ltd. (2014) 351 ITR 299(c)Legrand(India) Pvt. Ltd. (2007)Following circulardeliberalelyignoring the judgment of High Court holding such circular to benonest.FashionSuitings(P) Ltd.Suprintendentof Central Excise & Service Tax. Range – I,Bhilwara(2014) (Rajasthan)Shenoy& Co. – Law laid down by SC is binding on all
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Contempt – Income tax proceedings & Binding nature
Thana Electricity Supply Ltd. – 206 ITR 727 (Bom.)HC – binding in territorial jurisdictionSingle judge – Same HC – bound to follow DBDB – same HC should follow DB or full benchIf conflicting decisions – later decision to be considered if reached after full consideration of earlier decision.Decision of one HC is neither binding precedent for another HC nor tribunal outside its territory.
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Sec 40(a)(ia)Not able to deposit due to compelling circumstances-whether reasonable cause & doctrine of impossibility of performance would apply.Second proviso inserted by Finance Act, 2012-Any person who fails to deduct the whole or part of the tax, but is notdeemed to be anassesseein default in respect of such tax provided if the resident payee —a. Has furnished return of income u/s 139;b. has taken into account such sum for computation of income; c. Has paid the tax due on incomed. A certificate to that effect is issued by his “accountant”The above proviso inserted by Finance Act, 2012- Held declaratory and curative- Retrospective-AnsalLand Mark Township (P.) Ltd.[2015] 377 ITR 635 (Delhi)Deduction of Tax at a lower rate or under wrong section :Allowabilityu/s 40(a) (ia).Favour:Deduction under wrong provision- No disallowance u/s 40(a)(ia)S.K.Tekriwal[2011] 48 SOT 515 (Kolkata)
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Against:Provision of Section 40(a)(ia) (supra) is not a charging Section but is a machinery Section and such a provision should be understood in such a manner that the provision is workable.The expression 'tax deductible at source under Chapter XVII-B' occurring in the section 40(a)(ia) has to be understood as tax deductible at source under the appropriate provision of Chapter XVII-B. Therefore, as in this case, if tax was deductible under section 194J but was deducted under section 194C, such a deduction would not satisfy the requirements of section 40(a)(ia). Thus, a cumulative reading of this provision shows that deduction under a wrong provision of law will not save anassesseefrom section 40(a)(ia).P V S Memorial Hospital Ltd.[2016] 380 ITR 284 (Kerala)Where there was short deduction of tax at source byassessee, entire expenditure could not be disallowed under section 40(a)(ia), but only interest under section 201(1A) could be levied on amount so short deducted - Held, yes [Para 13] [Infavourofassessee](a)ApolloTyres[2013] 60 SOT 1 (Cochin- Tribunal)(b)Chandabhoy&Jassobhoy[2012] 49 SOT 448 (Mumbai)Vector Shipping Services (P.) Ltd.[2013] 357 ITR 642 (Allahabad) – SLP dismissed by Supreme Court -CBDT circular dated 16.12.2013 over ruling thejudgement1. SLP dismissed – Meaning–Kunhayammedv. State of Kerala 245 ITR 360 (SC)(a) Non speaking(b) Speaking – binding under article 1412. SLP admitted – appeal dismissed – non-speaking – binding precedent -V.M.Salgaocar& Bros. (P.) Ltd. 243 ITR 383
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(a)requirements of sec 269D not apply in transactions where the department has already auctioned the acquired property.SCKrishnaswamyS. Pd. V. Union of India281 ITR 305 (2006) (SC)(b)It is obvious that in the surplus or deficit in any inter-valuation period relating to the Corporation which came to be formed only on the appointed day in 1956, this amount could not be reflected since it related to a period prior to the formation of the Corporation.Life Insurance Corporation of India219 ITR 410 (1996) (SC)(c)Where the law creates a duty or charge, and the party is disabled to perform it, without any default in him, and has no remedy over, there the law will in general excuse himOnkarmalNathmalTrust1975 AIR 2065 (SC)(d)If the Assessing Officer could not perform his duties to complete the order of assessment in the absence of any evidence furnished by theassessee, the department cannot be blamed therefore.Escorts Ltd.(2002) 257 ITR 468 (Del)(e)JagdishMalpaniv. ACIT94 TTJ 321 (ITAT Indore)(f) Suresh Nanda – Delhi High Court 375 ITR 172
Doctrine of impossibility of performance
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Collection Centre-194H-SRL Ranbaxy Ltd.[2012] 50 SOT 173 (Delhi)(URO)(a)No principle agent relationship-As Collection Centre has freedomchoose laboratory to which samples had to be sent for testing.(b)No payment byassesseeto collection centre.B. Newspaper-Advertisement Space- M/sOgaanPublicationPvtLtd. Delhi High Court ITA-181/2012, 182/2012C. Sec 194I not applicable -Assesseetook vehicles on rent from travel agencies. Possession of vehicle was not withassessee.KandlaPort Trust[2012] 50 SOT 109 (Rajkot)(URO)
Other Issues
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D. 194C applies- Contract for transportation and not renting of cranes, dumpers. ShreeMahalaxmiTransport Co.[2011] 339 ITR 484(Gujarat)Technical Know How- Human Element Must-KotakSecurities Ltd.[2016] 383 ITR 1 (SC)Technical fees – 194J -Cellular service provider – Interconnect agreement (BSNL/MTNL)Bhartipays interconnect charges – Manual/Human intervention .BhartiCellular Ltd. 330 ITR 239 (SC)Annual Maintenance Contract-Covered u/s 194C & not 194I.ParasrampuriaSynthetics Ltd. [2008] 20 SOT 248 (Delhi)Sharing of expenses – No TDS – Not income of payee –not revenue receipt –DLF Commercial 123 DTR 001 (Del)Aircraft landing charges – Predominant purpose – not for use of land but for landing and take off & other facilities -Japan Airlines Co. Ltd. 377 ITR 372 (SC). Overruled Delhi HC and confirmed Madras HC
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Assesseemade royalty payments to non-residents, since benefit of DTAA was available to said recipients, their TDS liability could not be more than rate prescribed under DTAA or Act whichever was lower.Infosys BPO Ltd.[2015] 154 ITD 816 (Bangalore - Trib.)Where tax is deductible on the strength of the provisions of DTAAs which is lower than 20%, then the provisions of sec 206AA cannot be invoked (to compel theassesseeto deduct tax at the rate of 20%) even if the recipient does not have PAN.-Serum Institute of India Ltd.[2015] 40 ITR(T) 684 (Pune -Trib.)Latestamendment-In section 206AA of the Income-tax Act, for sub-section (7), the following sub-section shall be substituted with effect from the 1st day of June, 2016, namely:—“(7) The provisions of this section shall not apply to a non-resident, not being a company, or to a foreign company, in respect of— (i) payment of interest on long-term bonds as referred to in section 194LC; and (ii) any other payment subject to such conditions as may be prescribed.”.
Sec 206AA issue
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