Case Laws

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Case Laws Case Studies - Tax Deducted at
Source

• CA. N. C. Hegde
• 2 June 2007

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Contents
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Contents
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Case Study 1FACTS

• An assessee employer is liable to deducted tax at
  source under section 192.
• Deduction of tax of the employees was not uniform
  during the year very negligible in the initial
  months and high amount in the last months.
• AO passed order levying interest under section
  201(1A) on the grounds that tax was not properly
  deducted.

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Case Study 1ISSUES

• Whether the Assessing Officer has rightly levied
  interest on non-uniformity of TDS deducted?
• CASE LAWS
• Vinsons v. ITO, 89 ITD 267 (Mum)
• Grasim Industries Ltd. v. ITO, 92 TTJ 944 (Jodh)
• Secy. Board Of Secondary Education, Rajasthan v.
  ITO, 93 TTJ 256 (Jaipur)

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Case Study 2 FACTS

• The assessee company (employer) deducted tax
  under section 192 treating leave travel expense
  as exempt on the basis of declarations filed by
  the employee.
• The assessee did not obtain any documentary
  evidence to treat LTA as exempt.
• AO passed order under section 201(1) treating
  assessee in default having regard to
  non-verification of travel payments proof.

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Case Study 2ISSUES

• Is the AOs order justified in treating the
  assessee as assessee in default and levy
  interest u/s 201(1A)?
• CASE LAWS
• DCIT v. HCL Infosystems Ltd. 282 ITR 263
• Savani Financials Ltd. v. ITO, 1 SOT 111
• Lintas India Ltd. v. Ass. CIT, 5 SOT 310
• DCIT v. Excel Industries Ltd., 5 SOT 235

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Case Study 3 FACTS

• G Ltd is a construction company engaged in the
  business of construction etc.
• At the initiation of the job work, the client
  provides G Ltd. some interest bearing
  mobilization and plant advance, which is to be
  repaid by the end of the contract along with
  interest.
• G Ltd. submits the running account bills on
  monthly basis depending on the completion of
  contract.
• Against this the client recovers the principal
  interest amount and thus G Ltd. does not actually
  pay any interest.
• Since no direct payment of interest made, NO TDS
  deducted.

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Case Study 3 ISSUES

• Is the contention of assessee correct?
• Whether tax is required to be deducted at source
  under section 194A- Interest other than interest
  on securities?
• What are the other implications of such
  non-deduction?
• CASE LAWS
• Raymond Limited V. DCIT 86 ITD 791.
• Kanchanganga Sea Foods Ltd. v. CIT 265 ITR 644

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Case Study 4FACTS

• Assessee engaged in business of imports and/or
  exports, engages services of Clearing
  Forwarding agents.
• Payments to such CF agents comprise of the
  following
• Reimbursement of freight paid to shipping
  companies or airlines.
• Reimbursement of freight on local transportation.
• Reimbursement of import or export clearing
  expenses like payments to Port Trust, Airport
  Authorities of India, miscellaneous charges, etc.
• Reimbursement of bonded warehousing charges.
• Reimbursement of Customs duties and Octroi.
• Reimbursement for Crane and Machinery charges to
  Port Trust etc.
• Agency service charges.

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Case Study 4ISSUES

• Whether any tax is liable to be deducted on any
  of the above payments to CF agents?
• If the agent has already deducted TDS on freight
  payment to the Indian Shipping Co., then whether
  the importer/exporter also needs to deduct tax on
  the payments made to the agents and if so then on
  what amount?
• When CF agent deduct tax and pays it to the
  exchequer, the payment would be on his own TDS
  account or his clients account number?
• Contd

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Case Study 4CASE LAW

• CIT v. Industrial Engineering Projects Pvt.
  Ltd., 202 ITR 1014 (Del.)
• CIT v. Dunlop Rubber Co. Ltd, 142 ITR 493 (Cal.)
• Raymond Ltd. 86 ITD 791 (Mum.)
• Associated Cement Co. Ltd.(SC) 201 ITR 435

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Case Study 5 FACTS

• The assessee is a pharmaceutical company, engaged
  in manufacturing and selling business.
• It procures packing material like plastics
  wrappers, containers, cardboard boxes etc from
  the vendors (manufacturers) as per assessees
  desired specifications viz. brand name, name
  address, designs, trademarks etc.
• Similarly, payments are also made to printing and
  stationary vendors who supply printed
  letterheads, business cards, sales and other
  printed literature where the printing is done as
  per the assessees specifications.
• Vendors charge excise duty and sales tax on such
  items.

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Case Study 5 ISSUES

• Whether TDS is required to be deducted under
  section 194C for payments made as printing
  charges?
• CASE LAWS
• BDA Ltd. v. ITO (TDS), 281 ITR 99 (Mum.)

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Case Study 6 FACTS

• G Ltd. is engaged in the business of engineering
  and construction.
• G Ltd enters into execution of construction
  contracts.
• G Ltd has made certain payments for carrying out
  certain ancillary work undertaken for the purpose
  of executing the above contracts.

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Case Study 6ISSUES

• Whether the payments made by G Ltd should be
  treated as payments for main contract or as
  sub-contract for deduction of tax at source u/s
  194 C?
• CASE LAWS
• Datta Digamber Sahakari Kamgar Sanstha Ltd. V.
  ACIT 83 ITD 148 (Pune)
• ITO V. Rama Nand Co. And Others 163 ITR 702

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Case Study 7 FACTS

• Assessee, a Govt. establishment procured milk
  from various Sanghs etc and sold it in the market
  through milk centres run by the appointed agents.
• Agents sold the goods at the price fixed by the
  assessee.
• Assessee used to reimburse these agents _at_ Re.0.90
  per litre towards transport cost, container cost
  and chilling charges.
• Assessee had given the nomenclature as Commission
  for such payments.
• AO held to deduct tax u/s 194H as payments for
  commission.

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Case Study 7ISSUES

• Is the said transaction based on
  principal-agent relationship?
• Whether any TDS is required to be deducted u/s
  194H?
• CASE LAWS
• Government Milk Scheme v. ACIT 2006 98 ITD 306

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Case Study 8 FACTS

• B Ltd is engaged in the business of providing
  cellular mobile telephone services through its
  distributors.
• It sold SIM and other pre-paid cards at a fixed
  rate below market price to such distributors
  for ultimate sale to customers.
• As agreed, all rights, title, ownership and
  property rights in such cards would all time vest
  with B Ltd.
• Assessee claimed such price difference as
  discount allowed and not as commission defined in
  Expl. u/s 194H
• AO treated it as default and levied interest
  under section 201(1) and 201(1A).

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Case Study 8 ISSUES

• Is the AOs claim justified in treating it as
  commission?
• Whether provisions of section 194H gets
  attracted??
• CASE LAWS
• ACIT v. Bharti Cellular Ltd. 105 ITD 129 (Cal.)
• Hindustan Coca-Cola Beverages (P.) Ltd. v. ITO
  2005 97 ITD 105 (Jp.)

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Case Study 9 FACTS

• X Ltd. is in the business of running a call
  centre.
• Contract is entered with transport contractor
  for transporting the employees of X
• X Ltd. uses the bus or van and such other means
  of transport for this purpose.
• The payments made by X Ltd to transport
  contractor are fixed hire charges .
• TDS is deducted by X u/s 194 C.
• AO is of the view that payments are in nature of
  rent under section 194I, as defined by Tax Law
  Amendment, 2006.

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Case Study 9 ISSUES

• Is the stand taken by the AO is correct?
• CASE LAW REFERENCE
• Circular No. 558 dated 28.3.1990

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Case Study 10 FACTS

• PQR Ltd., the assessee, is engaged in the
  business of providing airline services.
• Co. frequently requires hotel rooms for
  accommodation of its pilots and crew members.
• Co. books rooms and makes payments for hire of
  rooms.
• PQR Ltd. has entered into rate-contracts with
  some and with others the nature of contract is
  such that hotels are under an obligation to
  provide accommodation to PQR Ltd.
• TDS is deducted under section 194C.

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Case Study 10ISSUES

• Is PQR Ltd. required to deduct tax under section
  194-I or whether the co. is justified in
  deducting under section 194C?
• CASE LAWS
• Krishna Oberoi and another v. UOI 2002 257 ITR
  105 (AP)
• Circular No. 5/2002 dtd. 30-7-2002, 194I does not
  apply to Rate Contracts.

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Case Study 11 FACTS

• G Ltd. is a manufacturer.
• Company has made payments to an Indian entity
  towards the Internet connectivity, Vo-Data card
  charges and Domain registration charges.
• No TDS is deducted on such payments made.
• Company has a view that the payments made are not
  in terms with payment for technical services
  as covered under section 194J.
• However, CCIT treats the payments made as fees
  received for providing technical services and
  deduct tax at source.

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Case Study 11ISSUES

• Is G Ltd correct in its stand that the payments
  made to providers of internet connectivity,
  facility of Vo-Data card or domain registration
  charges are out of the purview of fees for
  technical services?
• Whether TDS should be deducted on such payments?
• CASE LAW
• Skycell Communications Ltd (251 ITR 53) Mad.

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Case Study 12 FACTS

• The invoice raised on the assessee was inclusive
  of professional charges and service tax thereon
  and reimbursement of actual expenses.
• No TDS deducted on the reimbursement of expenses.
• Under any sum paid as referred to in Sec.194J,
  reimbursement of actual expenses cannot be
  deducted out of the bill amount for the purpose
  of tax deduction. Circular No. 715 dtd.
  8-8-1995
• AO relied on CBDT circular and levied interest
  u/s 201(1A).

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Case Study 12ISSUES

• Whether TDS will be deductible on gross value of
  bill or on net?
• Will the answer be different if separate bills
  are raised for both?
• CASE LAW
• ITO v. Dr. Willmar Schwabe India (P) Ltd. , 3
  SOT 71.

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Case Study 13 FACTS

• A Ltd., the assessee, entered into a lease
  agreement with B Ltd. for taking premises on
  lease with a separate agreement on hire of
  furniture.
• A Ltd. fails to deduct tax at source under
  section 194-I on the lease payments made to the
  payee.
• However B Ltd. while filing his return of income
  declared the said receipt of income and paid
  taxes thereon.
• Assessing officer issued notice under section
  201(1) 201(1A) levying interest for non
  deduction of TDS.

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Case Study 13 ISSUES

• Whether the AO can issue such a notice on A Ltd.?
• If yes, is he liable to pay tax?
• If not, is he liable to pay interest?
• If yes, what is the period for which interest is
  payable?
• CASE LAWS
• CIT v. Adidas India Marketing Pvt. Ltd. , 288
  ITR 379
• CIT v. Rishikesh Apartments Co-op Housing Soc.
  Ltd. 253 ITR 310,316 (Guj.)

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Case Study 14 FACTS

• A Ltd. delayed in depositing the tax deducted at
  source into Governments account for the
  assessment years 1988-89 to 1996-97.
• For the above stated Ass. yrs. the Assessing
  Officer passed orders dated 25.5.2000 levying
  interest under section 201(1A) on the grounds of
  such delay.
• The assessment and other proceedings for all
  those years has been completed much earlier.
• Appeal was filed by A Ltd. saying no such
  interest could be levied after lapse of such a
  long time.

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Case Study 14ISSUES

• Whether in absence of the prescribed time limit
  for initiation and completion of proceedings
  under the Act, initiation of proceedings should
  be within reasonable time?
• What can be the reasonable time period of levy of
  interest under section 201(1A) for delay in
  deposit of TDS?
• Whether AO can levy/order interest u/s 201(1A)?
• CASE LAWS
• Raymond Woollen Mills Ltd. 57 ITD 536 (Mum.)
• Century Textiles Industries Ltd. 13 SOT 507
  (Mum.)

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Questions?
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Thank You!