SC upholds right of deductor to claim interest on excess TDS deposited to and refunded by revenue subsequently

The Supreme Court held as under:

1)  In the instant case, the deductor had paid taxes pursuant to a special order passed by the assessing officer. In the appeal filed against the said order, the assessee has succeeded and a direction was issued by the appellate authority to refund the taxes paid;

2)  When the said amount was to be refunded it would carry interest in the matter of course. Awarding interest was a kind of compensation for use and retention of the money collected unauthorizedly by the Department.

3)  When the collection was illegal, there was corresponding obligation on the revenue to refund such amount with interest as they have retained and enjoyed the money deposited;

4)  The object behind insertion of section 244A was that an assessee was entitled to payment of interest for money remaining with the Government which would be refunded.

5)  There was no reason to restrict the payment of interest to an assessee only without extending the similar benefit to deductor who has deducted tax at source and deposited the same before remitting the amount payable to a non-resident/ foreign company;

Thus, the deductor was entitled to interest under section 244A(b) from the date of payment of TDS, i.e., date of deposit of TDS with Government

No TDS from salary paid to NR working on a foreign ship for less than 90 days as it is exempt under sec. 10(6)(viii)

Payments made to foreigner-crew member of ship who had worked for a period of less than 90 days in India, were not income of employees in India liable to TDS.

Facts:

a)  The assessee entered into a contract with ‘Alfa Crew’, under which Alfa Crew was entitled to receive a fixed fee; salary of crew to be provided by Alfa Crew and handling charge of 5 per cent thereon.

b)  The assessee engaged the crew members as its employees. It withheld taxes on the fixed fees and handling charges yet, it did not withheld taxes on the amount of salary.

c)  The Assessing Officer did not allow deduction of salary by holding that the same was part of the fees for technical services, on which tax was deductible at source but same was not deducted; hence, said amount was specifically not deductible in terms of section 40(a)(i).

d)  Further, the CIT(A) held against the assessee. On appeal to the Tribunal, the assessee succeeded. Thus, aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1)  The employees, being foreigners, had earned their salaries while working in India during a period less than 90 days, and those salaries, in view of section 10(6)(viii), were not income of the employees in India. Therefore, the assessee was not liable to deduct taxes on under section 192;

2)  Section 40(a)(i) would not be applicable in the instant case as the payments made were neither royalty nor fees for technical services;

3)  In view of section 10(6)(viii), the payment was not an income for the person, who received the same and, accordingly, was not chargeable under the head salaries. 

4)  Section 192 was applicable only when there was an income chargeable under the head 'salaries' and, as aforesaid, the payment made by the assessee, in the instant case, and the income derived by recipient, was though regarded as salary but never regarded as salary chargeable under this Act. Thus, the salaries were outside the purview of section 192 by reason of section 10(6)(viii). – DIT v. Dolphin Drilling Ltd. [2014] 42 taxmann.com 264 (Uttarakhand)

Retainer fee to doctor would attract sec. 192 TDS instead of sec. 194J TDS if terms of contract prove him to be an employee

Cumulative effect of agreement with retainer-doctor is relevant to decide whether TDS is to be effected either under section 192 or under section 194J.

The Tribunal held as under:

1)  Retainer-doctor was an employee and not an independent professional as terms of contract provided that:

a)  Retainer-doctor was debarred from taking any other assignment with any other company engaged in business similar to assessee-company (i.e., corporate hospital);

b)  He was required to follow rules, regulations and policies of assessee-company and to report to the head of the department in which he was working;

c)  He was to be paid fixed consolidated monthly fee with no fee-sharing with hospital.

2)  The retainership agreement was also for a limited period. Mere fact that the retainer-doctor had to raise monthly bills for getting payment of consolidated retainership fee would not make him an independent professional doctor, when in substance the cumulative effect of agreement indicated employer-employee relationship;

3) Thus, his fixed monthly retainer fee was in nature of salary which would be liable for tax deduction under section 192 and it was not a professional fee liable for tax deduction under section 194J - Escorts Heart Institute & Research Centre Ltd. v. Dy. CIT [2014] 42 taxmann.com 200 (Jaipur - Trib.) (TM)

Hiring of vehicle on hourly basis shifts TDS obligations from sec. 194C to sec. 194-I front yard

Where assessee entered into an agreement with a contractor for hiring of vehicles and made use of vehicles and paid hire charges on number of hours of use, section 194-I and not section 194C would be attracted.

Facts:

1)  The assessee entered into an agreement with contractor for hiring of vehicles to be used for loading, unloading and transportation of goods. It applied provisions of section 194C and deducted tax at 2 %;

2)  However, the Assessing Officer (‘AO’) held that the assessee was to deduct tax at source under section 194-I;

3)  On appeal, the CIT(A) confirmed the order of AO which was further affirmed by the Tribunal. Aggrieved-assessee filed the instant appeal.

The High Court held in favour of assessee as under:

1) The agreement entered into by assessee was composite agreement for hiring of vehicles to be used for loading, unloading and transportation of goods;

2) The owner of the vehicles was to retain ownership and possession of the vehicles. The vehicles were to be driven and operated by the persons who were to be paid by the owner;

3) The agreement did not require the owner of the vehicles to do any work at all. It was the assessee who made use of the vehicles. He paid hire charges on the number of hours of use and, thus, clearly the assessee was not justified in contending that section 194C was applicable;

4) What the assessee was permitted to do with the vehicles alone was mentioned in the contract. All those works were done by the assessee and no work within the meaning of section 194C was actually done by the owner;

5) Section 194-I specifically contemplates liability of person paying rent to deduct income tax at the rate of ten per cent for the use of any machinery or plant or equipment. Thus, in the instant case section 194-I was attracted instead of section 194C - Three Star Granites (P.) Ltd. v. ACIT [2014] 41 taxmann.com 91 (Kerala)

No penalty on payer for non-quoting of PAN in TDS certificates as it was payee’s duty to intimate his PAN

No penalty on deductor of TDS for non-mention of payee’s PAN in Form 16A if payee didn’t intimate his PAN to deductor

The High Court held as under:

Deductor couldn’t be penalized for non-mentioning of PAN in TDS certificates issued to payee in Form 16A if payee hadn’t furnished his PAN to deductor as required by section 139A(5A). Penalty couldn’t be imposed on assessee under sec. 272B(1) for non-mentioning of PANs of payees in Form 16A issued to them as there was nothing on record to show that contractors (payees) to whom certain sums were paid by assessee after deducting TDS had intimated their PANs to assessee. Default by payees in furnishing their PANs to assessee would be a "sufficient cause" for non-imposition of penalty under section 272B(1) – CIT v. Gail (India) Ltd. [2013] 36 taxmann.com 336 (Allahabad)

No concealment penalty if exp. claimed in current year and withholding taxes deposited in subsequent year

Provision of sec. 40(a)(i) would be deemed to have been substantially complied with if taxes withheld from payment made to non-resident were deposited subsequent to the previous year in which expenditure was claimed by assessee. Hence, concealment penalty would not be leviable.

In the instant case, assessee had paid fee for technical service (‘FTS’) to non-resident and TDS thereon was deducted and deposited after the end of previous year, but before the due date of filing of income-Tax Return. However, disallowance not made by assessee of the FTS amount in return though non-deduction of TDS was reported by tax auditor in Form 3CD accompanying the return. AO imposed penalty under section 271(1)(c) in respect of FTS ‘falsely claimed. Penalty was upheld by the CIT(A). Hence the instant appeal filed by assessee against CIT(A)’s decision.

The Tribunal held as under:

1) The relevant provisions of section 40(a)(i) provides for the disallowance of specific sums payable to non-residents, where tax deducible at source, has not been deducted and deposited to the credit of the Central Government within the time prescribed under section 200(1);

2) This section is not absolute in its terms, and provides for the allowance thereof in the year of payment, i.e., where the tax stands deducted and paid after expiry of the time prescribed under section 200(1). There is, as such, no reference or correlation with the due date of the filing of the return by the assessee-deductor under section 139(1);

3) The deposit of TDS subsequently would operate as a mitigating factor. The provision itself providing for the contingency and consequence of delayed payment, deferring the claim to the year of actual payment;

4) The assessee would be entitled to claim the deduction for the immediately succeeding year, and which it has ostensibly not. In terms of the provision itself, therefore, it has become clear that it has been substantially complied with as the payment of TDS was made, though subsequently.

5) It would decidedly be a different matter if the provision made no such exception, as in that case there would be no question of the principal condition of the payment having been met and, thus, of the assessee being substantially compliant. This, therefore, served as a valid explanation under Explanation (1B) to section 271(1)(c) Thus, assessee's appeal was allowed and penalty was deleted. - Dynatron (P.) Ltd. v. Dy. CIT [2013] 33 taxmann.com 603 (Mumbai - Trib.)

Expenditure disallowed for default in withholding tax would qualify for sec. 80-IB deductions

Disallowance for non-deduction of TDS liability would increase profit of assessee from business of developing housing projects and ultimate profit would qualify for deduction under section 80-IB

In the instant case, interalia, the issue that arose before the Gujarat HC was as under:

Whether disallowance under section 40(a)(ia) would  qualify for deduction under section 80IB(10) of the Act?

The High Court held as under:

Even if a expenditure incurred by the assessee for the purpose of developing housing project was not allowable by virtue of section 40(a)(ia) of the Act, since the assessee had not deducted the tax at source as required under law, it couldn’t be denied that such disallowance would ultimately go to increase the assessee's profit from the business of developing housing project. So, whatever be the ultimate profit of assessee even after making disallowance under section 40(a)(ia) of the Act, would qualify for deduction as provided for under the law. As no question of law arose, tax appeal was dismissed – ITO v. Keval Construction [2013] 33 taxmann.com 277 (Gujarat)

Commission as envisaged under Section 194H doesn’t require principal-agent relationship, ITAT rules

TDS under section 194H attracted so long as payment is in the nature of brokerage or commission; Section 194H does not require that relationship between the payer and the payee be necessarily of a principal and agent

Depreciation is not an outgoing expenditure but a statutory deduction.  Therefore, the provisions of section 40(a)(i) are not attracted on such deduction

In the instant case, the moot questions raised before the Tribunal were as follows:
1) Whether Sec. 194H can be invoked in a situation where principal-agent relationship amongst parties is missing?

2) If payment to NR is capitalized in books of accounts and depreciation thereon is being claimed by assessee, whether the depreciation can be disallowed by invoking Sec. 40(a)(ia)?

On first Issue, the Tribunal held in favour of revenue as under:

1) Section 194H talks about the payment to a recipient which is the income by way of commission or brokerage.

2) It does not require that the relationship between the payer and the payee should be of a principal and agent.

3) The Explanation to section 194 elaborates on the terms ‘commission or brokerage’ by including any payment received or receivable directly or indirectly by a person acting on behalf of another person.

4) Thus, it is clear that the provisions of section 194H do not require any formal contract of agency.

On Second issue, the Tribunal held in favour of assessee as under:

1) The deduction under section 32 is not in respect of the amount paid or payable which is subjected to TDS;

2) Depreciation is a statutory deduction on an asset which is not an outgoing expenditure.  Therefore, the provisions of section 40(a)(i) are not attracted on such deduction;

3) Therefore, where payment, which has been made without deduction of TDS, has been capitalized as part of cost of asset, depreciation in respect of such payment can’t be disallowed by invoking section 40(a)(i) - SKOL Breweries Ltd. v. ACIT [2013] 29 taxmann.com 111

Assessee escaped penalty for delay in filing e-TDS return on reasoning that he was new to this stuff

In the instant case, for the relevant assessment year, the assessee had not filed the E-TDS returns within the specified time and, thus, AO levied the penalty under Section 272A(2). Aggrieved by the order of AO, assessee preferred an appeal to the CIT(A), which  confirmed the penalty order passed by AO.

 On appeal, the Tribunal held in favour of assessee as under:

1) The delay in filing the returns, even if they are characterized as negligence on the part of the assessee, can only be considered as a technical or venial breach of law for which penalty should not be levied automatically;

2) The requirement of filing Form No. 24Q was new one for the assessee being the first year of filing such return and, moreover, there was no dispute about the fact that the tax had been deducted by the assessee; and

3) As held by the ITAT Mumbai Bench in the case of Royal Metal Printers (P.) Ltd.v.ACIT [2010] 37 SOT 139, for such technical or venial breach supported by reasonable cause, penalty under Section 272A(2) is not leviable.

Therefore, the impugned penalty order was cancelled - UNION BANK OF INDIA V. ACIT [2012] 26 taxmann.com 347 (Agra - Trib.)