TAX DEDUCTED AT SOURCE

CA. SUDHIR BAHETI 12 JUNE 2010

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INDEX

Introduction Payments covered under the scheme of TDS. Provisions for filing Returns to the Income Tax Department. Effects of Tax Evasion

Introduction
To avoid cases of tax evasion, the Income-Tax Act has made provisions to collect tax at source on accrual of income. Cases included in the scheme are, generally, those where income can be computed at the time of accrual of income. Under this scheme, persons responsible for making payment of income covered by the scheme are responsible to deduct tax at source and deposit the same to the Governments treasury within the stipulated time. The recipient of incomethough he gets only the net amount (after deduction of tax at source)is liable to tax on the gross amount and the amount deducted at source is adjusted against his final tax liability. The details of the scheme of tax deduction and collection at source are briefly discussed in this presentation. To conclude one can say that the scheme of TDS is only payment of tax on adhoc basis by the payer of income on behalf of recipient.

Setps for TDS

TAN
Every deductor is required to obtain a unique identification number called TAN (Tax Deduction Account Number) which is a ten digit alpha numeric number. This number has to be quoted by the deductor in every correspondence related to TDS

Tax Deduction & Collection Account Number Every person deducting tax or collecting tax should obtain a tax deduction & collection number Such person should quote such number in every challan for payment u/s 200 or 206C(3), in every certificate furnished u/s 203 or u/s 206C(5) In all the TDS returns delivered In all other documents pertaining to such transaction as may be prescribed in the interest of revenue.

Payment covered under the scheme of TDS.

Salary (Sec.192) Interest on Securities (Sec.193) Dividends (Sec.194) Interest other than Interest on Securities (Sec.194A) Winnings from Lotteries or crossword puzzles (Sec.194B) Winnings from Horse Races (Sec.194BB) Payments to Contractors and Sub-contractors (Sec.194C) Insurance Commission (Sec.194D) Payment to Non-resident sportsmen or sports association (Sec.194E) Payment in respect of NSC (Sec. 194EE)

Contd

Payment covered under the scheme of TDS.

Payments in respect of Repurchase of units of Mutual
Funds or UTI (Sec.194F) Commission on Sale of Lottery Tickets (Sec.194G) Commission or Brokerage (Sec.194H) Rent (Sec.194I) Fees for Professional or Technical Services (Sec.194J) Payment of Compensation on acquisition of certain immovable property (Sec.194LA) Other Sums (Sec.195) Long term capital gain (Sec.196B) Income or Long term capital gain from Foreign Currency bonds/Global Depository Receipts (Sec.196C) Income of Foreign Institutional Investors from Securities (Sec.196D)

Contd

Salary (Sec.192)
Who is the payer Who is the recipient Payment Covered At what time TDS to be deducted Employer Employee Taxable Salary of the employee At the time of payment

Maximum amount which can be paid without The amount of exemption limit tax deduction (i.e.,Rs.160000/190000/240000 for A.Y. 2011-12) Rate at which tax to be deducted. When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction As per Calculation -The employee can make application in Form No.13 to the Assessing Officer to get the certificate of lower tax deduction or no tax deduction.

Interest on Securities (Sec. 193)

Who is the payer Who is the recipient Payment covered At what time TDS to be deducted. Payer of interest on securities A resident person holding securities Interest on securities At the time of payment or at the time of credit, whichever is earlier

Maximum amount which can be paid without Rs. 2500 tax deduction Rate at which TDS to be deducted When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction 10% Interest on Central/State Government securities The recipient can make application to the Assessing Officer in Form No. 13 or declaration to the payer in Form 15G or 15H as applicable

Dividends (Sec. 194)

Who is the payer Who is the recipient Payment Covered At what time TDS to be deducted Domestic company Resident shareholder Deemed dividend under section 2(22)(e) At the time of payment

Maximum amount which can be paid without Rs.2500 tax deduction Rate at which TDS to be deducted When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction 20% Dividend covered by section 115-O The recipient can make application to the Assessing Officer in Form No. 13 or declaration to the payer in Form 15G or 15H as applicable

INTEREST OTHER THAN INTEREST ON SECURITIES (Sec 194A)

Who is the payer Who is the recipient Payment covered At what time TDS to be deducted. Maximum amount which can be paid without tax deduction Rate at which TDS to be deducted Any person paying interest other than interest on securities A Resident person Interest other than interest on securities At the time of payment or at the time of credit, whichever is earlier If payer is banking company, co-operative engaged in banking business or Rs 10000/- if Payer is any other person Rs 5000/10% if the recipient is resident non-corporate assessee and 20% if the recipient is resident corporate assessee If the payee are Insurance companies or financial institutions including co-operative societies etc. Declaration to the payer in Form 15G or 15H as applicable

When the provisions are not applicable

Is it possible to get the payment without tax deduction or with lower tax deduction

Winnings from Lotteries or Crossword Puzzles (Sec. 194B)

Who is the payer Any person paying winnings from lotteries/crossword puzzles/card games/other games Any Person Winnings from lotteries/crossword puzzles/card games/other games At the time of Payment

Who is the recipient Payment covered At what time TDS to be deducted.

Maximum amount which can be paid without tax If the amount payment is Rs. 10000/- or less deduction than Rs. 10000/Rate at which TDS to be deducted When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction 30% -Not Possible

Winnings From Horse Races (Sec. 194BB)

Who is the payer Who is the recipient Payment covered At what time TDS to be deducted. Any person paying winnings from horse races Any person Winnings from Horse Races At the time of payment

Maximum amount which can be paid without If the amount of payment is Rs. 5000/- or less tax deduction than Rs. 5000/Rate at which TDS to be deducted When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction 30% -Not Possible

Payments to Contractors And Sub-contractors (Sec.194C)

Who is the payer Who is the recipient Rate of TDS Specified person A resident person 2%

Payment Covered At what time TDS has to be deducted

Consideration for any Work Contract At the time of payment or at the time of credit

Maximum amount which can be The tax is required to be deducted if a single payment exceeds paid without tax deduction Rs. 30000/- or if the aggregate payments exceed Rs. 75000/- per annum Is it possible to get the payment The recipient can make application to the Assessing Officer in without tax deduction or with Form No. 13 lower tax deduction

Insurance Commission (Sec.194D)

Who is the payer Who is the recipient Payment covered At what time TDS to be deducted. Maximum amount which can be paid without tax deduction Rate at which TDS to be deducted Any person paying insurance commission. A resident person Insurance Commission At the time of payment or at the time of credit whichever is earlier If the amount of payment is Rs. 20000/- or less than Rs. 20000/10% if the recipient is resident non-corporate assessee and 20% if the recipient is resident corporate assessee -The recipient can make an application in Form No. 13 to the Assessing Officer to get the certificate of lower tax deduction or no tax deduction.

When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction

Payment to Non-resident sportsmen or sports association (Sec.194E)

Who is the payer Who is the recipient Payment covered At what time TDS to be deducted. Any person making payment to non-resident sportsman/sports association Non-resident sportsman/sports association Payment to non-resident sportsman/sports association At the time of payment or at the time of credit whichever is earlier

Maximum amount which can be paid without tax Nil deduction Rate at which TDS to be deducted When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction 10%+ Education cess etc and Surcharge as applicable -No Provision

Payments in respect of NSC (Sec.194EE)

Who is the payer Who is the recipient Payment covered Post Office Any Person Payment (Principal+Interest) out of National Saving Scheme, 1987. At the time of payment

At what time TDS to be deducted.

Maximum amount which can be paid without If the amount of payment is Rs.2500 or less tax deduction than Rs.2500 Rate at which TDS to be deducted 20%

When the provisions are not applicable

The payment is made to legal heirs of the deceased depositor

Payments on account of repurchase of units of Mutual Funds or UTI

Who is the payer Who is the recipient Payment covered At what time TDS to be deducted.

(Sec. 194F)
Mutual Fund or UTI Unit holder under section 80CCB Payment on account of repurchase of units referred to in section 80CCB At the time of payment

Maximum amount which can be paid without tax -deduction Rate at which TDS to be deducted When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction 20% -No Provision

Commission on Sale of Lottery Tickets

(Sec.194G)
Who is the payer Who is the recipient Payment covered At what time TDS to be deducted. Any person paying commission of sale of lottery tickets Any person Commission on sale of lottery tickets At the time of payment or at the time of credit, whichever is earlier

Maximum amount which can be paid without tax If the amount of payment is Rs. 1000 or less deduction than Rs. 1000 Rate at which TDS to be deducted When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction 10% -The recipient can make an application in Form No. 13 to the Assessing Officer to get a certificate of lower tax deduction or no tax deduction

Commission or Brokerage (Sec.194H)

Who is the payer Who is the recipient Payment covered At what time TDS to be deducted.

Any person paying commission or brokerage Any resident person Commission or brokerage (not being insurance commission) At the time of payment or at the time of credit, whichever is earlier

Maximum amount which can be paid without If the amount of payment is Rs. 5000 or less tax deduction than Rs. 5000 Rate at which TDS to be deducted When the provisions are not applicable Is it possible to get the payment without tax deduction or with lower tax deduction 10% (up to may 31, 2007 : 5%) -The recipient can make an application in Form No.13 to the Assessing Officer to get a certificate of lower tax deduction or no tax deduction

Rent (Sec.194-I)
Who is the payer Any person paying rent (not being an individual or HUF whose books of account are not required to be audited under section 44AB in the immediately preceding financial year) A Resident Person Rent At the time of payment or at the time of credit, whichever is earlier Rs. 180000/For Plant and Machinary Rent 2% and for For Use of and Land or Building including Furniture etc. Individual Huf 10% For any other 20%

Who is the recipient Payment covered At what time TDS to be deducted. Maximum amount which can be paid without tax deduction Rate at which TDS to be deducted

Is it possible to get the payment without The recipient can make application in Form No. 13 tax deduction or with lower tax deduction

Fees for Professional or Technical Services (Sec.194J)

Who is the payer Any person paying professional charges (not being an individual or HUF whose books of account are not required to be audited under section 44AB in the immediately preceding financial year) Any Person Professional services, technical services, Royalty, At the time of payment or at the time of credit, whichever is earlier If the amount of payment during the financial year is Rs. 30000 or less than Rs. 30000 10%

Who is the recipient Payment covered At what time TDS to be deducted. Maximum amount which can be paid without tax deduction Rate at which TDS to be deducted

Is it possible to get the payment without tax The recipient can make application in Form No. deduction or with lower tax deduction 13

Provisions for Filing Returns

Different Payments

In case the person deducting tax is a In case the person Time-limit for submission of company or a Government department deducting tax is any return by the person or a person whose books are required to other person deducting tax be audited u/s. 44AB in the immediately preceding year or in whose case number of deductees in any of the quarterly statements in the immediately year is 20 or more Form No. 24Q in Electronic format and Form No. 27A Form No. 24Q Within 15 days from the end of each quarter (31st May in case of last quarter) Within 15 days from the end of each quarter (31st May in case of last quarter) Within 15 days from the end of each quarter (31st May in case of last quarter)

Salary

Payment (other than Form No. 26Q in Electronic format and salary) to a resident Form No. 27A

Form No. 26Q

Payment (other than Form No. 27Q in Electronic format and salary) to a nonForm No. 27A (quarterly) resident

Form No. 27Q (quarterly)

Issue TDS Certificates Sec. 203

Sr. No. 1 2

Form no 16 For Salary

Periodicity Cut off Date Annual 31st May of following financial year Within 15 days from due date of furnishing the TDS statement under rule 31A

16A Other Quarterly than salary

Dates for Payment of TDS

Deductor For MARCH For April to February

Government On or before 7th of On the same day for other than next month for salary & on or before 7th of next salary month for salary Other than On or before 30th Government April Special Cases 30th April On or before 7th of next month Quarterly payment on or before 7th of the month succeeding quarter

Furnishing of quarterly returns for payment of interest to residents without Deducting Tax (Sec. 206A)

Banking company, Cooperative societies, & Public Companies shall furnish quarterly return to department in respect of payments of Interest (other than Interest on Securities) in any computer readable media.

Collection of Tax
Who is the payer Who is the recipient Payment covered At what time TDS to be Collected. Seller Buyer As per Details in next slide At the time of receipt or at the time of debiting the account, whichever is earlier

Maximum amount which can be paid without Nil tax collection Rate at which TDS to be deducted Is it possible to get the payment without tax deduction or with lower tax deduction As per Details in next slide The recipient can make an application in Form No. 13 to the Assessing Officer to get a certificate of lower tax deduction or no tax deduction

Rates for Collection of TAX

Effects of Evasion of TDS (Sec 201)

Sr. Reasons Effects No. 1. Non deduction of The expenditure for which TDS to be deducted TDS gets DISALLOWED & penal interest @1% for every month or part of month from the date on which such tax was deductible to the date of deduction 2. Non payment of The expenditure for which TDS deducted but not paid gets disallowed TDS 3. 4. Less deduction of The amount less deducted is required to be paid TDS. by the deduct or along with penalty Late Payment of The deductor should have to pay penal interest TDS @1.5% for every month or part of month from date of deduction to the date of payment.

Penal Provisions

Practical Issues

Based on TDS Proceedings

Contents
Uniform deduction of tax Exempt allowances Payments by way of adjustment Contract for Sale Printing Charges Contractor & Sub contractor payments Reimbursement to C & F Agents Reimbursement under Agency Element of Agency Rent on Plant & Machinery Regular Contract vis--vis Rate Contracts
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Internet Connectivity charges Technical Services? Reimbursement of Expenses Tax paid by Payee non/short deduction Time Limit under section 201

Contents

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Case Study 1 FACTS

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 1 ISSUES

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
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 nonverification of travel payments proof. 37

FACTS

Case Study 2 ISSUES

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 39

Case Study 3
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 nondeduction?

ISSUES

CASE LAWS

Raymond Limited V. DCIT 86 ITD 791.

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Case Study 4 FACTS

Assessee engaged in business of imports and/or exports, engages services of Clearing & Forwarding agents. Payments to such C&F 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. 41

Case Study 4 ISSUES

Whether any tax is liable to be deducted on any of the above payments to C&F 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 C&F 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 4 CASE 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
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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FACTS

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 6 ISSUES

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 47

Case Study 7
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 @ 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. 48

FACTS

Case Study 7 ISSUES

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). 50

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 10 ISSUES

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

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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 11
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

ISSUES

Skycell Communications Ltd (251 ITR 53) [Mad.]

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Case Study 12
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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FACTS

Case Study 12 ISSUES

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 61 ITR 310,316 (Guj.)

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 14 ISSUES

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!

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