25 April 2008
Suppose a person is paid Rs.60,000 on a day for a contract. All conditions for TDS deduction u/s 194C are met but TDS was not deducted.
1) If next day, an entry is passed debiting the party and crediting the TDS payable account with the TDS amount - will it amount to tax deduction at source, eventhough the amount is not really deducted from the total amount payable?
2)If the answer to the above is YES, will it amount to late deduction of tax ?
3)If it amounts to late deduction of tax, what are the consequences?
Kindly answer the questions for each case separately and quote section/rule/sources if possible.
25 April 2008
1) Yes, debiting the party a/c and crediting the TDS payable account will amount to tax deducted and it has nothing to do with whether the net payment has been made to the party or not.
2) It will not amount to late deduction of tax provided the date of payment to the contractor is mentioned as date of deduction for all legal purposes.
3)It will not amount to late deduction as mentioned above.
25 April 2008
Sections 194C and 194J refer to any sum paid. Obviously, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source.
Before issue of such circular ,Supreme Court in Associated Cement Co.Ltd vs CIT[1993] 201ITR435 held that person responsible for deducting tax is not required to estimate the income comprised in the payment . Relevant portion of judgment is
"Indeed, it is neither possible nor permissible for the payer to determine what part of the amount paid by him to the contractor constitutes the income of the latter. It is not also possible to think that Parliament could have intended to cast such impossible burden upon the payer nor could it be attributed with the intention of enacting such an impractical and unworkable provision. Hence, on the express language employed in the sub-section, it is impossible to hold that the amount of two per cent. required to be deducted by the payer out of the sum credited to the account of or paid to the contractor has to be confined to his income component out of that sum. " There fore without going into the question whether the service tax or education cess should be included for TDS purpose or not, payer should deduct the tax at gross amount of PAYMENT.
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