04 February 2014
We are trading company and our Principal company makes advertisement and other expense on our behalf to various vendors after deducting TDS(although the bills are on our name), so in this case is their any liability of us to deduct the TDS, as all such expenses has been disallowed by Addl Commissioner citing reason that it is our liability to deduct TDS. We had also produced certificate from principal company that they had deducted TDS but that was also not considered.
27 July 2025
Hey! This is a pretty common issue in agency-principal relationships. Here’s the core of the matter and how you can approach it:
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### Situation Summary:
* Your **principal company** paid vendors on your behalf. * They deducted TDS while making those payments. * The bills are in **your company’s name**. * Tax authorities are saying **you (the trading company)** should have deducted the TDS, not the principal. * Despite providing TDS certificates from the principal company, the expense was disallowed.
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### What’s the usual rule?
1. **Who is the ‘deductor’ under TDS law?** The person/entity making the payment is generally responsible for deducting TDS.
2. **In your case:** Even though the bills are in your company’s name, if the principal company actually made the payments to vendors and deducted TDS, they are the deductor.
3. **What about your liability?** If the principal company deducted and deposited the TDS properly **on your behalf**, and you have proof (TDS certificates, challans), normally **you should not be held liable** for not deducting TDS.
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### Why might the tax authorities disallow the expense?
* They may view the payments as your expenses (since bills are in your name). * They might argue you should have deducted TDS as per your contract or arrangement. * Possibly the principal company did not deposit TDS properly or mismatch in records.
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### What can you do practically?
1. **Ensure you have proper documentation:**
* Agreements/contracts with principal clearly stating they will make payments and deduct TDS on your behalf. * TDS certificates and challans from principal company for all deductions.
2. **Communicate with tax authorities:**
* Submit a detailed explanation with supporting documents showing the principal company deducted and deposited TDS. * Request reconsideration of disallowance with proof.
3. **Cross-check principal company’s TDS deposit:**
* Check Form 26AS or TDS return data of vendors and your company to ensure the TDS is correctly credited.
4. **Get a legal or tax consultant’s opinion:**
* Sometimes, tax officers need a legal backing explaining that the principal company acted as your agent in payment and deduction of TDS.
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### Summary:
| Aspect | Your Position | What Tax Officer Thinks | | --------------- | -------------------------------- | ------------------------------------ | | Payment made by | Principal company on your behalf | You (bills in your name) | | Deductor | Principal company | You (since expense is yours) | | Proof needed | TDS certificates, contract docs | Might still disallow if proof weak | | Your action | Submit proofs & explanation | Possibly appeal or show legal advice |
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If the disallowance persists, you may have to appeal to the Commissioner (Appeals) or higher authorities citing case laws and clarifying your position.
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If you want, I can help you draft a letter to the tax authorities or prepare an explanation note. Just let me know!
CAclubindia
