194C - Reimbursement of Expenses to dealer - Income Tax

Karan Teli (Life Is just an Illusion...!!) (4573 Points)
Replied 22 February 2011

If the payment is directly made to the advertising agency then it is treated as contract between the company and add agency and hence TDS needs to be deducted appropriately...

If the payment is made to the delear then it is reimbursment and then full amount shud be remitted ti the dealer but when the payment is made by dealer to add agency then it shall deduct TDS and remit the bal to agency n file the bal to Tax authorities,,,,

anand (BUSINESS) (136 Points)
Replied 24 February 2011

any one (co or dealer )making payment to adv agency has o decuct tds.if the bill is in mname of co thn co should directly pay after tds.

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srinivasan (service) (898 Points)
Replied 24 February 2011

While it is true the TDS need not be deducted in the case of reimbursements where seperate debit note is raised by the dealer on the company, one should also see from the service tax point of view. When the dealer makes the payment as an "Pure Agent" satisfying the conditions laid down under service tax rules he need not charge service tax on the invoices / debit notes raised by him for the reimbursements. But if he fails to satisfy the conditions then the transaction will suffer service tax. And this might cost the company especially when it is not able to avail the CENVAT credit.

CA Shantanu Goyal (Practicing CA) (122 Points)
Replied 25 February 2011

hi anand thanks for your valuable reply i have the same view on it...

dear srinivasan... what you replied is true i agree with that but it doesn't match with the facts of my case.. firstly its not a reimbursement secondly if you treating dealer as pure agent then also tds has to be deducted on expenses booked by the company either directly (advertisement co.) or indirectly (dealer)..

please give ur views..

srinivasan (service) (898 Points)
Replied 25 February 2011

Dear shantanu goyal

Is it a reimbursement or not

The reimbursement comes into picture if one incurrs an expenditure and it is compensated by the other at cost. Which is what happened between the dealer and the company as per your query.

Let us now look the service tax provision to get a clarity who is a pure agent under the service tax

Explantion 1 read with rule 5(2) of the service tax (determination of value) rules, 2006 explains who is a pure agent and the conditions to be fulfilled for the same. If the expenditure is incurred by the dealer (service provider) in the instant case on behalf of the company and it satisfies the conditions laid down in the rule the value of such expenditure need not be added to the value of services rendered by the dealer to the company, otherwise service tax is to be charged on such expenditure as well as it would be deemed to be service rendered under the rules.

In your case there is a prior arrangement between your dealer and the company, the company had consumed the services (as the bill is in the name of the company this aspect is clear) as it is for its slaes promotion. The dealer had only made the payment and this is being reimbursed by the company. Therefore dealer will qualify as acted on behalf of the company as a pure agent under the service tax act.

liability of TDS

Now the question is who is liable to deduct the tax. Tax is deductable at the time of accounting or paying which ever is earlier. Now there can be two situations

Company get the bill but advices the dealer to make the payment and reiburses the dealer. Here the company has to deduct & remit the TDS while accounting the adv. bill and advice the dealer to pay the adv agency only the net amount
The dealer makes the transaction on behalf of the company and pays the adv. agency and latter on sends the bill to the company and get it reimbursed. Here the dealer is liable to deduct the TDS and remit on the payments which he makes to the adv. agency

Hope i have clarified your query.

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