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Regarding tds u/s. 194c

CA SIVA KRISHNA (TAX ADVISORY) (80 Points)

13 February 2013

Will any body clarify me the doubt

"A & B are two companies. The Company B is constructing building by recruting subcontracts on behalf of company A, because of unavailability of company A at that place.

Even all payments to subcontractors is done by company B and Comapny B is ultimately claiming from Company A"

In this situation the Company B is deducting TDS on payments to subcontractors

Whether Company A has to deduct the TDS on payments made to Company B ?

Thanks in Advance

Please clarify me immeditely

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12 Replies

Nikhil Kaushik (Fellow CA) (85454 Points)
Replied 13 February 2013

Dear Siva,

If the payments to sub-contractors are being made by Company B, then yes, Both, Company A and Company B are liable to deduct taxes on the respective payments being made to Company B and the sub contractors.

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Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 13 February 2013

If co A has given an contract to Co B and co B in turn gets teh work performed from other parties bu sub-contracting the work, then both the Co's are reqd to make TDS i.e Co A dhud deduct tax while making pymt ot Co.B & Co B shud deduct tax while making pymts to the sub-contractors.

CA SIVA KRISHNA (TAX ADVISORY) (80 Points)
Replied 13 February 2013

Thank you Nikhil,

But in the above situation Company A is reimbursing the expenses incurred by company B on behalf of company A

I hope there is no TDS deduction requirement for Reimbursement expenses u/s. 194C

Will u please clarify me on this

Nikhil Kaushik (Fellow CA) (85454 Points)
Replied 13 February 2013

Dear Siva,

Unfortunately, the language of 194C doesn't discriminate between remimbursements and other payments except for payments for materials.

The language of the section is "Any person responsible for paying any sum to any resident". Thus TDS shall apply on the reimbursements too.

CA. MANOJKUMAR SONI (CA) (145 Points)
Replied 13 February 2013

Dear Siva and Nikhil generally Tax is deducted at source by a payer to the payee on the transaction qualified to be an income transaction of the payee or contractor, so no TDS will be there on Reimbursement of Expenses as there will be no Income Content in the transaction.

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Nikhil Kaushik (Fellow CA) (85454 Points)
Replied 13 February 2013

Dear Manoj, that argument holds true, sometimes, for section 195. For 194C it doesn't. the only exclusion is reimbursements for materials bought by the contractor on behalf of the contractee for use in the contract.

CA SIVA KRISHNA (TAX ADVISORY) (80 Points)
Replied 13 February 2013

Dear Manoj,

Offcourse there is no profit/income in the above transaction.

Here my doubt is

whether Department of Income Tax will accept the issue if company A has not deducted the TDS on payments to company B, as it for reimbursement of expenses.....

please provide any supporting case laws on this issue...

How we can escape from non-deducting TDS on payments to company B...If department of Income Tax identifies subsequently and issued order u/s. 201(1)..

Thanks in advance

RAJ KUMAR BHANDARI (FINANCE) (165 Points)
Replied 13 February 2013

DEAR SIVA

YOU CAN DO ONE THING,

FIRST CO. B BILING YOU ONLY FOR MATERIAL COST(NOT INCLUDE JOB-WORK COST /PROFIT/CHARGES) SEPRATELY.

THEN NO TDS LIABILY IS ARISE ON THESE BILLS,

BUT

YOU HAVE TO DEDUCT TDS ON JOB-WORK BILL SEPERATELY

THANKS

HARENDRA KUMAR (ACCOUNTANT) (89 Points)
Replied 13 February 2013

I Agree with mr.Nikhil.

bujjulu (e-TDS + IT return filer Hyderabad) (718 Points)
Replied 13 February 2013

Say the direct payment made to parties 10,000 TDS is say @ 2% =200.

Net outflow is 9,800

The moot question is the liability to deduct TDS is on the 2nd company arranging these contractors.

If the main company pays without deducting TDS 10,000 (assuming that there is no legal obligation)-can the company arraging these contractors claim this expenditure without showing corresponding TDS for this expenditure.

If this expenditure is disallowed can they say that this payment is not 'actually' made by them and there is no obligation to deduct TDS.

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Nikhil Kaushik (Fellow CA) (85454 Points)
Replied 14 February 2013

bujjulu,

You have too many ifs and buts in ur reply. the simple point is that Company A has contracted Company B, and company B is contracted sub-contractors on behalf of Company A.

Now, if the payments are made by Company B to the sub-contractors and by Company A to Company B, then both the transactions are liable to deduction of taxes as source.

CA Neil Ganatra (Partner - Gautam Joshi & Co.) (871 Points)
Replied 15 February 2013

Dear Mr. Siva,

There is one way out. If Company A and B has any contract where in it is mentioned that company B is required to get the construction done on behalf of A and will incur any expense required for that which will be reimbursed by the A. Further that contract mentions some management fees/charges or admin charge or commission whatever name you give that is to be paid by A to B for getting the work done. Then in tht case A is required to make tds only for the amount which is to be paid as management fees and not on the payments to job workers reimbursed by them. Make sure that reimbursement bills and management fees bills are different.

Regards,

CA Neil Ganatra

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