Expenditure is allowed, if TDS is not deducted in certain cases

 

QUERY: Assessee is requiring to deduct Tax before payment of any expenditure outside India. If he fails to do so then he can’t claim such payment as expenditure.
 
In one of the earlier case, it was held by the Madras High Court, that if assessee fail to deduct TDS on payment made by him to the party but receiver voluntary pay the advance tax on such receipt then also assessee who make the payment can claim such expenditure, irrespective of the fact that he fail to deduct TDS.
Court says that the ultimately objective behind the deduction of TDS is to collect Advance Tax which is fulfilled.
 
If suppose an Indian Co. makes a payment to a Foreign Co. the actual gross invoice amount without deducting TDS ( As there is an agreement between them regarding payment of invoice amount without deducting TDS). Thus, the Indian Co. Calculate Tax on such invoice amount as per DTAA and pay Tax out of own pocket.  My query is that from the following which one assesse can claim as total expenditure.
 
a)       The total Invoice amount as well as TDS amount. or
b)       Only the Invoice amount.
 
Replies (7)

Good Query raised.

I too am interested in knowing the answer.

Originally posted by :Identity Of Mind
"
QUERY: Assessee is requiring to deduct Tax before payment of any expenditure outside India. If he fails to do so then he can’t claim such payment as expenditure.

In one of the earlier case, it was held by the Madras High Court, that if assessee fail to deduct TDS on payment made by him to the party but receiver voluntary pay the advance tax on such receipt then also assessee who make the payment can claim such expenditure, irrespective of the fact that he fail to deduct TDS.
Court says that the ultimately objective behind the deduction of TDS is to collect Advance Tax which is fulfilled.

If suppose an Indian Co. makes a payment to a Foreign Co. the actual gross invoice amount without deducting TDS ( As there is an agreement between them regarding payment of invoice amount without deducting TDS). Thus, the Indian Co. Calculate Tax on such invoice amount as per DTAA and pay Tax out of own pocket. My query is that from the following which one assesse can claim as total expenditure.

a) The total Invoice amount as well as TDS amount. or
b) Only the Invoice amount.
"

 

YOU CAN ONLY CLAIM INVOICE AMOUNT FOR CLAIM EXPENDITURE AND REMAINING TDS AMOUNT YOU SHOULD ADJUST FROM THE PARTY FROM NEXT INVOICE.

thanx vinayak

I dont agree with Vinayak. how can you adjust that payment from the party? and what if it is a one off transaction and no invoice will follow.

The whole amount will be claimed  as expense. It has the same accounting treatment as that of when we pay service tax on transport services.

Regards

piyush

Thanks Vinayak & Piyush......

my further query is that a assesse can claim an expenditure above to the invoice amt.

If assessee claim both invoice amt & TDS amt. then wt is a proof of TDS.....as an expenditure.

 

Yes the assessee can claim the expenditure more than invoice as he has deducted TDS as a statuory liability.

While deducting TDS we will use the Gross amount i.e. Invoice amount+TDS amount..

The invoice amount can be claimed as an expenditure and the Tax deducted will be disallowed as per the IT Act even if it is as per DTAA or Sec 195

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