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Why the court decisions be soo...?

CA Trinath Galla (student) (3130 Points)

22 November 2009

Hey in a notification it is clearly stated that while charging tds on rent....rate of tds must be applied on net amount of rent i.e., gross rent minus service tax and not on gross amount.

the narration given is that...as service tax charged by the landlord doesnt form part of income of the owner.no need of deducting tds on the service tax amount.

a case was filed in mumbai court that while charging tds on professional services...the rate shld be applied on the net amount and not gross amount.they also quoted the above notification.

but the court denied on the base that it is only for in the case of rent

but i couldn understand whats the diff between service tax on rent and professional services?

both are not incomes for the service provider.....then y the diff?

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14 Replies

CA. Megha Topiwala (Job) (1534 Points)
Replied 22 November 2009

your question is absoulutely correct.... i agree with u... so can u plz send me the name of d case...

Max Payne (employed) (2569 Points)
Replied 22 November 2009

hi trinath... in the case of rent covered u/s 194-I, the wordings in the act are:

Any person, not being an individual or a Hindu undivided family, who is responsible for paying to ⁹⁴[a resident] any income by way of rent⁹⁵, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, ⁹⁶[deduct income-tax thereon at the rate of...................

in 194J,

194J. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of—

(a) fees for professional services, or

(b) fees for technical services, ⁴[or]

⁴[(c) royalty, or

(d) any sum referred to in clause (va) of section 28,]

shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ⁵[ten] per cent of such sum as income-tax on income comprised therein...........

So The law requires that TDS be made on income component in case of 194-I, whereas 194J requires deduction on the sum credited.... Thus the CBDT issued claryfying circular for 194-I, but the position is not the same for 194J.

Hope its clear...

CA Trinath Galla (student) (3130 Points)
Replied 22 November 2009

Originally posted by :Megha Shah
"	your question is absoulutely correct.... i agree with u... so can u plz send me the name of d case...	"

sorry megha actually i don rem the notification numbver and all.

i will try to get them for u.

but u keep on searching

CA Trinath Galla (student) (3130 Points)
Replied 22 November 2009

Originally posted by :G.K..
"	hi trinath... in the case of rent covered u/s 194-I, the wordings in the act are: Any person, not being an individual or a Hindu undivided family, who is responsible for paying to 94[a resident] any income by way of rent95, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, 96[deduct income-tax thereon at the rate of................... in 194J, 194J. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of— (a) fees for professional services, or (b) fees for technical services, 4[or] 4[(c) royalty, or (d) any sum referred to in clause (va) of section 28,] shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to 5[ten] per cent of such sum as income-tax on income comprised therein........... So The law requires that TDS be made on income component in case of 194-I, whereas 194J requires deduction on the sum credited.... Thus the CBDT issued claryfying circular for 194-I, but the position is not the same for 194J. Hope its clear...	"

but think u didn get my question exactly.................

CA Trinath Galla (student) (3130 Points)
Replied 22 November 2009

what am saying is...when law requires tds to be made on income component in case of 194-I, it says that service tax component is not part of income.

now am saying that....even in case of 194-J service tax is not part of income of recepient.why it require tds then?

Max Payne (employed) (2569 Points)
Replied 22 November 2009

Hi, the circular is Circular No. 4/2008, dated 28-4-2008.

The logic according to the circular is that the words in the act for 194C and 194J are "any sum" credited. But for 194I, it is on the income component.

There is a decision that TDS U/s194C, being amount of two per cent required is to be deducted by payer out of sum credited to account of or paid to contractor, and is not to be confined to his income component out of that sum, but it has to be deducted on sum credited to account of or paid to contractor in pursuance of contract Associated Cement Co. Ltd. v. CIT [1993] 67 Taxman 346 (SC).

So it is only verbatim application of law that has caused this confusion.

I dont know which decision you have referred, but in my opinion, the decision is proper, as assessee has taken an unnecessary risk interpreting a circular that was specifically for section 194I, and applying it with respect to 194J....

CA Trinath Galla (student) (3130 Points)
Replied 22 November 2009

194C is apart..........

Max Payne (employed) (2569 Points)
Replied 22 November 2009

But the principle is same for 194C and 194J

194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor^71a) for carrying out any work^71a (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to—

XXX

of such sum as income-tax on income comprised therein

Please see the above case law for "as income-tax on income comprised therein" to avoid confusion. It does not mean just income component.

ca tarun sharma (SERVICE) (277 Points)
Replied 23 November 2009

hello trinath i m just giving my view on tds on rent excluding service tax. actually rental income is taxable in hand of receiver under head house property & there is no deduction from rental income except house tax, int & notional deduction @ 30 % if payer deduct tds on rent including tds then he will mention in tds certificate total amt inc tds now d receiver has to consider whole amt as his rental income as specified in tds certificate but there is no deduction of service tax from that income hence service tax was treated as rental income of assessee. Recently dept issue a circular regarding deduction of service tax from rental income as house tax i.e from from GAV . but now there is amendment in sec 194I & tds is not required on whole amount i.e inc servie tax

in case of other income like 194C, 194J if Receiver include service tax he can deem it as his income if it is included in tds certificate & claim deduction under PGPB at d time of payment of service tax on payment basis as specified u/s 43B

Juzer Sadikot (CA - innovative solutions for Imports and Exports) (1309 Points)
Replied 23 November 2009

Hello Members,

M providing two supporting for the issue;

First

Rent my include 1) Society charges, Municipal Tax, Electricity Charges, maintanence charges etc which may incremate its value substaintially and may be the reason why law maker wants to make TDS on part of the Income. Where as there are no such additional/auxiliary transaction cost for professional services.

Second;

ST is introduced on Rent w.e.f 01.06.07, however law maker has made provision of section 194I prior to the said date.

The time lawmaker has put the provision of section 194I, they havnt aimed at deducting TDS on ST on Rent.

What u gotto say.

Regards

Juzer

CA Trinath Galla (student) (3130 Points)
Replied 23 November 2009

hey all........pls answer to what i asked exactly

CA. Megha Topiwala (Job) (1534 Points)
Replied 23 November 2009

Hey.... i got ur point... its regarding y 2 deduct tds on rent only on rent portion i.e. excluding service tax and in case of professional fees on total amt including service tax....

Even i faced the same practical case... whereby the bank of which my ca firm did audit ...... the bank was deducting tds on amt including service tax... thereafter it was corrected and said to deduct tds on only fees portion n not on service tax portion....

and very first question is... how can u deduct tax from govt's revenue....????..

I hope ur doubt is clear.....

CA Trinath Galla (student) (3130 Points)
Replied 23 November 2009

Originally posted by :Megha Shah
"	Hey.... i got ur point... its regarding y 2 deduct tds on rent only on rent portion i.e. excluding service tax and in case of professional fees on total amt including service tax.... Even i faced the same practical case... whereby the bank of which my ca firm did audit ...... the bank was deducting tds on amt including service tax... thereafter it was corrected and said to deduct tds on only fees portion n not on service tax portion.... and very first question is... how can u deduct tax from govt's revenue....????.. I hope ur doubt is clear.....	"

ya that was my doubt.

but how that bank has corrected that?

there is a rule that tds to be made on bill amount+service tax in case of professional services

CA. Megha Topiwala (Job) (1534 Points)
Replied 23 November 2009

the bank did not correct the mistkaed already done... bt stop deducting tds on service tax portion.... in case of professional servies... because u cannot get back the amt which has already been deducted as tds...

further i hv read that u can make the adjustments where u hv deducted tds either lower or higher of any previous months payments... in the coming months of same f.y.