CA. N. C. Hegde

2 June 2007 c
Contents

xniform deduction of tax

Exempt allowances
Payments by way of adjustment
Contract for Sale ± Printing Charges
Contractor & Sub contractor payments

Reimbursement to C & F Agents

Reimbursement under Agency

Element of Agency

Rent on Plant & Machinery

Regular Contract vis-à-vis Rate Contracts

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Contents

nternet Connectivity charges ± Technical Services?

Reimbursement of Expenses

Tax paid by Payee ± non/short deduction

Time Limit under section 201

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Case Study 1

FACTS

r An assessee employer is liable to deducted tax at source

under section 192.

r eduction of tax of the employees was not uniform

during the year; very negligible in the initial months and
high amount in the last months.

r AO passed order levying interest under section 201(1A)

on the grounds that tax was not properly deducted.

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Case Study 1

ISSUES

r
hether the Assessing Officer has rightly levied interest

on non-uniformity of T S deducted?

CASE LAWS

A Xinsons v. TO, 89 T 267 (Mum)

A Grasim ndustries Ltd. v. TO, 92 TTJ 944 (Jodh)
A Secy. Board Of Secondary Education, Rajasthan v. TO, 93 TTJ
256 (Jaipur)

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Case Study 2

FACTS

r The assessee company (employer) deducted tax under

section 192 treating leave travel expense as exempt on
the basis of declarations filed by the employee.
r The assessee did not obtain any documentary evidence
to treat LTA as exempt.
r AO passed order under section 201(1) treating µassessee
in default¶ having regard to non-verification of travel
payments proof.

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Case Study 2

ISSUES

r s the AO¶s order justified in treating the assessee as

µassessee in default¶ and levy interest u/s 201(1A)?

CASE LAWS

A CT v. HCL nfosystems Ltd. 282 TR 263

A Savani Financials Ltd. v. TO, 1 SOT 111
A Lintas ndia Ltd. v. Ass. CT, 5 SOT 310
A CT v. Excel ndustries Ltd., 5 SOT 235

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Case Study 3

FACTS

r G Ltd is a construction company engaged in the business

of construction etc.
r At the initiation of the job work, the client provides G
Ltd. some interest bearing µmobilization and plant
advance¶, which is to be repaid by the end of the contract
along with interest.
r G Ltd. submits the running account bills on monthly basis
depending on the completion of contract.
r Against this the client recovers the principal + interest
amount and thus G Ltd. does not actually pay any
interest.
r Since no direct payment of interest made, NO T S
deducted.

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Case Study 3

ISSUES

r s the contention of assessee correct?

r
hether tax is required to be deducted at source under
section 194A- µnterest other than interest on securities¶?
r
hat are the other implications of such non-deduction?

CASE LAWS

A Raymond Limited X. CT 86 T 791.

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Case Study 4

FACTS

r Assessee engaged in business of imports and/or exports,

engages services of Clearing & Forwarding agents.
r Payments to such C&F agents comprise of the following:
± Reimbursement of freight paid to shipping companies or
airlines.
± Reimbursement of freight on local transportation.
± Reimbursement of import or export clearing expenses like
payments to Port Trust, Airport Authorities of ndia,
miscellaneous charges, etc.
± Reimbursement of bonded warehousing charges.
± Reimbursement of Customs duties and Octroi.
± Reimbursement for Crane and Machinery charges to Port
Trust etc.
± Agency service charges. c
Case Study 4

ISSUES

r
hether any tax is liable to be deducted on any of the

above payments to C&F agents?
r f the agent has already deducted T S on freight
payment to the ndian Shipping Co., then whether the
importer/exporter also needs to deduct tax on the
payments made to the agents and if so then on what
amount?
r
hen C&F agent deduct tax and pays it to the
exchequer, the payment would be on his own T S
account or his clients¶ account number?

Contd««

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Case Study 4

CASE LAW

A CT v. ndustrial Engineering Projects Pvt. Ltd., 202 TR

1014 ( el.)
A CT v. unlop Rubber Co. Ltd, 142 TR 493 (Cal.)
A Raymond Ltd. 86 T 791 (Mum.)
A Associated Cement Co. Ltd.(SC) 201 TR 435

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Case Study 5

FACTS

r The assessee is a pharmaceutical company, engaged in

manufacturing and selling business.
r t procures packing material like plastics wrappers,
containers, cardboard boxes etc from the vendors
(manufacturers) as per assessee¶s desired specifications
viz. brand name, name & address, designs, trademarks
etc.
r Similarly, payments are also made to printing and
stationary vendors who supply printed letterheads,
business cards, sales and other printed literature where
the printing is done as per the assessee¶s specifications.
r Xendor¶s charge excise duty and sales tax on such items.

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Case Study 5

ISSUES

r
hether T S is required to be deducted under section

194C for payments made as printing charges?

CASE LAWS

A B A Ltd. v. TO (T S), 281 TR 99 (Mum.)

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Case Study 6

FACTS

r G Ltd. is engaged in the business of engineering and

construction.

r G Ltd enters into execution of construction contracts.

r G Ltd has made certain payments for carrying out certain

ancillary work undertaken for the purpose of executing
the above contracts.

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Case Study 6

ISSUES

r
hether the payments made by G Ltd should be treated

as payments for main contract or as sub-contract for
deduction of tax at source u/s 194 C?

CASE LAWS

A atta igamber Sahakari Kamgar Sanstha Ltd. X. ACT

83 T 148 (Pune)
A TO X. Rama Nand & Co. And Others 163 TR 702

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Case Study 7

FACTS

r Assessee, a Govt. establishment procured milk from

various Sanghs etc and sold it in the market through milk
centres run by the appointed agents.
r Agents sold the goods at the price fixed by the assessee.
r Assessee used to reimburse these agents @ Re.0.90 per
litre towards transport cost, container cost and chilling
charges.
r Assessee had given the nomenclature as Commission for
such payments.
r AO held to deduct tax u/s 194H as payments for
commission.

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Case Study 7

ISSUES

r s the said transaction based on µprincipal-agent¶

relationship?
r
hether any T S is required to be deducted u/s 194H?

CASE LAWS

A Government Milk Scheme v. ACT [2006] 98 T 306

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Case Study 8

FACTS

r B Ltd is engaged in the business of providing cellular

mobile telephone services through its distributors.
r t sold SM and other pre-paid cards at a fixed rate
[below market price] to such distributors for ultimate
sale to customers.
r As agreed, all rights, title, ownership and property rights
in such cards would all time vest with B Ltd.
r Assessee claimed such price difference as discount
allowed and not as commission defined in Expl. u/s 194H
r AO treated it as default and levied interest under section
201(1) and 201(1A).

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Case Study 8

ISSUES

r s the AO¶s claim justified in treating it as commission?

r
hether provisions of section 194H gets attracted??

CASE LAWS

A ACT v. Bharti Cellular Ltd. 105 T 129 (Cal.)

A Hindustan Coca-Cola Beverages (P.) Ltd. v. TO [2005]
97 T 105 (Jp.)

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Case Study 9

FACTS

r  Ltd. is in the business of running a call centre.

r Contract is entered with transport contractor for
transporting the employees of 
r  Ltd. uses the bus or van and such other means of
transport for this purpose.
r The payments made by  Ltd to transport contractor are
fixed hire charges .
r T S is deducted by  u/s 194 C.
r AO is of the view that payments are in nature of µrent¶
under section 194, as defined by Tax Law Amendment,
2006.

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Case Study 9

ISSUES

r s the stand taken by the AO is correct?

CASE LAW & REFERENCE

A Circular No. 558 dated 28.3.1990

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Case Study 10

FACTS

r PQR Ltd., the assessee, is engaged in the business of

providing airline services.
r Co. frequently requires hotel rooms for accommodation
of its pilots and crew members.
r Co. books rooms and makes payments for hire of rooms.
r PQR Ltd. has entered into µrate-contracts¶ with some and
with others the nature of contract is such that hotels are
under an obligation to provide accommodation to PQR
Ltd.
r T S is deducted under section 194C.

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Case Study 10

ISSUES

r s PQR Ltd. required to deduct tax under section 194- or

whether the co. is justified in deducting under section
194C?

CASE LAWS

A Krishna Oberoi and another v. xO [2002] 257 TR 105

(AP)
A Circular No. 5/2002 dtd. 30-7-2002, 194 does not apply
to Rate Contracts.

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Case Study 11

FACTS

r G Ltd. is a manufacturer.
r Company has made payments to an ndian entity
towards the nternet connectivity, Xo- ata card charges
and omain registration charges.
r No T S is deducted on such payments made.
r Company has a view that the payments made are not in
terms with µpayment for technical services¶ as covered
under section 194J.
r However, CCT treats the payments made as µfees
received for providing technical services¶ and deduct tax
at source.

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Case Study 11

ISSUES

r s G Ltd correct in its stand that the payments made to

providers of internet connectivity, facility of Xo- ata card
or domain registration charges are out of the purview of
µfees for technical services¶?
r
hether T S should be deducted on such payments?

CASE LAW

A Skycell Communications Ltd (251 TR 53) [Mad.]

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Case Study 12

FACTS

r The invoice raised on the assessee was inclusive of

professional charges and service tax thereon and
reimbursement of actual expenses.
r No T S deducted on the reimbursement of expenses.
r xnder â
 
 as referred to in Sec.194J,
reimbursement of actual expenses cannot be deducted
out of the bill amount for the purpose of tax deduction.
[Circular: No. 715 dtd. 8-8-1995]
r AO relied on CB T circular and levied interest u/s
201(1A).

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Case Study 12

ISSUES

r
hether T S will be deductible on gross value of bill or on

net?
r
ill the answer be different if separate bills are raised for
both?

CASE LAW

A TO v. r.
illmar Schwabe ndia (P) Ltd. , 3 SOT 71.

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Case Study 13

FACTS

r A Ltd., the assessee, entered into a lease agreement

with B Ltd. for taking premises on lease with a separate
agreement on hire of furniture.
r A Ltd. fails to deduct tax at source under section 194-
on the lease payments made to the payee.
r However B Ltd. while filing his return of income declared
the said receipt of income and paid taxes thereon.
r Assessing officer issued notice under section 201(1) &
201(1A) levying interest for non deduction of T S.

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Case Study 13

ISSUES

r
hether the AO can issue such a notice on A Ltd.?

r f yes, is he liable to pay tax?
r f not, is he liable to pay interest?
r f yes, what is the period for which interest is payable?

CASE LAWS

A CT v. Adidas ndia Marketing Pvt. Ltd. , 288 TR 379

A CT v. Rishikesh Apartments Co-op Housing Soc. Ltd.
253 TR 310,316 (Guj.)

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Case Study 14

FACTS

r A Ltd. delayed in depositing the tax deducted at source

into Government¶s account for the assessment years
1988-89 to 1996-97.
r For the above stated Ass. yrs. the Assessing Officer
passed orders dated 25.5.2000 levying interest under
section 201(1A) on the grounds of such delay.
r The assessment and other proceedings for all those
years has been completed much earlier.
r Appeal was filed by A Ltd. saying no such interest could
be levied after lapse of such a long time.

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Case Study 14

ISSUES

r
hether in absence of the prescribed time limit for

initiation and completion of proceedings under the Act,
initiation of proceedings should be within reasonable
time?
r
hat can be the reasonable time period of levy of
interest under section 201(1A) for delay in deposit of
T S?
r
hether AO can levy/order interest u/s 201(1A)?

CASE LAWS
A Raymond
oollen Mills Ltd. 57 T 536 (Mum.)
A Century Textiles & ndustries Ltd. 13 SOT 507 (Mum.)

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