26 April 2012
The firm is charging Rs. 10000 extra. This is not included in Legal Charges. It does not mean that the charge is not legal. Further they have mentioned that Rs. 10000/- is out of pocket expenses. Means the amount have been spent in connection with your case as they thought essential.
It should not be confused with service tax. Service Tax is levied on (Taxable) Services only.
(Humour- Our Govt thinks that A Laweyer is not providing any services hence on Individual to Individual basis, there is no Service Tax liability ? ) . TDS to be deducted on 110000/- .
27 April 2012
Please go through the following. It may clarify your matter:
1. In reply to question no. 30 CBDT circular No. 715 dated 8-8-1995 confirms that TDS on reimbursement is required to be made if a single bill is raised for the professional fee inclusive of reimbursement of expenses. In such cases TDS is to be made on gross amount i.e. on the aggregate amount of professional fee and amount of reimbursement of expenses.
2. On the other hand, where separate bills are raised for professional fee and for reimbursement of actual expenses duly supported by expense bills, whether TDS should be deducted or not on invoice for reimbursement of expenses. The Delhi bench of the Income Tax Appellate Tribunal in ITO Vs. Dr. Willmar Schwabe India (P) Ltd. [2005] 3 SOT 71 examined the scope of Circular No.715 dt.8-8-1995 on the subject of deduction of tax at source on expenses reimbursement and upon perusal of the same, held that reimbursement of expenses for which bill is separately raised did not attract the provisions of Section 194J. Accordingly, no TDS is required to be deducted on such reimbursement of expenses.
As per the Service Tax (Determination of Value) Rules 2006, a reimbursement of expenses shall be liable to be taxed unless the same is incurred by the service provider as a "pure agent" of the service receiver. .
As per Rule 5 of the Rules, the gross amount charged shall include the cost and expenditure incurred in connection with the taxable services charged to the service receiver. .
No deduction is allowed on the reimbursement of expenses unless, once again, these expenses are incurred by the service provider as a pure agent of the service receiver..
“Pure agent” has been defined in Explanation (1) to Rule 5 (2) of Service Tax (Determination of Value) Rules, 2006. .
Please note: The levy of service tax on reimbursements had been challenged in Intercontinental Conslt & Technocrats (P) Ltd v. UOI (2008 (12) STR 689 (Del), and the matter is pending adjudication
1) Follow the suggestion given by the two experts. OR
2) Ask the lawyer to submit 2 separate bills for services rendered & reimbursements in the nature of out of pocket expenses. Here, you got to deduct TDS ONLY on the services i.e. on 1L We follow the second option & our service providers have never put in their 2 cents.
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