07 March 2008
AO HAS DENIED CREDIT FOR TDS IN THE RETURN OF INCOME OF PARTNER OF THE FIRM ON THE BASIS THAT THE RELATED INCOME WAS NOT OFFERRED TO TAX.THE FACT REMAINS THAT THE ASSESSEE PARTNER(INDIVIDUAL) OF A PROFESSIONAL FIRM CLAIMED CREDIT FOR TDS ON AUDIT FEE RECEIVED FROM A GOVERNMENT COMPANY WITH WHOM THE AGREEMENT WAS IN THE NAME OF THE PARTNER AND NOT ON THE FIRM'S NAME. FEE CHEQUES WERE RECEIVED FROM THE CLIENT IN THE NAME OF THE PARTNER AND THE FEE WAS ACCOUNTED AND OFFERRED TO TAX BY THE FIRM IN IT'S BOOKS OF ACCOUNTS BY DEBITING THAT PARTNER'S CAPITAL ACCOUNT FOR TDS AMOUNT AND RECEIVING THE NET FEE BACK FROM THE PARTNER'S BANIKING ACCOUNT.
THIS PRACTICE WAS FOLLOWED FOR SEVERAL YEARS SINCE AY 2004-05 AND WAS ACCEPTED BY THE ITD AND RESULTANT REFUND IF ANY WAS ISSUED TO THE ASSESSEE PARTNER.HOWEVER IN RELATION TO AY 2006-07 , THE AO DENIED THE CREDIT OF TDS ON THE GROUND MENTIONED ABOVE AND A RESULTANT DEMAND WAS MADE.
THE QUERIST SEEKS YOU OPINION ON THE PRACTICE FOLLOWED BY THE FIRM AND THE PARTNER IN THEIR RESPECTIVE RETURNS AND THE MANNER IN WHICH HE SHOULD PROCEED FURTHER IN HIS APPEAL.
07 March 2008
This is a problem peculiar to the Individual partner And the firm in which he is a partner. The stand taken by the AO in my opinion is correct. This should have been anticipated and safeguarded by the partner appropriately.
07 March 2008
UNLESS A PARTICULAR INCOME IS OFFERED FOR TAX , TDS ON SUCH INCOME IS NOT ADMISSIBLE.THE IT DEPT. IS RIGHT.IN A DIFFERENT CASE WE FACED A SIMILAR PROBLEM IN ACOMPANY ASSESSMENT. R.V.RAO
08 March 2008
IT IS PERTINENT TO NOTE THAT UNDER THE PARTNERSHIP ACT AS ALSO BY VIRTUE OF THE CLAUSES OF THE PATERNERSHIP DEED EVERY PARTNER IS DUTY BOUND TO MAKE GOOD THE EARNINGS FROM THE SIMILLAR PROFESSION TO THE FIRM AND HENCE IN THE CIRCUMSTANCES THE PARTNER WAS BOUND TO ACCOUNT AND TRANSFER SUCH INCOME TO THE FIRM AND THAT'S WHAT WAS DONE. SUPREME COURT IN A JUDGEMENT RELATING TO TAXATION OF DIVIDENDS IN THE HANDS OF THE TRUSTEE AND HELD THAT TDS CAN BE CLAIMED BY SUCH TRUSTEE AND THE INCOME CAN BE TAXED IN THE HANDS OF THE BEFICIAL OWNER.
FURTHER THE DEPARTMENT'S ACCEPTANCE OPF SUCH PRACTICE ALSO GOES IN THE FAVOUR OF THE ASSESSEE PARTNER.
PLEASE OFFER YOUR VIEW IN THE LIGHT OF THESE FACTS.
08 March 2008
Factually and contractually what you say is correct. What the partner could have done is offer the income in his return, claimed tds and then transfereed the post tax income back to the firm.
09 March 2008
SIR COULD YOU ELABORATE ON YOUR SUGGESTION AS TO HOW IT COULD BE DONE?
FURTHER DON'T YOU THINK THAT THERE WOULD BE DOUBLE TAXATION IN CASE THE PARTNER TRANSFER'S THE POST TAX INCOME BACK TO THE FIRM SINCE THE FIRM WOULD AGAIN PAY TAX ON SUCH INCOME AS PROFESSIONAL FEE??
AND HOW WOULD THAT BE POSSIBLE/ SHOWN IN THE RETURN OF INCOME IN THE LIGHT OF E-FILLING/NEW FORMATS OF THE ROI WEF AY2007-08??
10 March 2008
THE BASIC ISSUE IS IT IS WHOSE INCOME.
FROM THE FACTS OF YOUR CASE , IT APPEARS THAT IT IS INCOME OF THE FIRM AND ACCORDINGLY YOU HAVE OFFERED INCOME IN THE HANDS OF THE FIRM.
NOW SAME INCOME CAN NOT BE TAXED TWICE ....AND INCOME OF FIRM IS NOT INCOME OF PARTNER . THEREFORE SHOWING IT AS INCOME OF PARTNER WILL BE CONTRARY TO THE FACTS AND REAL POSITION .
ANOTHER PRINCIPLE IS THIS THAT TDS FOLLOWS THE INCOME . TDS CERTIFICATE IS IN THE NAME OF A SAY , BUT THE INCOME EMBEDDED THEREIN IS INCOME OF B SAY AND B HAS DISCLOSED THE SAME AS HIS INCOME , IN SUCH SITUATION B CAN CLAIM THE TDS .
IN YOUR CASE THE FIRM CAN CLAIM THE TDS . TAX PAID BY YOU HAS TO BE CREDITED TO SOMEONE . YOU SHOULD FILE A PETITION IN THE CASE OF FIRM FOR ALLOWING CREDIT FOR TAX PAID ......IF THEY DO NOT ALLOW , SEEK DIRECTION FROM HC
BUT REAL PROBLEM IS THIS THE COMPUTER SYSTEM OF THE DEPTT DOES NOT TAKE CARE OF THIS SITUATION . IN THE BUDGET PROVISON HAS COME TO TACKLE SUCH CASES.
10 March 2008
sir going by the first principle as mentioned by you , could you give some citation supporting my contention to ensure that sec 199 is not applied in the given case.further the present fact is that 154 petition has not been acted upon by the ao and the assessee partner has also filed an appeal wherein the cit(a) has asked for the certain documents to examine the case and has issued direction to the ao in this regard.
further could you please guide as to how we can go about claiming the credit for tds in the hands of the firm now? the present fact is that this matter related to ay06-07and the firm has already been assessed u/s 143(3) wherein this receipt has thus been accepted however as is evident no claim for tds was made and tds was not as such accounted for in the books of accounts.the firm was covered u/s 44ab.
further , could you highlight the relevant clause (number) of the budget where this provision has been talked about
When I suggested transfer of post tax income to the firm, it was not as income to the firm. The money can be directly credited to the post-tax profits of the firm. As you have details with you, it can always be explained so, in the narration, as 'income having suffered tax' at the hands of the partner, but being transferred to firm interms of the partnership conditions.
20 March 2008
SECTION 199 IS BEING SUBSITUTED BY NEW SECTION IN THE BUDGET .....VIDE CLAUSE 42 OF THE BUDGET.....WATCH OUT
ACCOUNTING ENTRIES IN THE BOOKS DOES NOT DETERMINE THE NATURE OF TRANSACTIONS, RATHER NATURE OF TRANSACTIONS DETERMINE THE ACCOUNTING ENTRIES..........IF WRONG ENTRIES ARE THERE YOU CAN EXPLAIN
IF THE AO IS NOT PERFORMING HIS DUTY TO DISPOSE PETITIONS U/S 154 , THE OPTIONS ARE TO GO TO HIGHER AUTHORITIES OR SEEK DIRECTION FROM COURT ACTIVATING THE AO
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