income tax
This query is : Resolved
08 July 2010
Q -1 If clearing and Transport agents issue their invoice with reimbursements expenses with detail , in that case TDS applicable on whole amount or only on services rendered by him.?
Q2 If C& F and CHA agent issue different bills for Services and reimbursements expenses , then TDS applicable on both ?
Q2 If C& F and CHA agent issue different bills for Services and reimbursements expenses , then TDS applicable on both ?
08 July 2010
Please refer the answer to question no. 7 of the circular no. 715 dtd. 08.08.95.
TDS has to be deducted on the whole amount in both cases.
TDS has to be deducted on the whole amount in both cases.
08 July 2010
No need to deduct tds on reimubursement of expenses if solid doumentary proof regarding these reimbursement.
Please read the below article in detail :
If you're reimbursing expenses to the C & F agent merely on the basis of a SHEET of expenses, then I am afraid you'd have no choice but to make TDS on those reimbursements. To make out an ironclad defence of your company not being liable to make TDS on those reimbursements, you have to have a solid, documentary proof on record that those payouts made to the C & F agent over and above his commission are really reimbursements— -expenses incurred on behalf of your company—-and they don't constitute his trading receipts. The charging section—-Section 4—-of the Income tax Act says in its sub-section 2:[(2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act]So clearly, tax is to be deducted only on the income comprised in a payment. Since reimbursements do not constitute trading receipts or income of the C & F agent, we need not make any TDS on them. This is despite the fact that Section 194C talks about TDS being made on "any sum" paid to a resident in pursuance of a contract. "Any sum" can't be stretched to mean even expenses incurred on behalf of client and later recovered from it. But actually the Income tax department has got its trump card in the shape of the decision of the Supreme Court in Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435/67 Taxman 346. However facts in this case seem to be very different and can't be extrapolated into a contract a company enters into with a C & F agent. In the Associated Cement case, the contract was a works contract involving labour. The company reimbursed additional labour charges to the contractor in pursuance of an escalation clause in the Agreement. The court held, and rightly so in my opinion, that TDS need be made on it. This was because the enhanced payment on account of additional labour charges had a direct nexus with the original works contract. As such, it constituted revenue receipt of the contractor, liable to be taxed u/s 4(1) and subject to TDS u/s 194C.But when a C & F agent incurs expenses like the custom duty, port dues and sundry other charges, he's merely acting as a frontman of the company. These expenses have no nexus with the commission he is supposed to get for his work. The bills produced by him bear the name of the consignor company. A bill or a receipt backs up each of the reimbursements he seeks. So in a way we can say that the C & F agent doesn't incur these expenses on behalf of the company; rather it's the company that incurs these expenses through him. The decision of the SC in Transmission Corporation of AP Ltd. v. CIT [1999] 239 ITR 587/105 Taxman 742 is an instructive one in this regard and one that can blow a hole in the department's over-reliance on the Associated Cements case. It was in relation to TDS on a non-resident payment, but the principle will apply to Section 194C payments as well. The court laid down the following rules:[1) Any such payment must constitute a trading receipt of the recipient; and2) Such receipt may bear the character of income either wholly or partially including when only a fraction of such payment may constitute income of the recipient and in either case it would call for deduction at source.]We know that the reimbursements in no way constitute trading receipt of the C & F agent. Here, it is also worthwhile to discuss how the ICAI defines "gross receipts" of business in terms of what is to be included and what is to excluded. Para 5.11 of the Guidance Note on Tax Audit says that in case of a clearing agent, "reimbursement of customs duty and other charges collected by a clearing agent" would not form part of his gross receipts in business. The second rule says that even when a receipt partially bears the character of income, it'd be subject to TDS. Clearly this means a case where the contractor incurs an expense, inflates it and claims it in the form of his charges/fee. But when the agent docilely submits the actual bills and seeks no more from the company than what's he's paid himself, it would be stretching the imagination a bit too far to argue that such reimbursements too are subject to TDS since they constitute his income. In the light of the above discussion, I think it's fair to conclude that reimbursements made to C & F agents aren't liable to TDS
Please read the below article in detail :
If you're reimbursing expenses to the C & F agent merely on the basis of a SHEET of expenses, then I am afraid you'd have no choice but to make TDS on those reimbursements. To make out an ironclad defence of your company not being liable to make TDS on those reimbursements, you have to have a solid, documentary proof on record that those payouts made to the C & F agent over and above his commission are really reimbursements— -expenses incurred on behalf of your company—-and they don't constitute his trading receipts. The charging section—-Section 4—-of the Income tax Act says in its sub-section 2:[(2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act]So clearly, tax is to be deducted only on the income comprised in a payment. Since reimbursements do not constitute trading receipts or income of the C & F agent, we need not make any TDS on them. This is despite the fact that Section 194C talks about TDS being made on "any sum" paid to a resident in pursuance of a contract. "Any sum" can't be stretched to mean even expenses incurred on behalf of client and later recovered from it. But actually the Income tax department has got its trump card in the shape of the decision of the Supreme Court in Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435/67 Taxman 346. However facts in this case seem to be very different and can't be extrapolated into a contract a company enters into with a C & F agent. In the Associated Cement case, the contract was a works contract involving labour. The company reimbursed additional labour charges to the contractor in pursuance of an escalation clause in the Agreement. The court held, and rightly so in my opinion, that TDS need be made on it. This was because the enhanced payment on account of additional labour charges had a direct nexus with the original works contract. As such, it constituted revenue receipt of the contractor, liable to be taxed u/s 4(1) and subject to TDS u/s 194C.But when a C & F agent incurs expenses like the custom duty, port dues and sundry other charges, he's merely acting as a frontman of the company. These expenses have no nexus with the commission he is supposed to get for his work. The bills produced by him bear the name of the consignor company. A bill or a receipt backs up each of the reimbursements he seeks. So in a way we can say that the C & F agent doesn't incur these expenses on behalf of the company; rather it's the company that incurs these expenses through him. The decision of the SC in Transmission Corporation of AP Ltd. v. CIT [1999] 239 ITR 587/105 Taxman 742 is an instructive one in this regard and one that can blow a hole in the department's over-reliance on the Associated Cements case. It was in relation to TDS on a non-resident payment, but the principle will apply to Section 194C payments as well. The court laid down the following rules:[1) Any such payment must constitute a trading receipt of the recipient; and2) Such receipt may bear the character of income either wholly or partially including when only a fraction of such payment may constitute income of the recipient and in either case it would call for deduction at source.]We know that the reimbursements in no way constitute trading receipt of the C & F agent. Here, it is also worthwhile to discuss how the ICAI defines "gross receipts" of business in terms of what is to be included and what is to excluded. Para 5.11 of the Guidance Note on Tax Audit says that in case of a clearing agent, "reimbursement of customs duty and other charges collected by a clearing agent" would not form part of his gross receipts in business. The second rule says that even when a receipt partially bears the character of income, it'd be subject to TDS. Clearly this means a case where the contractor incurs an expense, inflates it and claims it in the form of his charges/fee. But when the agent docilely submits the actual bills and seeks no more from the company than what's he's paid himself, it would be stretching the imagination a bit too far to argue that such reimbursements too are subject to TDS since they constitute his income. In the light of the above discussion, I think it's fair to conclude that reimbursements made to C & F agents aren't liable to TDS
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