TDS on Contract

This query is : Resolved

nikunj patel (Querist)
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21 September 2007 one of my client having an export business in which there is one party covered u/s194 C for freight forwarding contract & they deducted tds on all payments to that party but in that there is two payments of around 7 lacs which is paid on behalf of my client by the freight forwarding contractor to the shipping company & this payments were later on reimbursed by the client

so pls tell me the tds applicability on this 7 lacs & the shipping line is indian company having lower deduction certificate from IT

Late CA Sampat Jain

Late CA Sampat Jain (Expert)
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22 September 2007 Section 194C starts as "Any person responsible for paying any sum to any resident (hereinafter in this section referred to as the contractor) for carrying out any work ............" .The real issue is interpretation of the word "any person responsible for paying". In my opinion person paying the freight is responsible for deduction .How a person not paying can deduct . However , this is subject to exemption , if any.

Further note the following cirular:
Applicability to shipping business of non-residents - It is clear from section 194C that the area of operation of TDS is confined to payments made to any ‘resident’. On the other hand, section 172 operates in the area of computation of profits from shipping business of non-residents. Thus, there is no overlapping in the areas of operation of these sections. Since the provisions of section 172 override other provisions of the Act, the provisions of section 194C are not applicable to non-resident shipping business. Even where payments are made to shipping agents of non-resident ship-owners or charterers for carriage of passengers, etc., shipped at a port in India, the agent acts on behalf of the non-resident ship-owner or charterers and thus steps into the shoes of the principal. Hence, even in such cases, section 194C will not apply—Circular: No. 723, dated 19-9-1995.