TDS on educational services to employees' childrens

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

07 February 2011 An employer has hired an organisation to provide on-line education to wards of its employees. TDS at what rate & under which section to be deducted?

Guest

Guest (Expert)

07 February 2011 Under Sec. 194C

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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08 February 2011 1.To impart ON-LINE EDUCATION to any one involves techniques.
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2.BASICALLY IT IS A SERVICE WHICH CAN BE PROVIDED BY TECHINCAL or PROFESSIONAL PERSONS ONLY.
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3.A skilled person having professional capabilities can only provide such education. The personal identity of trainer is also having importance
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So in my view, it will be correct to deduct TDS U/s 194J.

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CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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08 February 2011 Agree with Mr. Bafna.

( Since the matter goes controversial).

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In contracts, a work is generally given to another if it is related to the business of the company.

The present work is not directly related to the company.

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In Income-Tax Act, there are separate provisions u/s 194J which are applicable if professional and technical services are hired.

Guest

Guest (Expert)

08 February 2011 Disagree with both the experts. Such profession is neither covered by Sec. 194J nor covered by Sec. 44AA & notifications issued u/s 44AA.

CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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08 February 2011 Section 194J covers the case of FEES paid for professional or technical services.

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From the facts of the above case; it is crystal clear that the FEE is being paid to the educational institution studentwise.

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In contract; FEE is never paid.

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Further; in contract some work is carried out on behalf of the contractee and when such work is carried out; PAYMENT is made WHICH CAN'T BE TERMED AS PAYMENT OF FEES.

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So in my opinion; the case is covered u/s 194J.

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To elaborate further; Section 194J says person required to get their accounts audited under Section 44AB are ALSO COVERED.

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It does not mean that other cases are not covered by Section 194J.

Guest

Guest (Expert)

09 February 2011 It is no where mentioned in the query that fee is to paid studentwise or otherwise.

CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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09 February 2011 Agree, that nowhere it is written that fee is to be paid studentwise but in the case of on-line education; it is always paid studentwise.

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However; in the instant case; the ultimate test is FEE for technical services; whether it is paid studentwise or otherwise.

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According to section 194C, contractor is given some WORK to be completed on behalf of the contractee. U/s 194C (7) (iv) - "work" shall include..........

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The plain reading of the clauses makes it clear that all the requirements are of the business run by the contractee.

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For other services like brokerage, commission, mutual fund agents and fee for professional or other services; the separate sections are there which means there is no intention of the statue to cover these services into 194C i.e. work contracts.

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In short; we can say there is a difference between work contract and service contract.

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Guest

Guest (Expert)

10 February 2011 But sec. 194C does not differenciate between service contact and work contract.

CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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12 February 2011 Sir, when there are specific section in the Income-Tax Act for a particular service then it will go under that category.

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Suppose we appoint one broker to find customers for our product.

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What category we will choose to deduct TDS in this case ?

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Can we argue that since we have outsourced one of our business activities to another person hence it goes under u/s 194C ?

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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12 February 2011 The arguments given by both the experts are very much relevant to the topic and in the light of valued opinions given by both the experts, it can not be said that, we can classify one particular tds item as a rule of thumb. Ambiguity and Income Tax Act are two names of a single object.

Providing On line School Education, no doubt requires implementation of technicalities like knowledge of internet, programing, knowledge of subject matter etc. In this sense this type of provision involves technical services as regards to
the specification of net band width, capacity of computers, required softwares and programing languages etc. In this matter, company being a non-human, can not itself judge the best available parameters for the purpose of imparting OLE.

For that, the technical expertise of the service provider only would play a key role. It can as well be included under the provision of technical services as with the professional services.

My answer was based upon a practical issue handled by myself in the case of a bank in which clearing services provided by SBI has been treated by the department as Services on which Deduction U/s 194J was supposed to be deducted by our client-Bank.
Basically SBI Charges2/or 3/ for clearing such cheques. So it can easily be defined as a Contract in the first outset. But department treats it a service of kind prescribed U/s 194J .

After considering all the facts, when we reply here, our prime motive is to opine in such a way that the querist, unnecessarily, should not face any hardship from the IT Department. By deducting tax at higher rate, does not increase the financial burden of the assessee company as well as the OLSP. Low TDS deduction may be problematic in the sense time and money consuming, as I discussed by narrating a practical case.

CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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12 February 2011 TDS provisions are the most tedious part of Income-Tax Act. Although Income-Tax Act itself is very typical because number of assessees is large and many times assessees can't even imagine that they would be harassed unnecessarily due to the tedious provisions of Income-Tax Act.

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The argument may go unending but somewhere we have to close the chapter.

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To solve the issue in such circumstances; it is always better to deduct more TDS than required if there is some controversy in the opinions.

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The deductor is nothing to lose if he deducts more because ultimately it is settled in the deductee's account.

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CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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12 February 2011 Message:

If you want to keep education as a serene
profession .......Deduct TDS U/s 194J

and ....if you want to treat it as like other businesses -which are termed as "Vyapar" by giving it to Contractors .. Deduct TDS U/s 194C.

Basically we have to save the education system from so called "Thekedars" of educational field and restore in the hands of educationalist and professionals.

1% or 10% TDS will be no issue then.

CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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13 February 2011 Since the issue pertains to legal; hence we have to see the legal aspect only.

( KANOON ANDHA HOTA HAI).

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To save the education system from THEKEDARS; we can discuss the matter in the Forum.

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A very important issue has been raised by Mr. Bafna.

Guest

Guest (Expert)

14 February 2011 I agree with Mr. Rakhecha for his comments , "To solve the issue in such circumstances; it is always better to deduct more TDS than required if there is some controversy in the opinions" but in case of existing dispute, queriest may contest.

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