I have attached here some clarificatary explanations in the Finance Act for your kind perusal.
What about the applicability of TDS US/ 194 J in the case where a Company pays its Teelphone and Mobile Bills directly and book those expenses in its books?
Finance Act 2012 has added some clarificatory explanations to the definition of 'Royalty' as given in the Act. [explanation 2 to Section 9 (1)(vi)] , based on which certain transactions, which were previously not under the ambit of TDS, will now attract deduction of tax at source.
PROVISIONS OF THE ACT
1. As you all are aware, payment / credit of any sum to a resident by way of royalty attracts TDS u/s 194J @ 10%.
2. As an aide memoire, we briefly refer to the relevant parts for definition to 'Royalty' as given in explanation 2 to Section 9(1)(vi) of the Act, Royalty interalia included within its ambit any lumpsum consideration for
(a) the use of any patent , invention, model, design, secret formula or process or trademark or similar property.
(b) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property
(c) the transfer of all or any rights (including the granting of a licence) in respect of any copyright ..................................................
3 Explanation 4 has been added by the Finance Act 2012, which clarifies that the transfer of all or any rights in respect of any right , property or information includes transfer of all or any rights for use or right to use a computer software (including granting of a lience) irrespective of the medium through which such right is transferred.
4. Explanation 5 has been added by the Finance Act 2012, which clarifies that the royalty includes consideration in respect of any right , property or information, whether or not, the possession or control of such right , property or information is with the payer; such right , property or information is used directly by the payer; the location of such roght , property or information is in India.
5. Explanation 6 has been introduced by Finance Act , 2012 which clarifies that the expression "process" includes transmission by satellite (including up-linking , amplification, conversion for down-linking of any signal), cable, optic fibre or by any similar technology, whether or not such process is secret.
IMPLICATIONS OF THE EXPLANATIONS INSERTED IN THE DEFINITION OF ROYALTY BY THE FINANCE ACT 2012 - TDS u/s 194J on domestic payments
6. Thus based on the clarificatory explanations being introduced by the Finance Act 2012, various transactions which were earlier not within the ambit of TDS , will come under the purview of Section 194J, We are listing below some of the major transactions which will attract TDs u/s 194J w.e.f. 1-4-2012:
(a) Payment of Telephone (including mobile ) bills
(b) Payment of Internet charges
(c) Payment of Broadband charges
(d) Payment of Bandwidth/Router charges
(e) Online subscription to websites/database
(f) Payment made to a resident for the purchase/ grant of any licence for any computer software will attract TDS u/s 194J @ 10%. However, the CBDT vide direct tax notification no. 21 dated 13-06-2012 has stated that there will be no multi-level TDS on software purchase from residents w.e.f 1-07-2012. The CBDT circular states that no TDS shall be deducted u/s 194J [ only w.e.f 1-7-2012] on payment by a person (hereafter referred to as the transferee) for acquisition of software from another person, being a resident, (hereafter referred to as the transferor), provided-
(i) the software is acquired in a subsequent transfer and the transferor has transferred the software without any modification,
(ii) tax has been deducted -
(a) under section 194J on payment for any previous transfer of such software; or
(b) under section 195 on payment for any previous transfer of such software from a non-resident, and
(iii) the transferee obtains a declaration from the transferor that the tax has been deducted either under sub-clause (a) or (b) of clause (ii) along with the Permanent Account Number of the transferor. In the absence of any specific format of declaration being issued by CBDT, it will be sufficient for the Units to obtain a declaration/confirmation from the transferor -
- to the effect that the software is being acquired by ITC Limited ----- (unit name on which bill is raised) in a subsequent transfer and the transferor has transferred the software without any modification
- to the effect that TDS u/s 194J or 195 ( please quote the section as applicable) has been duly deducted and deposited to the Government for any previous transfer of such software.
- of PAN of the transferor . A copy of the PAN card of the transferor also needs to be obtained.
In case any format for the declaration is issued by the CBDT subsequently, we will duly circulate the same to all Divisions.
7. Hence please deduct TDS u/s 194J on the above transactions in respect of which credits/payments have been made w.e.f. 1-4-2012. For credits/payments of April and May 2012, kindly immediately deduct and deposit the tax along with applicable interest.
IMPLICATIONS OF THE EXPLANATIONS INSERTED IN THE DEFINITION OF ROYALTY BY THE FINANCE ACT 2012 - TDS u/s 195 on international payments :
8. Since the clarificatory explanations have been inserted in the definition of 'royalty' , hence all international payments for royalty (as amended by Finance Act 2012) will attract withholding tax u/s 195. Thus , all the payments listed out above in point no. 6 , if made to a non-resident , will attract TDS u/s 195. However, since DTAAs are also applicable to international transactions , based on the provisions of the Act and the DTAA the final tax implication on these international transactions will be determined.
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