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APPLICABILITY OF TDS ON VARIOUS PAYMENTS

Viswasbhatt (SERVICE) (85 Points)

26 June 2009

Dear All,

I wish to ask your replies on my following query-

Whether TDS is required to be deducted on paytments like-electricity bill, telephone bills, internet bills,broadbenad bills etc. Earlier i have read some where that on payment to be made to government agencies tax is not required to be deducted, however now when there are several private companies providing these type of services whether we a company should deduct TDS while making payment. If any thing written in Act or rules kindly give reference to that.

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8 Replies

Kunal Parikh (Chartered Accountants) (33 Points)
Replied 26 June 2009

TDS would not be applicable on utility bills since there does not exists any contractor relationship with the utility providing companies. Section 194C is applicable only where the contractor does some work or provides labour for a price.

Also further, it would not fall under Section 194J - Professional as not fees for technical services are rendered by such utility companies to the assessee. Accordingly, on utility bills no TDS would be applicable.

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Viswasbhatt (SERVICE) (85 Points)
Replied 26 June 2009

How can you say that there is no contractual relation ship between service provider and a user.

Kunal Parikh (Chartered Accountants) (33 Points)
Replied 27 June 2009

I meant to say that the utility company is not a contractor or sub-contractor performing services for you. Section 194C states that any person responsible for paying any sum to any resident for carrying out any work (including supply of labour for carrying out any work).

The providing of utility services by the utility companies is a 'Contract for sale' and not 'contract for work'. Refer to Circular No. 715 dated 08-08-1995 where contract for sale and contract for work. Also Circular No. 681 dated 08-03-1994 the CBDT clarifies in para 7(vi) that provisions of section 194C would not apply to contract for sale of goods.

Yogesh Shah (Managing Corporate Finance) (1051 Points)
Replied 27 June 2009

Almost all Government Organisations or Government Undertakings are exempted from Tax (ref. - PMPML, Pune was formerly known as PMT & PCMT who were Government Organisations and exempted from Tax earlier. But when both got converted into Public Co. having name as PMPML, will be liable to pay Tax now.)

Hence at the time of payment to Government Agencies, no TDS is deducted as the same are exempted from Tax.

Amol Gopal Kabra (CA,CS,DISA) (Practicing CA) (8539 Points)
Replied 27 June 2009

I agree with the view of Mr. Kunal Parikh.

However, i would like to add something from my end. With regards to the telephone bills, internet bills, etc., there is a case law under 194J where they were supposed to be covered by TDS as technical services. However, the Court has decided that it is not a technical service covered under 194J. The case was of the Telecom Company "Aircell." I dont remember the complete citation of the case law.

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VIPUL BUBNA (MANAGER TAXATION) (119 Points)
Replied 27 June 2009

Still there is no clarity on the issue as the matter is sub-judice as various levels and at the time of assessment the assessing officer is asking for the TDS payment on Broadband charges under section 194J as technical services.

Kunal Parikh (Chartered Accountants) (33 Points)
Replied 27 June 2009

The assessing officers are asking for the TDS payments and the matter may be under litigation at various stages. But what is important in principle is that Section 194J applies to fees for technical services. On referring to definition of fees for technical services as defined under section 9(1)(vii) of the Act, it clearly states that "fees for technical services" means any consideration (including lump sum consideration for rendering any managerial, technical or consultancy services (including the provision of services of technical or other personnel).

Broadband services provided by the utility company in itself does not amount to rendering any managerial, technical or consultancy services. However, if the contract is made in such a manner the over and above the usage charges paid to the Broadband providing company, if the contract also includes the providing of any technical services to the assesseee then TDS u/s 194J would be applicable on such technical services. Just mere paying for broadband usage charges does not amount to rendering of any fees for technical services.