Query regarding TDS and service tax

CA Manish Mohnot (Charterted Accountant) (146 Points)
Replied 13 January 2010

Any one have not answered about this query...

CA. Vipin Gupta (Accounts Officer) (146 Points)
Replied 13 January 2010

very unique problem ...............

CA. Vipin Gupta (Accounts Officer) (146 Points)
Replied 13 January 2010

but in my opinion as this is one time activity and it does not come under any of sections of TDS like contractor, rent, professional etc. so no need of deducting TDS.

and no idea about TDS

Amir (Learner) (4016 Points)
Replied 13 January 2010

Dear Jitendra,

1) TDS will be deducted undoubtedly...Since this transanction is not covered by any Specific Section then ultimately it will fall under Sec 194 C..

2) As far as Service tax goes, I don't think it will be levid on this transanction...I tell u the reason it's because by giving land deeds to Co. Y for the purpose of obtaining loan"NO SERVICE IS BEING DELIVERED" as such...

Remember the matter whether the"RENTING OF IMMOVABLE PROPERTY IN IT SELF" AMOUNTS TO SERVICE IS STILL TO BE DECIDED BY THE SUPREME COURT...

Reason is "NO SERVICE IS PERFORMED/DELIVERED", Same thing applies in ur case If it is just an agreement to handover the deeds I don't think it will get covered under Service Tax..

1 Like

CA Manish Mohnot (Charterted Accountant) (146 Points)
Replied 13 January 2010

No idea abount service tax?? I hope TDS does not depend on one time activity.This activity occure every year then we require to deduct TDS???

Max Payne (employed) (2574 Points)
Replied 13 January 2010

Originally posted by : Jitendra Jhanwar
	Dear All I have query regarding TDS which is below: Problem :X company have land of 200 crores [Market value] .X company is interested to give legal paper of land to Y company. X and Y company both are same group company.X Company has charged 1% charges to y company for land documents. Y company has mortgage this paper to bank and acquired loan as per requirement. X company raised a bill to Y company for this charges. The language of this bill is below: “Being Charges for providing collateral securities by depositing title deed of Land” [1% of 200 Crores it means amount of charges comes 2,00,00,000 [Two Crores] Query: 1.Can Y company deduct TDS on this charges when payment to X, if no then Why?& if yes then which section can we deduct TDS and which head like rent, professional fees,contract,commission…. Query:2.Can this charges cover Service tax, if yes then please clarify that Which Service covers it. So request to clarify this matter as soon as possible. Tks in Advance

But the land is still being used by X company, who still remains the legal owner? Pls reply.

CA Manish Mohnot (Charterted Accountant) (146 Points)
Replied 13 January 2010

Legal owner is X company.Only documents submitted to y Company.

Shiva Kumar (CA Final) (208 Points)
Replied 13 January 2010

Thats an excellent query. First things first. TDS - Yes - Under 194H - Commission or brokerage.

Under 194H, Commission is an inclusive definition,

commission or brokerage includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities

Note the words "any transaction" and "any asset". This will settle the issue. Regarding Service tax, please go through my other posts given in the following pages.

Shiva

Shiva Kumar (CA Final) (208 Points)
Replied 13 January 2010

Guys, one more thing,

We cannot just like that say tds is not applicable. Please see this transaction. If for a moment if you imagine yourself to be an Income Tax officer, what will you try to do. You will try to classify it as an as TDS attracting expenses and will disallow such expenses also you will invoke Assessee in Default provisions.

Imagine 2 Cr - So, after disallowing the tax payable will be around 66 lakhs then you can 234B. penal provisions imagine.

My principal (CA under whom I did my Articleship used to say).

1. If the Client is asking you what to do before doing it - Dont take a offensive stand. Take a stand which is least hindrance to all. Let us assume no tDS is attractible. So what, ask him to deducts under 194H and pay tax. They are anyways group company, Nobody loses, anyway the other company can utlilize the Credit and can reduce this amount from its Advance Tax for next quarter.

2. If the client has done a mistake and it cannot be rectified and the AO has found it - Now take a offensive stand - try out all possible ways of saying this expenses is not TDS attracting expenses.

Mind you, a client likes an auditor under whom he has the least clashes with the IT and not with some other auditor under whom there is constant locking horns with Dept. The cleint does not have IT knowledge and wants Peace of mind

Just felt like saying, like it, take it, else forget it

Shiva

CA Manish Mohnot (Charterted Accountant) (146 Points)
Replied 13 January 2010

Dear Shiva

I am trying to solve this query practically.Some of mine friend who had suffered same problem. But they had deducted TDS under 194 C.Auditor had also approved this and they signed contract between group compaies regarding transfer documents. But as per prime facia ..I agree with you mean deduct should under 194 H.

Shiva Kumar (CA Final) (208 Points)
Replied 13 January 2010

I am trying to a Brain Storming session. If at all this can be covered under Service tax, it can be classified only under

1. Business Auxillary

2. Business Support

3. Real Estate Agent.

4. Renting of immovable propery (Here there is no Renting, but still I am including it)

As only these services are even remotely connected with this transaction.

(a) Business support does not cover this type of transaction

(b) Real estate agent also does not cover this area.

(c) Renting of immovable property, for reasons said by AMIR and various other reasons, does not cover this transaction.

So only option left is Business Auxillary Service. See next post for analysis of BAS - See a couple of post below, not the next one itself

Mansi (student) (58 Points)
Replied 13 January 2010

Hi, Its really an interesting query... N 4m my point of view Shiva Sir has a point... 194H may be applicable. Than too trying to search out the alternative if any..??

CA Manish Mohnot (Charterted Accountant) (146 Points)
Replied 13 January 2010

Some others view related this query regardjng Service Tax so please review it:

1.

Service Tax - As per section 65 (12) (a) (ix) “banking and other financial services” means also …….other financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit and bill of exchange, transfer of money including telegraphic transfer, mail transfer and electronic transfer, providing bank guarantee, overdraft facility, bill discounting facility, safe deposit locker, safe vaults, operation of bank accounts.

According to section these services can be provided by a banking company or a financial institution including a non-banking financial company or any other body corporate.

Therefore the service tax provisions would be attract. However the same can be available as 1005 input tax credit if there are correlation between input and output services and separate books of account is maintained.

2.

FOR SERVICE TAX.

1. SECURITY AGENCY SERVICE

2. BANK AND OTHER FINANCIAL SERVICE

3. INTELLECTUAL PROPERTY SERVICE AS X NOT TRANSFER LAND BUT IT HAS JUST GIVEN INTANGIBLE RIGHT TO BANK. AS X LAND IS MORTGAGE. AND IN REWARD X IS GETTING SECURITY COMMISSION OR SECURITY INCOME.

Shiva Kumar (CA Final) (208 Points)
Replied 13 January 2010

Business Auxillary service is defined as

some 7 points and said to have included commission agent.

Out of the seven points the only relevant point is clause (iv) "procurement of goods or services which are inputs for the client.". We should also see commission agent.

Procurement of Goods or services

Now we need to analyse and reach a conclusion. Y company wants some money, so by giving its Own Land documents X has fulfilled Y's need for money. Therefore, this is nothing but a financial services. This financial service is actually provided by the Bank which has given this Loan. But this has been facilitated by X.

This clause covers transaction of the followinf type:

If say you want 1000 kgs of sugarcane is October season and you don't get it. You come to me and say please "get me somehow 1000kgs of Sugarcane". So i help you get Sugarcane and get some charges.

So, if you treat the above financial services as Sugarcane in the above example, then as Y Led has helped in getting such financial service and as such services were used in the business, this will be covered under Business Auxillary services.

Commission Agent

This will be attracted only when I am acting on behalf of somebody. As, Y ltd is not acting on behalf of X Ltd, this will not be attracted.

Conclusion

This Transaction will be covered under BUSINESS AUXILLARY SERVICE and Hence, Service Tax need be collected.
As X and Y are related parties (as given in the query) tax needs to be paid in the month of Service and not on the month of collection of the money. - i.e., Service Tax on Due basis and not on Cash basis.
Final and Most important - As the amount involves is huge, please take a legal opinion on this issue.
For such legal opinion, you can take my arguments as a view point before such adviso

Please take an informed decision on this.

Shiva

PS: I am just expressing my view point. This is not a legal opinion and can be followed at the sole risk of the reader.