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TDS U/s 194c

Amarjeet Singh (Chartered Accountant) (152 Points)

04 November 2007

There are two group companies .One company entred in a contract.That contractor provide service to both company but payamet is made by the company which was entered in the cotract and deduct the TDS ofcontractor ,other company made the payament to first company .

My Querry is

Is other company also require to deduct the TDS while making payament to first compay u/s 194C.

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3 Replies

Sathish Karunakaran (ACA) (614 Points)
Replied 04 November 2007

Sir, I opine that if the other company (whose name doesnt appear in contract) is a) claiming its share of contract amount as expenditure in its P&L A/c., b) that nature of expenditure is liable for TDS u/s. 194C, c) such quantum of its share exceeds Rs.20K p.a then the shadow co. has to deduct tax on its share of amount as per contract either at the time of credit or payment whichever is earlier. AS 1 specifies "substance over form". Where transactions give the substance to an event, then accounting or statutory compilation need to be followed to give reality to that event. Hence i guess the shadow co. can't claim that TDS need not be deducted on the grounds that its identity is not there as per legal form. Kindly bear that this is a discussion and please consider other's opinions also.

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K V Subba Rao (Service) (2708 Points)
Replied 05 November 2007

Mr Karunakaran's reply appears to be very logically based. In such situation, may be TDS has to be affected when shadow company makes payment of its share to the parent company; else it (shadow) will not be able to claim the same as expenditure in its (shadow) P & L Account In such cases, the best course of action would be to issue seperate Cheques to the Contractor by both the Companies.

(Guest)

The question comes which company is accounting the invoices. If both the companies’ bills are accounted by one company and the same raises a debit note on the other company, then the second company need not worry about the tds. In such cases the service tax may be attracted if the service rendered falls under the service tax.