Amir
(Learner)
(4016 Points)
Replied 08 January 2010
Dear Rama,
TDS u/s 194 C is to be deducted on gross amount charged(including reimbursements) based on the same circular u have mentioned..Question No. 30 of the circular reads as follows:-
Clarifications on various provisions relating to tax deduction at source regarding changes introduced through Finance Act, 1995
The Finance Act, 1995, has enlarged the scope of income-tax deduction at source by making various amendments. In regard to the changes introduced through the Finance Act, 1995, a number of queries have been received from the various associations and professional bodies on the scope of tax deduction at source. It would be desirable to clarify the doubts by issuing a public circular in the form of question answers as under :
Question 30 : Whether the deduction of tax at source under sections 194C and 194J has to be made out of the gross amount of the bill including reimbursements or excluding reimbursement for actual expenses ?
Answer : Sections 194C and 194J refer to any sum paid. Obviously, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source.
J.K.Shahi
(Service)
(44 Points)
Replied 08 January 2010
Dear Rama
Kindly refer Delhi bench of the income tax Appellate Tribunal in ITO vs Dr.Willmar Schwabe India P.Ltd. in which it examined the scope of circular 715 on the subject of deduction of TDS on expenses reimbursement and upon perusal of the same,it held that reimbusement of expenses for which bill is seperately raised did not attract the provision of Sec 194J.This case also applies for Sec 194C .
If consolidated bill is raised then TDS will be dedcuted on the whole amount and if seperate bill is given for reimbusement then it will not be subject to tax deduction.
Kindly note that Circular is not binding on assesse
2 Like
Max Payne
(employed)
(2569 Points)
Replied 08 January 2010
Dear Ram,
If contract is covered u/s 194C, then deduct on the entire amt incl. remibursement, whether or not the contractor claims reimbursement in separate bill.
If it is covered u/s 194J, then see if separate bill is raised for re-imbursement. If yes, then the reimbursement can be excluded from the amount subject to TDS. If no, deduct TDS on the entire gross amt of bill
Logic follows
Max Payne
(employed)
(2569 Points)
Replied 08 January 2010
Dear Shahi Sir, thanks for the nice case law.
But i think a case to case analysis has to be done. I am giving below some results i got by searching for this case law.
1. ITO vs. Dr. Willmar Schwabe (I) P. Ltd. [2005] 3 SOT 71 (Delhi)/95 TTJ 53
Where separate charges were made for professional fees and reimbursement of car maintenance expenses [with no element of profit] it was held that no tax is required to be deducted u/s. 194J from the amount paid towards reimbursement of car maintenance expenses.Q. 30 of Circular No. 715 was held to be applicable only in case where the bills are raised for the gross amount inclusive of professional fees and reimbursement of actual expenses.
(Sir, you have correctly said that when separate bill is raised for reimbursement, 194J wont be attracted.)
2. [ITO v Dr. Willmar Schwabe India Pvt. Ltd. (2005) 3 SOT 71 (Del)] (There may be a citation error, but its from an ICAI publication.)
Where the assessee company had been procuring packing materials from various suppliers as per its specification and the required raw-material for manufacture of said packing material was purchased by concerned suppliers on their own. Further, the concerned suppliers also paid sales tax and excise duty on packing material supplied to the assessee and the ownership of said material was entirely with concerned suppliers till its supply to assessee company, it was held that the contract between assessee company and those suppliers was for sale of goods and not for work as envisaged in section 194C. Hence, section 194C was not applicable and assessee was not required to deduct tax at source under that section.
(Anyway it is well established that sales are not covered by 194C. SO IT IS NOT THAT BOTH 194C AND 194J ARE COVERED BY THE SAME JUDGEMENT. It is only because of the nature of transactions that the re-imbursement was not required to be subject to TDS u/s 194C)
Going by the case law you provided, where there is a pure re-imbursement of some expenditure, TDS need not be deducted U/s 194J for separate bill towards expenses incurred.
BUT
I want to draw your attention to the decision in Associated Cement Co. Limited. vs CIT(SC) 201 ITR 435(SC), where it was held that the amount to be subject to TDS u/s 194C is the sum credited, and not just on the income component of the contractor. Producing lines from the judgement, which are numbered by me for better understanding:
1. The words in the sub-section “on income comprised therein" appearing immediately after the words “deduct an amount equal to two per cent. of such sum as income-tax" from their purport, cannot be understood as the percentage amount deductible from the income of the contractor, out of the sum credited to his account or paid to him in pursuance of the contract.
2. Moreover, the concluding part of the sub-section requiring deduction of an amount equal to two per cent. of such sum as income-tax, by use of the words "on income comprised therein" makes it obvious that the amount equal to two per cent. of the sum required to be deducted is a deduction at source.
3. Indeed, it is neither possible nor permissible for the payer to determine what part of the amount paid by him to the contractor constitutes the income of the latter. It is not also possible to think that Parliament could have intended to cast such impossible burden upon the payer nor could it be attributed with the intention of enacting such an impractical and unworkable provision. Hence, on the express language employed in the sub-section, it is impossible to hold that the amount of two per cent. required to be deducted by the payer out of the sum credited to the account of or paid to the contractor has to be confined to his income component out of that sum.
Gyanender Agarwal
(Sr. Manager)
(21 Points)
Replied 21 December 2011
can some one clarify on my query:
two companies has engaged one professional (say for Rs. 1.00 lacs) with the agreement that both the company will share 50:50 expenses and fees for professional services. Subsequently one company has paid full amount (100%) to professional after deducting TDS ( Rs. 90) and raise the debit note (of Rs. 50) to other company for his 50% contribution. Can other company will deduct TDS while reimbusrsing his sahre to first company. What is the aplicability of TDS, pls. let me know with some circular or case law.
Dilip
(Working)
(408 Points)
Replied 21 December 2011
Dear Gyanender,
There is no provision for double taxation on same income in Income tax law. Logically, If one company had already deducted full % of TDS then other Co. is not required to deduct TDS.
In relation to query raised by Ramakrishnan, whether reimbursement under contract (194C) is applicable for TDS or not. reimbursement is not income to service provider, it is just for completion the contract on time. Hence reimbursement is not applicable for TDS whether u/s 194C/J/I or any other.
In logistics business the CHA carries out expenditure on behalf of his client and later ask to reimburse such expenditure from his client by raising one bill which also carries his comission (194C) then in that case whether the client should deduct TDS on comission part only or on entire bill that also includes various kind of expenditure incurred by CHA like (GTA, THC, Shifting charges, Custom clearing charges and various other expenditure), which are also subject to TDS.
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