Expert opinon

TDS DEDUCTION ON FOREIGN PAYMENT

QUERY : my client make payment for purchase of bandwidth from abroad. bandwidth  is in the nature of technical fees. party receiving payment having no PE or place of business in India. whether deduction of TDS is mandatory if yes please inform me procedure/deposition of TDS/challan no /filing of TDS return/ in case of  deductee  having no pan. 

 1. if DTAA exists II) if no DTAA.

 Please enlighten on this above subjects.

 warm regards,

Tapan Kumar Saha

3, Sastitala Road, Narkeldanga

Kolkata : 700011

M. No. 9433354924

REPLY: Query of Mr T.K.Saha on remittanace of technical fees. 

The querist himself states that the payment for import of Bandwith is in the nature of technical fees . Payment for technical fees is covered u/s 9(1)(vii) of the Act and particularly after amendment in section 9 of the Act  by the Finance Act 2010 ( insertion of Explanation at the end of section)  your case undoubtedly attracts withholding tax and TDS has to be deducted  irrespective of whether DTAA is there or not .  Regarding procedure see form no 15CB . Rate will depend upon 

DTAA with the country concerned . If no PAN then check section 206AA of the Act ( 20%) .        

Regards,

CA P.K.Sanghai

+91 9830031711

QUERY- Query in relation to Capital Gain:-

I purchased a Construction linked flat in 2008-09 and till now i have not received the possession of the flat. Now i selling the flat in 2013-14.

Whether amount received is treated as long term capital gain or the amount paid for previous 3 years is treated as long term capital gain or all the money received is treated as short term capital gain.

Also provide the any case law in this regard. For any further details, please revert back. 

With Regards

Prashant Jain

Reply1: First the agreement much ensure that this booking is a capital asset. Ref - CBDT cir for DDA flats. Then it may be LTCG is more than 3 yrs has lapsed. However in this case since no conveyance has been done and handing over not done, the ITO might treat this as IFOS. A keen study of purchase agreement and stage of construction wld sort this out.

Ajoy Mohta

Reply2: As the possession has not been received the transaction is that of booking of a flat and right to obtain conveyance. If the period of three years from the date of booking of the flat has passed then the transaction shall be long term and not short term. As per the definition of capital assets under section 2(14) of the Act, any kind of property held by an assessee would come within the definition of 'capital asset'.

Please refer Right to obtain conveyance of property is a ‘property’ - A contract for sale of land is capable of specific performance. It is also assignable. A right to obtain conveyance of immovable ‘property’ is clearly ‘property’ as contemplated by section 2(14) - CIT v.Tata Services Ltd. [1980] 122 ITR 594 (Bom.).

Thanks & Regards
Miraj D ShahD J Shah and Co
Kalyan Bhavan
2 Elgin Road
Kolkata 700020
Phone: 033-22870767 / 22871487
email: mirajshah@djshahandco.com
url: www.djshahandco.com

QUERY- Is there any Circular/Notification from the Dept. that a Director or Manager or Secretary of a Company should file his / her Income Tax Return in that Ward/Circle where the Company is assessed.

If so, then if a person is a Director in more than one company where to file the Return.Under Companies Act 1956 a person can be a MD in two companies with remuneration.

Dipjyoti Majumdar

REPLY: The salary circles have been formed for convenience in faster processing of returns, refunds etc. Primarily one is governed by territorial jurisdiction which the jurisdictional AO mentioned in PAN details on NSDL / incometaxindia.gov.in. The Departmental practice and functioning covers by territorial jurisdictional except in respect of Salary, Company, Trust and TDS cases. This pattern is followed except where minor deviations are there. There may be case where one person is Director of several companies or an employee shifts job from one company to another every 6 months and in such cases the territorial jurisdiction will apply. In cases of such circumstances, the Information Branch of the Department will transfer the relevant data, if required, to the particular Range(s)/Circle(s). From the user end, one has to file his/her return as per the territorial jurisdiction.

 Further, as provided in section 139(1A) employees have option to file their returns through employer i.e. bulk filing system. The main purpose of forming the Salary Circle is to have the relevant information relating to company and its employees at one place. However, with advent of filing of TDS returns, Annual Salary Statements, E-filing of IT Returns etc. the Departmental system will be able to have all the details electronically. Reference may be made to CBDT Administrative Manual as under:

http://www.incometaxindia.gov.in/archive/mop_volume_i.pdf

http://www.incometaxindia.gov.in/archive/mop_volume_ii.pdf

 Deepak Jain

Advocate, Calcutta High Court

0-98302-02630

QUERY- It can be understood from a PAN whether it belongs to an Individual or Firm or AOP or Trust or Body of Individuals or a Company without accessing the income tax or any other website like NSDL/TRACES etc.Can we gather similar information by simply seeing a TAN without opening any website.

I do look forward to your valued opinion.

Warm Regards,

Dipjyoti Majumdar

REPLY: In the TAN registration details the requisite information is stated and which is with the applicant.

Deepak Jain

Advocate, Calcutta High Court

0-98302-02630

QUERY: 

There is case, in which father sent his son for study to foreign & taken part cash loan from son for payment of education fees and refunded latter on for purchase of dollar & travelling ticket. However, ITO is imposing penalty for this. Further, they are looking for some  favourable case law for avoiding such penalty.

So, kindly advice us & give the list of case law in favour of assessee.

Thanking You,

With Best Regards,

CA Raman Kumar Jha

Reply –

The ITAT has held that  the loans from relatives are in the nature of financial support within the family and this is a reasonable cause falling u/s. 273B of the Act and hence no penalty can be imposed. Three such decisions are attached to this email. 

Thanks & Regards
Miraj D ShahD J Shah and Co
Kalyan Bhavan
2 Elgin Road
Kolkata 700020
Phone: 033-22870767 / 22871487
email: mirajshah@djshahandco.com
url: www.djshahandco.com

QUERRY - Assessee has been denied the benefit of HRA as shown in the Form-16 issued to him at the time of scrutiny. The fact also has been admitted by the assessee as per the calculation of A O. A O has added the amount while making assessment u.s. 143(3) and also intend to initiate penalty u.s.271(1)(c) treating as concealment of income. Assessee is on the view that mere disallowance of claim is not concealment but a calculation error. Please comment.

PKPradhan

It is true that no penalty u/s 271(1)(c) can be imposed on mere disallowance of claim or calculation error or any other bonafide error . In this regard, following case-laws may be referred to-

(i)   CIT vs.  International Audio Visual Company 288 ITR 570 (Del)

(ii)   CIT vs. Nath Brothers Exim International Limited 288 ITR 670 (Del)

(iii)   Btx Chemical P. Limited. vs CIT  288 ITR 196 ( Guj)

(iv)   ACIT vs. M/s. Cube Communication Ltd. ( I.T.A. Nos. 672/K/09; ‘A’ Bench,  ITAT, Kolkata, Order dated 03.07.09)

Following-

(a) Chandrapal Bagga vs. ITO 261 ITR 67 (Raj.)

(b) Motilal Padampat Sugar Mills Co. Ltd. vs. State of U.P. 118 ITR 326 (SC)

(c) CIT vs. SPK Steels Pvt. Ltd. 270 ITR 156 (MP)

(v)        K.C. Builder vs. ACIT 265 ITR 562

Recently, in the case of Price Waterhouse Coopers (P.) Ltd. vs. CIT 348 ITR 308, it was held that it is possible that the assessee can make a 'silly' mistake and no penalty is imposable for such errors.

However, pursuant to the show-cause notice issued u/s 271(1)©, the assessee is required to give a bonafide explanation. The assessee can also adduce fresh evidence in the course of penalty proceedings to prove his case inspite of the fact that the addition is already  made in the scrutiny assessment framed u/s 143(3) and the assessee has accepted the addition. If the evidence or the explanation is not found to be false, the A.O. cannot impose the penalty as per Explanation 1 to section 271(1)(c).

It was held in the case of National Textiles vs. CIT 249 ITR 125 (Guj.) -

No penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount does not represent concealed income as with the hypothesis that it does. If an assessee gives an explanation which is unproved but not disproved i.e., it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee's case is false, the Explanation cannot help the Department because there will be no material to show that the amount in question was the income of the assessee.

QUERY : my client make payment for purchase of bandwidth from abroad. bandwidth  is in the nature of technical fees. party receiving payment having no PE or place of business in India. whether deduction of TDS is mandatory if yes please inform me procedure/deposition of TDS/challan no /filing of TDS return/ in case of  deductee  having no pan. 

1. if DTAA exists II) if no DTAA.

Please enlighten on this above subjects.

warm regards,

Tapan Kumar Saha

Prop. T.K.SAHA & ASSOCIATES

Chartered Accountants

REPLY: I think the basis that payment for bandwidth is FTS may be flawed. In

[2011] 45 SOT 157 (Bang.)

  Infosys Technologies Ltd. v. Deputy Commissioner of Income-tax, Circle-11(4), Bangalore

it was held that payment for bandwidth is not FTS and non deduction of TDS was not considered violative of section 195!!

Thanks & Regards!
Ajoy Kumar Mohta, Partner
ARSK & Associates, Chartered Accountants
22 R. N. Mukherjee Road, 3rd Floor, Above ICICI Bank
Kolkata – 700 001

QUERY: Tax Deduction from payment of Overseas Commission: Our clients make payment of commission to non-resident persons for either procuring the goods or sale of goods on behalf of them. Before making the remittance through bank a certificate in Form 15CB is required to be issued by the C.A. and thereafter Form 15CA is required to be uploaded. Whether tax is required to be deducted on such payment of commission to non-resident person for the services rendered outside India. Previously there was a circular from the I.T. Department based on which no tax was required to be deducted. But of late the same has been withdrawn. Moreover there had been conflicting judicial pronouncements on the above matter. According to some view such payments do not come within the purview of Sec. 9 also.

Please enlighten on the above matter. 

Thanks & Regards
B Kumar & Co.
Chartered Accountants
6A, Clive Row, 2nd floor.
Kolkata - 700001.
Ph : 22300289 / 22310161

REPLY 1: At the outset try to find if any DTAA subsists between the country of the payee and India and then try to follow it. If the commission is a business receipt in the hands of the payee and it does not have PE in India, no TDS may be reqd to be deducted u/s 195.

If there is no DTAA then TDS will have to be deducted at the rates prescribed u/s 195 (stated in the ready reckoner at the begining).

Ajoy Kumar Mohta, Partner
ARSK & Associates, Chartered Accountants
22 R. N. Mukherjee Road, 3rd Floor, Above ICICI Bank
Kolkata – 700 001
PHONE: 033 - 40063380

REPLY 2: In my view, Circular No. 23 and Circular No. 786 had clarified that where the non-resident agent operates outside the country (i.e. India), no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments were therefore held to be not taxable in India. The relevant sections, namely section 5(2) and section 9 of the Income-tax Act, 1961 not having undergone any change in this regard, the clarification in Circular No. 23 still prevails. No tax is therefore deductible under section 195 and consequently, the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure. The circular is based on the principles of income deemed to accrue or arise in India. Mere withdrawal of the circular does not negate the principles of income deemed to accrue or arise in India or outside India.

Moreover, the Hon’ble Supreme Court observed in CIT -vs.- Toshoku Limited (125 ITR 525) held that the non-resident assessees did not carry on any business operations in the taxable territories (i.e. India). They acted as selling agents outside India. The receipt in India of the sale proceeds of tobacco remitted or caused to be remitted by the purchasers from abroad does not amount to an operation carried out by the assessees in India as contemplated by cl. (a) of the Explanation to s. 9(1)(i) of the Act. The commission amounts which were earned by the non-resident assessees for services rendered outside India cannot, therefore, be deemed to be incomes which have either accrued or arisen in India. The said decision of Supreme Court was not based on the provisions of the circular but based on the principles of income deemed to accrue or arise in India and outside India.

Hope the above answers your query.

Thanks and regards,
Akash Bansal
Proprietor
BANSAL AKASH & CO
Chartered Accountants+91 98308 76647

REPLY 3: Dear Mr More ,

Please refer to a Qyery raised on  TDS on commssion to overseas agent recd on 5th of May 2013 : given below with some of the answers :.

The answers to the query in general was no TDS is required to be dedcuted . But the things as on date are not so simple. Before issue of certificate in 15 CB

or upload form  15CA certain parameters have to be ensured . 1) Examine the agreement with foreign agent - whether the clause in the agreement also suggets that the agent is also responsible for product or  quality requirement  or  market survey etc. - if yes the nature of payment ( commission) may turn out to be a fees and then withholding tax applies. 2) examine the DTAA and see whether the foreign agent have any PE in India if yes the proposition will change. 3)  Obtain TRC of payee concerned now  

However after ensuring  the above  if it is the case of remitting commission simply on sale outside India to NR no withholding tax is required . Withdrawing of circular no 23 and 786 does not alter the interpretation of the language used in section 9 of the Act  and the same is not deemed to accrue or arise in India .  I do not agree with the idea one has suggested in the answer that withholding tax applies where DTAA does not exist with a country . Once the matter is outside the scope of section  9 , section 195 has no application . 

Thanks & Regards

P.K. Sanghai 

cell: 9830031711     

REPLY 4: Dear All,

 In my view this forum is for exchange of thoughts and experience. If any expert is raising objection on a particular view of another, it is his point of view. Tax laws being so dynamic, it is not so simple to answer a particular query. One has to analyze in details the complete facts of a particular case. My view was totally based on the fact that the payment to a non-resident is in the nature of export commission and do not represent any thing else, i.e. FTS or Royalty. As soon as the characteristic of a particular payment changes, its taxability also changes.

 Saying this, I stick to my earlier reply that export commission to non-resident agent do not attract any tax implication in India. Moreover, I would like to draw attention to a very enlightening article on the subject issue published in the May 2013 journal of ICAI “The Chartered Accountant”. The following is the web link to access the article:

 http://220.227.161.86/29761cajournal_may2013-20.pdf

 Hope the above explanation would be considered as a view from my side and not as a law of land. One is open to take a view contrary to my view.

 Should you require any clarification/information, please do not hesitate to contact me.

 Thanks and regards,
Akash Bansal
Proprietor
BANSAL AKASH & CO
Chartered Accountants+91 98308 76647

QUERY  : ON REMEDY FOR NON-DISPOSAL OF RECTIFICATION PETITION U/S ON SEC 154: REPLY BY OUR EXPERT PANEL MEMBER

QUERY: The AO did not give TDS credit in the 143(3) Order as per the claim made in the ITR and/or the same reflected in the 26AS. During the course of scrutiny proceedings the AO did not call for TDS certificates also. The AO granted a short credit of TDS to the tune of around Rs 140,000/-.The assessee does not want to opt for appeal but intends to file a rectification petition under section 154.Under section 154(8) the AO is supposed to dispose off the same within 6 months. But what will be the remedy to the assessee if the AO does not comply with the time limit.The tax payer has experienced in past that AO has not acted on the 154 petition on some other matter within 6 months and it is still pending though around 3 years have passed by.

Regards,
Dipjyoti Majumdar
ACA
Reply 1 : Unfortunately, no remedy has been provided in the Income-tax Act, where the A.O. fails to dispose of the petition filed u/s. 154 within the statutory period of six months as provided u/s. 154(8). It may, however, be noted that the department cannot take any coercive measure or recover any outstanding dues occasioned due to the denial of the legitimate TDS credit in respect of which a petition u/s. 154 has been filed with the A.O. without first disposing of the assessee’s petition.In this regard, reference may be made to a judgement in the case of Sultan Leather Finishers (P) Ltd. vs. ACIT 191 ITR 179 (All.)

If inspite of reminders and persuasion, the A.O. is still not disposing of the rectification petition, the only legal option available to the assessee is to file a writ petition before the jurisdictional High Court. Our framers of constitution has visualized this situation and equipped the High Courts with powers to issue a writ of “Mandamus” for securing judicial enforcement of public duties, performance of which has been wrongfully refused.

In a similar situation as that of the querist, where the A.O. was not disposing of the rectification petition u/s. 154, the Hon’ble High Court in the case of Smt. Rajamma vs. ITO 152 ITR 657(Ker) held that an application for relief cannot be kept in cold storage and directed the A.O. to dispose of sec. 154 application within one month from the date of receipt of the order.

However, to avoid the cost, one option available to the assessee is to approach Income-tax Ombudsman by filing a complaint with him for non-disposal of sec. 154 petition by the A.O. However, before proceeding, one should refer to the Income Tax Ombudsman Guidelines, 2006 so that the proper procedure is followed.

Regards,

Subash Agarwal, Advocate

Address: 1, Gibson Lane,

Siddha Gibson, 2^nd Floor,

Suite No. – 213, Kolkata – 700069.

Mobile No. - 9830052141 

Reply 2: I endorse the view given in the Reply. A writ may be moved and will be ideal in instant case and particularly where there has been inordinate delay by the Department in making rectifications and issuance of refunds thereafter and in cases of CPC adjustments. Before moving the writ it will always be better if couple of letters have been submitted by the aggrieved to the concerned authorities in relation to the rectification and refunds. Due to unilateral and wrongful CPC adjustments of earlier demands, there are more than thousands of rectifications pending as also refunds pending to be issued. For the past 6-9 months the issuance of refunds even where rectification has been duly made has not been issued since Department did not have the requisite funds (as they say). But now position seems to be improving and things are moving.

Regards

Deepak Jain, Advocate

0-98302-02630

QUERY: MY QUERY IS A HUSBAND TRANSFERS 50% OF HIS FLAT TO HIS WIFE THROUGH A GIFT DEED.HUSBAND GOT THAT FLAT FROM HIS ELDER BROTHER THROUGH GIFT DEED.NOW IN WHOSE BALANCE SHEET FLAT WILL BE  SHOWN.

1)HUSBAND`S BALANCE SHEET
2)HUSBAND AND WIFE`S BALANCE SHEET AT 50% VALUE.IN THAT CASE WHAT WILL HAPPEN AT THE TIME OF SELLING THE FLAT.

THANKS,

REGARDS.
CA RAVIKANT GOEL
9874974424

REPLY :

1.   The property can be show 50/50 in Husband and Wife balance sheet.

2.   At the time of selling the provisions of Section 64 (1)(iv) will be attracted and the Capital Gains arising on sale of the property on account of wife’s portion of the flat shall be clubbed with the husband as per the provisions of Section 64 (1)(iv).

(iv) subject to the provisions of clause (i) of section 27, ⁴⁴[* * *] to the spouse⁴⁵ of such individual from assets transferred⁴⁵ directly or indirectly to the spouse by such individual otherwise than for adequate consideration⁴⁵ or in connection with an agreement to live apart ;

 
Thanks & Regards
Miraj D Shah
D J Shah and Co
Kalyan Bhavan
2 Elgin Road
Kolkata 700020
Phone: 033-22870767 / 22871487
email: mirajshah@djshahandco.com
url: www.djshahandco.com

QUERY: My client have purchased land of Rs 45 lakh & constructed a building with cost of Rs 150 lakhs. This property will be used  for commercial purpose. Pl advice on which amount depreciation to be charged. (150 lacs or 195 lacs)

sanjay 

 REPLY : 150 lacs

 JNGupta

9331022920