Issues under TDS and TCS Provisions

Dr.Girish Ahuja
M.Com.Ph.d., FCA
Chartered Accountant

1. Adjustment in the amount of tax to be deducted from salary [Section 192(3)]

The person responsible for making the payment of salary may, at the time of making any deduction of
tax, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess
or deficiency arising out of any previous deduction or failure to deduct during the financial year.
If any tax has been deducted in excess in the earlier months, the employer is authorised to adjust such
excess in the subsequent months. On the other, if the employer has deducted less tax in the earlier months,
he will have to make higher deduction in the subsequent months.
The above adjustment is permissible only in respect of same employee and not for all employees.
Controversy normally arises when such variation is adjusted in last quarter or last month.
Interest under section 201(1A) is not leviable if the exact amount of TDS is not deducted each month
[ITO v Asia Hotels Ltd. (1991) 41 TTJ (Del) 28].
If after the year is over, there is a short deduction of tax due to honest and bona fide belief by the
employer and employee make good this shortfall in his return of income, the employer is not to recover
such shortfall and he cannot be penalized. [CIT v Shri Synthetics Ltd. (1985) 151 ITR 634 (MP) and
Gwalior Rayon Silk Ltd. v CIT (1983) 140 ITR 832 (MP)].
2. Refund of salary
Where refund of excess salary paid was given by the director with a view to comply with the
provisions of the Companies Act, 1956, and the finding of fact by both the authorities the Commissioner
(Appeals) and the Tribunal that refund was neither voluntary nor was for any extraneous consideration, it
was held that such amount of refund of salary cannot be treated as the assessee's income. [CIT v
Raghunath Murti (2009) 178 Taxman 144 (Del)].
3. Commission based on percentage of net profits will become due when the accounts are finalized
Where in case of a director who was entitled to a commission @ 1% on net profits of the company
apart from monthly salary and certain perquisites and under the terms and conditions of service, no due
date was specifically provided for assessing and/or payment of the said commission which would have
been earned by him, the contention of the assessee that the commission will become due to him only when
the accounts of the company were finalized and the commission is ascertained was upheld by the High
Court. [Sanjib Kumar Agarwal v CIT (2009) 310 ITR 295 (Cal)].
4. TDS is deductible by the company from the deemed dividend referred to in section 2(22)(e)
In certain cases, when any advance or loan is a given by the closely held company to or on behalf of its
shareholder, such advance or loan is treated as deemed dividend as per section 2(22)(e) and the company,
in that case, shall have to deduct tax at source on such deemed dividend.
What is dividend referred to in section 2(22)(e)
Any payment by a company, (other than a company in which the public are substantially interested), of
any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or
loan, to the extent of accumulated profits (excluding capitalised profits) to:
(i) a equity shareholder, who is beneficial owner of shares holding not less than ten per cent of the
voting power; or
(ii) any concern in which such shareholder (holding not less than 10% voting power) is a member or a
partner and in which he has a substantial interest; or

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(iii) any person, on behalf, or for the individual benefit, of any such shareholder. Such shareholder here
means a shareholder who is beneficial owner of share holding not less than 10% voting power.
shall be treated as deemed dividend in the hands of the shareholder.
1.

Substantial Interest: A person shall be deemed to have a substantial interest in a concern other than a
company if he is, at any time during the previous year, beneficially entitled to not less than 20%
income of such concern. In the case of a company, if he beneficially holds atleast 20% equity capital of
the company.

2.

It may be noted that the shareholder should have 10% voting power on the date the advance or loan
is given to him whereas if the loan is given to a concern in which such shareholder has 20% share in
profits/voting power, both the following conditions are to be satisfied.
(a) the shareholder should have 10% voting power in the closely held company on the date when loan
is given to the concern and
(b) the shareholder should have 20% share in profits/voting power in the concern to whom loan is
given at any time during the previous year. However, he should be a member/partner on the date
the loan is given to such concern.

3.

If the loan or advance is given to a concern as per clause (ii) above, such amount shall be treated as
deemed dividend in the hands of such concern and not the shareholder. However, in the recent
Tribunal Judgment it has been held that if the loan or advance is given to a concern, such amount shall
be treated as deemed dividend under section 2(22)(e) in the hands of the shareholder and not the
concern. [ACIT v Bhaumik Colour Pvt. Ltd. (2009) 27 SOT 270 (Mum) (SB)].

4.

Whether loan or advance is given on interest or not, does not effect the applicability of section
2(22)(e).

This provision is applicable only with effect from 1st June, 1987 and is applicable only to companies
in which the public is not substantially interested i.e. closely held companies. Further, such loan and
advance given to such person shall be deemed to be dividend only to the extent to which it is shown that the
company possesses accumulated profits on the date of loan, etc. (exclusive of capitalised profits).
Where the money was advanced by the company to a shareholder to purchase the property which
ultimately did not materialize and such amount was paid back by the said shareholder, the Delhi Tribunal
held that since the amount was given for business purposes of company i.e. to purchase a suitable business
premises, and the assessee could validly perform such act on behalf of company in accordance with
authority held by him through resolution of board of directors of company, amount in question could not be
considered as deemed dividend. [Sunil Sethi v Dy. CIT (2008) 26 SOT 95 (Del)(Trib)].
Dividends not to include the following:
(i) any advance or loan to a shareholder or specified concern by a company in the ordinary course of
its business, where the lending of money is a substantial part of the business of the company.
Ordinary course of business shall mean that the loan or advance should be given to such
shareholder at the same rate and terms as it is given to other borrowers.
Where interest accrued on advance was assessed to tax as business income of the assessee in the
preceding years, it was held that writing off such advance shall amount to bad debt allowable
under section 36(1)(vii) as the assessee was held to be in money lending business. [CIT v Realst
Builders & Services Ltd. (2009) 178 Taxman 163 (Del)].
(ii) any dividend paid by a company which is set off by the company against the whole or any part of
loan or advance previously paid by it and which has been treated as deemed dividend under
section 2(22)(e). In this case the dividend so set off shall not be treated as dividend in the hands of
shareholder.

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Example: R Pvt. Ltd., gave a loan of Rs. 2,00,000 to G who had 12% shares in the company. The
loan is still outstanding. Thereafter the company declared dividend and has to pay a dividend of
Rs. 40,000 to G and the same is set off against such loan. In this case Rs. 2,00,000 shall be
deemed dividend in the hands of G. However, dividend of Rs. 40,000 which has been set off
against such loan would not be liable to tax in the hands of G. But if such dividend has been
declared after the loan is refunded by G, then G would be liable to pay tax on Rs. 40,000.
5. No TDS in case of interest paid by co-operative society to its member
A member of a co-operative bank shall receive interest on both time deposits and deposits other than
time deposits with such co-operative bank without TDS under section 194A. The exemption is available
only to such members who have subscribed to and fully paid for at least one share of the co-operative bank,
and are entitled to participate and vote in the General Body Meeting and/or Special General Body Meetings
of the co-operative bank and are entitled to receive share from the profits of the co-operative bank.
[Circular No. 9/2002, dated 11-9-2002]. However, this circular has been quashed by the Bombay High
Court and it was held that the CBDT has overstepped the authority available to it under section 119 and put
a crack in the exemption clause, for it has no right to impose the effect (vis-a-vis rights and privileges of
registered and associate members). Therefore, even associate members will be eligible for the exemption.
[Jalgaon District Central Co-operative Bank Ltd. v Union of India (2004) 134 Taxman 1 (Bom)].
6. No requirement of tax deduction at source in case of entities whose income is exempt under section
10 of the Income-tax Act [Circular No. 4/2002, dated 16-7-2002]
Subsequent to the amendment to section 197A made by the Finance Act, 2002 whereby a new subsection (1B) has been inserted with effect from 1st June, 2002, representations have been received seeking
clarification whether the prescribed self-declaration under the said section can be submitted by entities
exempt from tax under section 10 even if the payments referred to in sub-section (1A) to be made to them
exceed the threshold limit not subject to tax.
2. This matter has been examined by the Board. It has been decided that in case of those funds or
authorities or boards or bodies, by whatever name called, whose income is unconditionally exempt under
section 10 of the Income-tax Act and who are statutorily not required to file return of income as per section
139 of the Income-tax Act, there would be no requirement for tax deduction at source since their income is
any way exempt under the Income-tax Act. The institutions whose income is unconditionally exempt under
section 10 and who are statutorily not required to file return of income as per the provisions of section 139
are:
(i) "Local authority", as referred in the Explanation to clause (20);
(ii) Regimental Fund or Non-public Fund established by the armed forces of the Union referred to in
clause (23AA);
(iii) Fund, by whatever name called, set up by the Life Insurance Corporation of India on or after the
1st August, 1996 or by any other insurer referred to in clause (23AAB);
(iv) Authority (whether known as the Khadi and Village Industries Board or by any other name)
referred to in clause (23BB);
(v) Body or authority referred to in clause (23BBA);
(vi) SAARC Fund for Regional Projects set up by Colombo Declaration referred to in clause (23BBC);
(vii) Secretariat of the Asian Organisation of the Supreme Audit Institutions referred to in clause
(23BBD) till assessment year 2003-2004;
(viii) Insurance Regulatory and Development Authority referred to in clause (23BBE);
(ix) Prime Minister's National Relief Fund referred to in sub-clause (i), Prime Minister's Fund
(Oromotion of Folk Art) referred to in sub-clause (ii), Prime Minister's Aid to Students Fund

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referred to in sub-clause (iii), National Foundation for Communal Harmony referred to in subclause (iiia), any university or other educational institution referred to in sub-clause (iiiab) and any
hospital or other institution for the reception and treatment of persons as referred to in sub-clause
(iiiac) of clause (23C);
(x) Credit Guarantee Fund Trust for Small Scale Industries referred to in clause (23EB) till
assessment year 2006-2007;
(xi) Provident fund to which the Provident Funds Act, 1925 (19 of 1925) referred to in sub-clause (i),
recognised provident fund referred to in sub-clause (ii), approved superannuation funds referred to
in sub-clause (iii), approved gratuity fund referred to in sub-clause (iv) and funds referred to in
sub-clause (v) of clause (25);
(xii) Employees' State Insurance Fund referred to in clause (25A);
(xiii) Corporations referred to in clause (26BB);
(xiv) Boards referred to in clause (29A).
7. TDS when winnings are wholly in kind or partly in cash and partly in kind
W.e.f. 1-6-1997, where the winnings are wholly in kind or partly in cash and partly in kind but the part
in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the winnings, the
person responsible for paying shall, before releasing the winnings, ensure that tax has been paid in respect
of the winnings. Thus, prizes offered in various contests in tele-serials, in lucky draws for promoting sales
of NSCs, Kisan Vikas Patras, etc. and similar sales promotion activity will attract provisions of TDS.
Example
R wins a motor car in a lucky draw held by G Ltd. The market price of the car is Rs. 3,00,000. In this
case before giving car to R, G Ltd. will recover Rs. 91,800 from R [30% of Rs. 3,00,000 + education cess
@ 2%]. In case G. Ltd. cannot recover the tax as per the terms of the draw, then G. Ltd. shall have to pay
TDS itself calculated as under.
Gross up the draw amount which shall be
3,00,000

100
= Rs. 4,32,277
69.4

The tax to be deducted shall be = 4,32,277

30.6
= Rs. 1,32,277.
100

G Ltd. shall deposit Rs. 1,32,277 as tax and the gross income of R shall be Rs. 4,32,277.
Income accruing to an agent/trader in respect of prizes on unsold/unclaimed lottery tickets in
possession of the agent/transfer is income from business and does not constitute winning of lotteries. Hence
it is not subject to TDS. [Director of State Lotteries v CIT (1999) 238 ITR 1 (Gau) affirmed in ACIT v
Director of State Lotteries, Assam (2002) 255 ITR 236 (Gau)].
8. TDS is deductible under section 194C for carrying out any work (including supply of labour for
carrying out any work)
A. "Work" as defined in section 194C [Explanation III to section 194C]
The expression 'work' shall also include:
(a) advertising;
(b) broadcasting and telecasting including production of programmes for such broadcasting or
telecasting;
(c) carriage of goods and passengers by any mode of transport other than by railways;

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(d) catering.
Services like beauty saloon, barbershop, car rental laundry/valet, health club, etc. rendered by a hotel
to its customers in providing hotel room with various facilities/amenities does not constitute carrying out
any work within the meaning of section 194C of the Act. The above service contracts which have been
specifically included in definition of work given in Explanation III to section 194C shall only be covered in
section 194C. [East India Hotel Ltd. (2009) 179 Taxman 17 (Bom)]
B. Supply of printed labels by printer to the assessee is sale and not works contract: Section 194C not
applicable
In the financial years 1995-96 and 1996-97, the assessee had purchased printed labels from a printer,
M/s. Mudranika. The assessee had not deducted tax on payment made to the printer, on the ground that the
transaction was that of a sale and not a works contract. However, the ITO (TDS) was of the view that the
purchase of labels amounted to works contract, attracting the provision of section 194C of the Income-tax
Act, 1961 for deduction of tax at source (TDS). As the assessee had not deducted tax and paid to the
treasury, the ITO raised the demand of Rs. 40,481 and Rs. 79,134 for the two years under section 201(1A)
of the Act and also levied interest of Rs. 11,132 and Rs. 9,892 for the two years under section 201(1) of the
Act. Appeal filed by the assessee was dismissed by the Commissioner of Income-tax (Appeals) and the
Tribunal.
The assessee preferred appeal before the Mumbai High Court (Aurangabad Bench). The High Court
besides considering the other issues considered the following issue:
"Whether the supply of printed labels by M/s. Mudranika to the assessee amounted to contract for
sale or works contract."
On this issue, the Mumbai High Court held that the supply of printed labels by the printer to the assessee
amounted to sale and not a works contract and that the provisions of section 194C were not attracted.
Accordingly, the High Court decided the first issue in favour of the assessee. [M/s. BDA Ltd. v ITO, (TDS)
(2006) 281 ITR 999 (Bom)]
No TDS on packing material supplied by the suppliers
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. [ITO v Dr.
Willmar Schwabe India Pvt. Ltd. (2005) 3 SOT 71 (Del)]
Where there was an agreement for supply of corrugated boxes with labels printed on them, it was held
that predominant object underlying the contract was one for sale of goods and not of work contract. [CIT v
Dabur India Ltd. (2006) 283 ITR 197 (Del)].
C. No deduction of TDS by an intermediary: Where the principal contract was between the exporter
and the airline and the clearing and forwarding agent was only an intermediary, no deduction of tax at
source is required under section 194C. [CIT v Cargo Linkers (2009) 179 Taxman 151 (Del)].
D. Does the requirement of deduction of tax at source apply in relation to payments made for hiring of
equipments, rental, etc.?
Answer: Due to the passing of Taxation Laws (Amendment) Act, 2006, the definition of rent has been
changed to include hiring of plant, machinery, equipment, furniture & fittings and as such tax will be
deductible at source from the current financial year.
E. In a case where advance payments are made during the execution of a works contract and such

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payments are to be adjusted at the time of final settlement of accounts, is tax required to be deducted at the
time of making advance payment?
Answer: Yes.
9. Clarification in respect of TDS on rent
(i) Whether tax is deductible at source on adjustable deposit. Any deposit given by the tenant which is
adjustable against future rent in the nature of advance rent will be subject to TDS.
(ii) Whether tax is required to deducted at source where a non-refundable deposit has been made by
the tenant. Where a tenant makes a non-refundable deposit, the tax will have to be deducted at source as
such deposit represents the consideration for the use of the land or the building etc. and therefore partakes
the nature of rent as defined section 194-I. No tax is to be deducted at source if deposit is refundable.
(iii) Whether tax is deductible at source from warehousing charges: Tax under this section shall be
deductible on warehousing charges because the meaning of rent includes other agreement or arrangement
for the use of any land or building, etc.
(iv) Whether payments made by company premises on rent but styling the agreement as a business
centre agreement would attract the provisions of section 194-I?: The tax is to be deducted from rent paid,
by whatever name called, for hire of a property. The incidence of deduction of tax at source does not
depend upon the nomenclature, but on the content of the agreement as mentioned in clause (i) of
Explanation to section 194-I.
(v) Whether in a case of composite arrangement for user of premises and provision of manpower for
which consideration is paid as a specified percentage of turnover, section 194-I of the Act would be
attracted?: If the composite arrangement is in essence the agreement for taking premises on rent, the tax
will be deducted under section 194-I from payments thereof. [Circular No. 715, dated 8-8-1995].
(vi) Whether section 194-I is applicable to rent paid for the use of only a part or a portion of any land
or building?: Yes, the definition of the term "any land" or "any building" would include a part or a portion
of such land or building. [Circular No. 718, dated 22-8-1995].
The basis of tax deduction at source under section 194-I is "income by way of rent". Rent has been
defined, in Explanation (i) of section 194-I, to mean any payment under any lease, tenancy, agreement, etc.,
for the use of any land or building. Thus, if the municipal taxes, ground rent, etc., are borne by the tenant,
no tax will be deducted on such sum.
10. TDS on payments for hotel accommodation [Circular No. 5/2002, dated 30-7-2002]
Payments made for hotel accommodation, taken on regular basis will be in the nature of rent subject to
TDS under section 194-I. Where earmarked rooms are let out for a specified rate and specified period, they
would be construed to be accommodation made available on "regular basis". Similar would be the case,
where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types
of rooms during the currency of the agreement.
Often, there are instances, where corporate employers, tour operators and travel agents enter into
agreements with hotels with a view to merely fix the room tariffs of hotel rooms for their
executives/guests/customers. Such agreements, usually entered into for lower tariff rates, are in the nature
of rate-contract agreements. A rate-contract, therefore, may be said to be a contract for providing specified
types of hotel rooms at pre-determined rates during an agreed period. Where an agreement is merely in the
nature of a rate contract, it cannot be said to be accommodation 'taken on regular basis', as there is no
obligation on the part of the hotel to provide a room or specified set of rooms. The occupancy in such cases
would be occasional or casual. In other words, a rate-contract is different for this reason from other
agreements, where rooms are taken on regular basis. Consequently, the provisions of section 194-I while
apply to hotel accommodation taken on regular basis would not apply to rate contract agreements.
Services like beauty saloon, barbershop, car rental laundry/valet, health club, etc. rendered by a hotel

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to its customers in providing hotel room with various facilities/amenities does not constitute carrying out
any work within the meaning of section 194C of the Act. The above service contracts which have been
specifically included in definition of work given in Explanation III to section 194C shall only be covered in
section 194C. [East India Hotel Ltd. (2009) 179 Taxman 17 (Bom)]
11. TDS on rent in respect of property owned by co-owners
Where petitioners as joint owners of a property let the same to a bank for a rent of about Rs. 6,00,000,
subsequently letting it out individually their respective shares of the property to the bank, it was held bank
is not liable to deduct tax at source in such a case as rent payable to each joint owner was not coming to
more than Rs. 1,20,000 p.a. [Amalendu Sahoo v ITO (2003) 264 ITR 16 (Cal)].
12. No TDS on service tax included in rent
Service tax paid by the tenant does not partake the nature of income of the landlord. The landlord only
acts as a collecting agency for Government for collection of service tax. Therefore it has been decided that
tax deduction at source (TDS) under sections 194-I of Income-tax Act would be required to be made on the
amount of rent paid/payable without including the service tax. [Circular No. 4/2008, dated 28-4-2008]
13. Some important queries
Query 1. Whether the services of a regular electrician on contract basis will fall in ambit of technical
services to attract the provisions of section 194J of the Act? In case the services of the electrician are
provided by a contractor, whether the provisions of section 194C or 194J would be applicable?
Answer: The payments made to an electrician or to a contractor who provides the service of an
electrician will be in the nature of payment made in pursuance of a contract for carrying out any work.
Accordingly, provisions of section 194C will apply in such cases.
Query 2. Whether a maintenance contract including supply of spares would be covered under section
194C or 194J of the Act?
Answer: Routine, normal maintenance contracts which include supply of spares will be covered under
section 194C. However, where technical services are rendered, the provision of section 194J will apply in
regard to tax deduction at source.
Query 3. 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 reimbursement 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. [Circular No. 715, dated 8-81995]
However, the Delhi Bench of ITAT in ITO v Dr. Willmar Schwabe India (P) Ltd. (2005) 3 SOT 71
examined the scope of Circular No. 715, dated 8-8-1995 and held that reimbursement of expenditure for
which bill is separately given did not attract the provisions of section 194-J.
In other words, if consolidated bill is given by a professional/consultant for his fee as well as out of
pocket expenditure, then the entire amount is subject to TDS. On the other hand if a separate bill is given
for reimbursement of out of pocket expenditure, then the reimbursement of expenditure shall not be subject
to TDS.
Query 4. Whether right of displaying advertisement at hoarding site belonging to others, will attract
TDS under section 194-I or 194C: Where an assessee had taken and acquired only right of displaying
advertisement at hoarding site belonging to others, payment made by assessee to hoarding site owners was
for commercial exploitation of display right and not for using hoarding sites under lease, sub-lease,
tenancy, etc., and as such, assessee was not liable to deduct tax at source under section 194-I from such
payments. The tax will have to be deducted at source @ 1% under section 194C. [ITO v Roshan Publicity
Pvt. Ltd. (2005) 4 SOT 105 (Mum)].

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Query 5. Whether TDS is deductible on payment made for telecommunication facility provided by nonresident company outside India: Assessee was engaged in development software, provision of software
services and IT enabled services provided through development centres located in India as well as outside
India. To transmit data and software, the assessee had used telecom facility provided by non-resident
telecom companies outside India, it was held that such telecom facility could not be treated as provision of
technical services and therefore amount paid for such service could neither to treated as fee for technical
services under section 9(1)(vii) or royalty and no tax is to be deducted at source. [Wipro Ltd. v ITO (2003)
133 Taxman 149 (Bang)(Mag). Also see Software Technology Parks of India v ITO (TDS-I) (2005) 3 SOT
529 (Bang)].
Query 6. Whether TDS is deductible on payment made for data base maintained in foreign country:
Payment made to foreign company for providing access to information available in data base maintained by
said company in foreign country is not subject to deduction of tax at source under section 195. [Wipro Ltd.
v ITO (2005) 1 SOT 663 (Bang)].
Query 7. My employer did not deposit the tax to the Government account although he deducted the tax
from my salary. Can I claim credit of TDS?
Ans. No. You can take the credit of TDS only on production of TDS certificate. However, if you have
some proof to show that tax has been deducted at source from your salary, the action can be taken against
your employer on your complaint to the jurisdictional ITO (TDS).
Query 8. My client has not deducted the tax although he was required to do so. Can penalties u/s
221(1) and 271C both be levied?
Ans. Yes. Penalty u/s 221(1) read with section 201(1) is relating to failure to deduct the whole or any
part of the tax or after deducting there is a failure to deposit the tax. In case of this default he is treated as
assessee who is deemed to be in default and thus liable for penalty under section 221(1).
The penalty under section 271C is for the failure to deduct the whole or any part of tax as required by
or under provisions of Chapter XVII-B.
Query 9. The ITO (TDS) has issued a notice, calling for details of payments made to contractors more
than seven years ago. Is there any time limit beyond which cases for non-deduction of tax cannot be
reopened?
Ans. There is no time limit prescribed in the Income-tax Act, beyond which ITO (TDS) cannot reopen
proceedings related to TDS matters. However, in the case of NHK-Japan Broadcasting Corpn. v Dy. CIT
(2006) 101 TTJ 292 (Del) it was held that where no statutory time limit has been prescribed, the act
required to be done should be done within a reasonable period of time. It was further held that four years is
a reasonable period of time to pass an order under section 201.
Further, if the tax has already been paid by some other mode like advance tax or even by way of selfassessment by the deductee, it cannot be demanded from the deductor and the person responsible for
deduction of tax at source cannot be held to be an "assessee in default" u/s 201 [ITO v Alfred Allan
Advertising (2006) 8 SOT 312 (Del)].
Query 10. I am a bank manager, receiving 15H forms from the depositors, throughout the year. I send
the declarations to the Income-Tax Office at the end of the year? Am I correct in doing so?
Ans. No. You are supposed to send a copy of such declarations in Form 15G/15H within seven days
from the end of the month in which such declaration was received by you, to the CIT/CCIT office.
Failure to deliver or cause to be deliver in due time a copy of such declaration attracts a penalty of Rs.
100 for every day during which the failure continues but the penalty shall not exceed the amount of tax
deductible.
14. Issues relating to self declaration under Form No. 15G or 15H [Section 197A(1), (1A) and (1B)]

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A person, other than a company or firm (only individual in case of section 194 or 194EE) may
furnish a declaration in writing in duplicate in new Form No. 15G to the payer to the effect that there is no
tax payable on his Total Income. In this case, the payer shall not deduct any tax at source. The payer of the
income is required to deliver to the commissioner one copy of declaration given under new Form 15G on or
before the 7th day of month next following the month in which the declaration is furnished to him.
However, as per section 197A(1B) w.e.f. 1-6-2002 the assessee cannot furnish the declaration under
this clause if the aggregate amount of the following incomes credited or paid or likely to be credited or paid
during the previous year in which such income is to be included exceeds the maximum amount which is not
chargeable to tax even though the tax on total income of such person is Nil:
(1) Interest on securities [Section 193].
(2) Dividend [Section 194]. Such income other than the income referred to in section 2(22)(e) is now
exempt.
(3) Interest other than interest on securities [Section 194A].
(4) Payment in respect of deposit under National Saving Scheme [Section 194EE]
(5) Income in respect of units. [Section 194K]. Such income is now exempt.
Notwithstanding anything contained in section 197A(1B), above, no deduction of tax shall be made
from the above incomes in the case of an individual resident in India who is of the age of 65 year or more at
any time during the previous year, if such individual furnishes to the payer, a declaration in writing in
duplicate in Form No. 15H to the effect that the tax on his estimated total income of the previous year in
which the above income is to be included in computing has total income will be Nil.
In the case of such senior citizen, the income from the above sources can be more than the maximum
amount which is not chargeable to tax but the tax on his estimated total income, inclusive of such incomes,
should be nil.
Penalty for late submission of Form 15G/15H to the Commissioner [Section 272A(2)(f)]: Failure to
deliver or cause to be delivered in due time, a copy of the declaration in Form No. 15G/15H as per section
197A shall attract a penalty of Rs. 100 for every day during which the failure continues but the penalty in
this case shall not exceed the amount of tax deductible.
15. Excess deduction of TDS is refundable only by department
Where tax has been deducted at source, whether rightly or wrongly and has been deposited with the
Government, no claim for refund lies against the payer. Such claim for refund can be made only from the
department. [Management of ITC v Presiding Officer, Labour Court (2000) 244 ITR 731 (Pat)].
16. Refund of payment in excess of the amount actually deductible from salaries and other types of
payments under sections 192 to 194D of the Income-tax Act
The Board have been considering the manner of refunding the amount paid in excess of the tax
deducted and/or deductible (whichever is more) under sections 192 to 194D of the Income-tax Act, 1961.
The Board are advised that such excess payment can be refunded, independently of the Income-tax Act, to
the person responsible for making such payment subject to necessary administrative safeguards. [Circular
No. 285, dated 21-10-1980].
17. Bar against direct demand on assessee [Section 205]
Where the tax is deductible at source under the provisions of section 192 to 196D, the assessee shall
not be called upon to pay the tax himself to the extent to which tax has been deducted from that income,
whether or not the person deducting the tax has paid the same to the credit of the Central Government.
In view of section 205 of the Income-tax Act, 1961, the tax authorities cannot call upon the prize
winner of a lottery to make payment of the tax himself to the extent to which the tax had been deducted at

10
source by the person paying the prize money under section 194B of Income-tax Act. [Om Prakash Gattani
v ACIT (1996) 222 ITR 489 (Gau)].
18. Consequences of failure to deduct or pay tax [Section 201 and rule 31A] [As per amendment
made by the Finance Act, 2008, w.r.e.f. 1-6-2002]
Where any person, including the principal officer of a company,
(a) who is required to deduct any sum in accordance with the provisions of this Act; or
(b) referred to in section 192(1A), being an employer,
does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as
required by or under this Act, then, such person, shall, without prejudice to any other consequences which
he may incur, be deemed to be an assessee in default in respect of such tax.
However, no penalty shall be charged under section 221 from such person unless the Assessing Officer
is satisfied that such person has without good and sufficient reasons failed to deduct and pay the tax.
Interest for late deposit of TDS [Section 201(1A)]: Besides the above penalty, if any such person,
principal officer or company does not deduct whole or part of the tax or after deducting fails to pay the tax
as required by or under this Act, he or it shall be liable to pay simple interest @ 1% for every month or part
of a month on the amount of such tax from the date on which such tax was deductible to the date on which
such tax is actually paid and such interest shall be paid before furnishing the quarterly statement for each
quarter in accordance with the provisions of section 200(3).
Further the amount of tax deducted together with interest for delayed payment shall be charged upon
all the assets of the person [Section 201(2)]. However, there will be no charge on assets in relation to tax
which has not been deducted.
Where the assessee failed to deduct tax under section 194C, but it was found that the contractor had
paid the advance tax and self-assessment tax over and above the tax payable, thereby not causing any loss
to the revenue, if the revenue is permitted to levy interest under section 201(1A) even in a case where the
person liable to tax has paid tax on due date, the revenue would derive undue benefit by getting interest on
the amount of tax which had already been paid on the due date. Such a position cannot be permitted. [CIT v
Rishikesh Apartments Co-op. Housing Society Ltd. (2002) 253 ITR 310 (Guj)].
The interest under section 201(1A) should be levied for the period commencing from the first day of
the April following the end of the relevant financial year till the date of actual payment, i.e., date of
payment of advance-tax and self-assessment tax by the concerned employee. [Babcock Power (Overseas
Projects) Ltd. v Asstt. CIT (2002) 81 ITD 29 (Del-Trib)].
There is no justification for the revenue to seek to levy interest for any period after the date on which
the tax is actually paid. This section does not state that the tax should have been paid by the deductor only.
Tax may actually be paid by the deductor or the deductee. What is of relevance in the actual payment of
tax. [CIT v Adidas India Marketing Pvt. Ltd. (2007) 288 ITR 379 (Del). Also see CIT v Majestic Hotel
Ltd. (2007) 293 ITR 185 (Del)].
The Supreme Court in the case of Hindustan Coco-Cola Beverage Pvt. Ltd. v CIT (2007) 163
Taxman 355 (SC) held that tax cannot be recovered from deduction, if the same has been paid by the
deductee. The above decision was given by the Hon'ble Court by referring to Circular No. 275/201/95IT(B), dated 29-1-1997 issued by the CBDT. The Circular declares that no demand visualized under section
201(1) should be enforced after the tax deductor has satisfied the officer-in-charge of TDS that taxes due
have been paid by the deductee-assessee. However, this will not alter the liability to charge interest under
section 201(1A) till the date of payment of taxes by the deductee-assessee or the liability for penalty under
section 271C.
Conduct of the assessee may be relevant regarding the issue of levy of penalty under section 271C
because of the import of reasonable cause in section 273B but same is not relevant for levying interest

11
under section 201(1A), since such provisions are mandatory. [Mitsubishi Corporation v Dy. CIT (2003) 85
ITD 414 (Del-Trib)].
Assessing officer was not correct in charging interest under section 201(1A) for delay for the period
from 1st April of the respective year because interest is chargeable only for the period after two months
from expiration of month in which the date up to which the accounts of business are made, i.e., in present
case from 1st June of the respective year. [Shriram Industrial Holdings (P) Ltd. v Dy. CIT (2003) 84 ITD
70 (Mum-Trib)].
19. Disallowance of certain expenditure if TDS not deducted and deposited
(a) Interest, royalty, fee for technical services or other sum payable outside India or in India to a nonresident [Section 40(a)(i)]: Any interest, royalty, fees for technical services, or other sum
chargeable under Income-tax Act which is payable
(i) outside India; or
(ii) in India to a non-resident, not being a company or to a foreign company
on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or,
after deduction, has not been paid during the previous year, or in the subsequent year before the
expiry of the time prescribed under section 200(1), shall not be allowed as deduction.
However, where in respect of any such sum, tax has been deducted in any subsequent year or, has
been deducted in the previous year but paid in any subsequent year after the expiry of the time
prescribed under section 200(1), such sum shall be allowed as a deduction in computing the
income of the previous year in which such tax has been paid.
Chargeable under the Income-tax Act means that receipt of such income must be taxable in India.
(b) Salary payable outside India or to a non-resident [Section 40(a)(iii)]: Any payment which is
chargeable under the head "Salaries", if it is payable:
(i) outside India, or
(ii) to a non-resident
shall not be eligible for deduction if the tax has not been paid thereon nor deducted therefrom
under Chapter XVII-B;
(c) Any interest, commission or brokerage, rent, royalty, fees for professional services, fees for
technical services payment to a resident, any amount payable to a resident contractor or subcontractor shall not be allowed as a deduction in computing the income chargeable under the head
'Profits and gains of business or profession', if in respect of such expenses tax is deductible at
source under Chapter XVII-B and such tax has not been deducted or after deduction has not been
paid:
(A) in a case where the tax was deductible and was so deducted during the last month of the
previous year, on or before the due date specified in sub-section (1) of section 139; or
(B) in any other case, on or before the last day of the previous year,
such expenses shall not be allowed as deduction in the year in which these are incurred.
However, where in respect of any such sum, tax has been deducted in any subsequent year, or has
been deducted
(A) during the last month of the previous year but paid after the said due date; or
(B) during any other month of the previous year but paid after the end of the said previous year,
such sum shall be allowed as a deduction in computing the income of the previous year in which

12
such tax has been paid.
It may be observed from the above that if the TDS is deposited after the due date but in the same
previous year in which it is deducted, deduction of the expense shall be allowable. However,
where the tax was deductible and was deducted during the month of March of the relevant
previous year, and the same is deposited on or before the due date of filing the return specified
under section 139(1), the deduction shall be allowed in the previous year in which the expenditure
is incurred. On the other hand, if the tax deducted in the month of March is deposited after the due
date of filing return specified under section 139(1), the deduction of the expense shall be allowed
in the year in which such tax has been deposited.
20. Tax not to be deducted at source in respect of the provision for interest accrued but not due
The whole scheme of TDS proceeds on the assumption that the person whose liability is to pay an
income knows the identity of the beneficiary or the recipient of the income. In this view of the matter. TDS
mechanism cannot be put into practice until identity of the person in whose hands it is includible as income
can be ascertained.
Thus, section 193 does not requires tax to be deducted at source in respect of the provision for interest
accrued but not due, made by an assessee where the ultimate recipient of such interest accrued but not due,
cannot be ascertained at the point of time when the provision is made. [Industrial Development Bank of
India v ITO (2006) 10 SOT 497 (Mum)].
21. Credit for tax deducted at source for the purpose of section 199 [New Rule 37BA]
New rule 37BA has been inserted by the 6th Amendment Rule w.e.f. 1-4-2009.
(1) Credit for tax deducted at source and paid to the Central Government in accordance with the provisions
of Chapter XVII, shall be given to the person to whom payment has been made or credit has been given
(hereinafter referred to as deductee) on the basis of information relating to deduction of tax furnished by the
deductor to the income-tax authority or the person authorized by such authority.
(2)When income is taxable in the hands of some other person
If the income on which tax has been deducted at source is assessable in the hands of a person other
than the deductee, credit for tax deducted at source shall be given to the other person in cases where
(a) the income of the deductee is included in the total income of another person under the provisions
of section 60, section 61, section 64, section 93 or section 94;
(b) the income of a deductee being an association of persons or a trust is assessable in the hands of
members of the association of persons, or in the hands of trustees, as the case may be;
(c) the income from an asset held in the name of a deductee, being a partner of a firm or a karta of a
Hindu undivided family, is assessable as the income of the firm, or Hindu undivided family, as the
case may be;
(d) the income from a property, deposit, security, unit or share held in the name of a deductee is
owned jointly by the deductee and other persons and the income is assessable in their hands in the
same proportion as their ownership of the asset.
Deductee to furnish a declaration
(1) The deductee should file a declaration to the deductor on a plain paper. The declaration should
contain the name, address, permanent account number of the person to whom credit is to be given, payment
or credit in relation to which credit is to be given and reasons for giving credit to such person.
(2) After the receipt of declaration from the deductee, the deductor will report the tax deduction in the
name of the other person. The Unique Transaction Number will be generated in the name of the other
person.

13
(3) The deductor shall keep the declaration in safe custody and issue Form No. 16 or 16A in the name
of the other person.
(4) The other person will include the income in his income-tax return and give the information in
Schedule SPI TDS-1 and TDS-2 of ITR-1, ITR-2, ITR-3, ITR-4, ITR-5, ITR-6 or ITR-7.
Credit for TDS when income is assessable in the hands of deductee in different years - Credit for tax
deducted at source and paid to the Central Government, shall be given for the assessment year for which
such income is assessable. Where tax has been deducted at source and paid to the Central Government and
the income is assessable over a number of years, credit for tax deducted at source shall be allowed across
those years in the same proportion in which the income is assessable to tax.
In such a case, the credit would be available on the basis of income reported in the income-tax return
and the information which is submitted in Schedule TDS-2 (Column 7) of different ITRs.
22. Credit for tax collected at source for the purpose of section 206C(4) [New Rule 37-I, inserted
w.e.f. 1-4-2009]
On the basis of information submitted by the collector, credit will be given to the person from whom
tax has been collected.
Credit is available for the year for which income is assessable in the hands of the collectee.
Where tax has been collected at source and paid to the Central Government and the lease or license is
relatable to more than one year, credit for tax collected at source shall be allowed across those years to
which the lease or license relates in the same proportion in which the income is assessable to tax.
To claim the credit, the collectee will have to give information in Schedule TCS (Column 7) of
different ITRs.
23. Issue of duplicate TDS certificate [New Rule 31(3)]
(1) The deductor may issue a duplicate certificate in Form No. 16 or Form No. 16A, as the case may
be, if the deductee has lost the original certificate so issued and makes a request for issuance of a duplicate
certificate and such duplicate certificate is certified as duplicate by the deductor.
(2) The Assessing Officer, before giving credit for the tax deducted at source on the basis of duplicate
certificate, shall
(a) obtain an Indemnity Bond from the deductee; and
(b) get the payment certified by the Assessing Officer designed in this behalf by the Chief
Commissioner or the Commissioner.