Landmark Cases on TDS and Withholding

Interest levied under Section 201(1A) for delayed remittance of Tax Deducted at Source (TDS) is compensatory in nature, not penal. It is a distinct provision for delayed remittance, similar to interest paid by Revenue on refunds.

A multi-state cooperative bank is obligated to deduct tax at source on interest paid on fixed deposits placed by cooperative societies, as Section 194A(3)(viia) of the Income Tax Act, 1961, rather than Section 194A(3)(v), applies to cooperative banks in this context.

Discounts allowed on bulk sale of SUKs and RCVs by a company to its distributors do not attract the provisions of Section 194H as it does not create an agency relationship, but rather a principal-to-principal sale.

Payments for the use of copyrighted articles, including computer software, constitute royalty income under Section 9(1)(vi) of the Income Tax Act, and are therefore subject to withholding tax under Section 195.

The phrase 'any work' in Section 194C(1) of the Income Tax Act includes the supply of labour to carry out work, and is not confined to traditional works contracts.

Orders under section 201(1) and 201(1A) of the Income Tax Act, 1961, must be passed separately for each financial year and not combined, to ensure proper application of mind.

A cooperative bank is not required to deduct tax at source on interest paid on time deposits to a cooperative society.

A multi-state cooperative bank is obligated to deduct tax at source on interest paid or credited on fixed deposits placed by cooperative societies, as per Section 194A(1) read with Section 194A(3) of the Act, unless an exemption applies.

For the purpose of disallowance under section 40(a)(ia), the word 'payable' includes amounts already 'paid' without deduction or deposit of tax. The benefit of the second proviso to section 40(a)(ia) is not available if the prescribed certificate is not filed.

Tax must be deducted at source under Section 194A only on interest that ultimately partakes the character of income for the recipient. If interest does not qualify as income or falls outside the scope of Section 2(28A), there is no obligation to deduct TDS.

Adjustments made by the Assessing Officer under section 200A of the Income Tax Act are restricted to the scope provided therein. Amendments to section 200A of the Act effective from June 1, 2015, have prospective effect and do not apply to assessment years prior to that date.

The estimation of income for deducting tax at source under Section 192(1) of the Income-tax Act is valid when based on an honest and fair assessment by the assessee, a principle affirmed by the Supreme Court.

Prior to the jurisdictional High Court's decision in CIT v. Samsung Electronics Co. Ltd. on October 15, 2011, the purchase of off-the-shelf software was not subject to TDS, and therefore, no disallowance under Section 40(a)(i) or 40(a)(ia) could be made.

Fees under Section 234E cannot be charged for delays in filing TDS statements for periods prior to June 1, 2015, as the processing of such statements falls under Section 200(3), not Section 200A(1)(c).

If a deductee has paid tax directly, the deductor's liability for non-deduction under Section 201(1) abates, and the deductor cannot be treated as an assessee-in-default. Interest under Section 201(1A) can only be charged from the date tax was deductible until the date it was actually paid by the deductee.

Section 234E of the Income Tax Act, 1961, which levies a fee for delayed filing of TDS statements, is intra vires the Constitution. However, this fee cannot be levied for statements filed prior to June 1, 2015.

If a sum is not chargeable to tax in the hands of the recipient, the payer is not obligated to deduct tax at source, and consequently, no disallowance under section 40(a)(i) can be made. The Bombay High Court also affirmed that penalty proceedings under section 271B may be quashed in certain circumstances.

Interest under Section 215 of the Income Tax Act is not leviable if tax was deductible at source but was not deducted by the payer. The liability for advance tax on interest income and the corresponding interest liability for non-payment arises only when the payer has failed to deduct tax at source.

The Calcutta High Court held that discounts given to distributors for procuring and retaining customers are considered commission, making them subject to TDS under Section 194H, and treating the assessee as being in default for non-deduction.

Payments made to employees for foreign visits, even if reimbursed as expenses, are taxable in the hands of the employee. The employer is therefore obligated to deduct tax at source under Section 192 of the Income Tax Act.

Payments to banks for credit card transaction processing are considered bank charges or fees for services rendered, not commission or brokerage, and therefore are not subject to TDS under Section 194H of the Income Tax Act.

Payment for human intervention to install or put equipment in place, distinct from human intervention involved in the transportation of calls between networks, does not constitute Fee for Technical Services (FTS) under section 9(1)(vii) of the Income-tax Act.

Transactions carried out on the purchase of off-the-shelf software prior to the jurisdictional High Court's decision in CIT v. Samsung Electronics Co. Ltd. (October 15, 2011) are not liable for Tax Deducted at Source (TDS).

Late fees levied under section 234E are deleted if the authorities erred in sustaining the levy, especially when relying on precedents that allow for such deletion.

An Indian company that exercises control and supervision over a seconded employee and bears the salary cost is an economic employer. Such a company is not liable to withhold tax on the reimbursement of salary to the overseas company, thereby avoiding disallowance under Section 40(a)(i).

Where a payment is purely a reimbursement of costs and does not embed any income, the obligation to deduct tax at source does not arise.

An assessee is entitled to credit for TDS even if the certificate is issued in the name of a joint venture or related party, provided the income to which the TDS relates is offered by the assessee. This principle emphasizes looking at the substance of the transaction over strict adherence to the name on the TDS certificate.

A CBDT circular restricting the definition of "member" under Section 194A(3)(v) to exclude nominal, associate, or sympathizer members of a co-operative society is invalid. Such a circular conflicts with the provisions of the Act and exceeds the powers granted to the CBDT under Section 119, meaning co-operative banks are not liable to deduct tax at source on interest paid to these members.

The case is cited for its relevance to provisions concerning Tax Deducted at Source (TDS) and Tax Collected at Source (TCS), particularly in relation to amendments introduced by the Finance Bill, 2012, including Section 234E.

Expenses incurred and reimbursed for seconded employees under a secondment agreement are not liable to tax deduction at source and do not constitute 'fees for technical services'. The secondment agreement itself forms an independent arrangement for securing services.

Amounts paid to distributors who purchase goods on their own account and sell them in their territory, acting as independent contractors on a principal-to-principal basis, do not constitute commission or brokerage. Therefore, the assessee is not liable to deduct TDS under Section 194H on such transactions.

Payments made under a sales promotional scheme, such as product discount or campaign schemes, to dealers or stockists are not considered commission payments subject to TDS under Section 194H, especially when the transaction is on a principal-to-principal basis.

Late fee under section 234E and consequential interest under section 220(2) cannot be levied for Tax Deducted at Source (TDS) defaults that occurred prior to June 1, 2015.

The Supreme Court distinguishes a pure discount offered in a sale transaction from commission or brokerage. Section 194H of the Income Tax Act, which mandates TDS on commission or brokerage, does not apply to discounts given in principal-to-principal sale transactions.

Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961, applies even in cases of short deduction of tax at source, including when tax is deducted under an incorrect provision.

Discount paid to distributors on prepaid cards constitutes 'commission' for the purpose of TDS under Section 194H. Consequently, failure to deduct TDS makes the assessee liable under Sections 201(1) and 201(1A).

An amendment effective from October 1, 2014, regarding the time limit for passing orders under section 201(1) of the Income Tax Act is prospective in nature. Consequently, for orders to be passed under section 201(1) from April 1, 2010, the time limit is two years from the end of the financial year in which the TDS statement is filed.

External Development Charges (EDC) paid by a developer to a government body like Haryana Shahari Vikas Pradhikaran (HSVP) for a development project are contractual payments, making them liable for tax deduction at source under Section 194C of the Income-tax Act, 1961.

Where commission paid to a non-resident agent is not incurred in India, tax is not required to be deducted at source from such commission.

This case is authority for the proposition that the applicability of section 194H to certain transactions, concerning tax deduction at source on commission or brokerage, is a highly debatable issue with two possible views, a matter currently pending before the Supreme Court.

Service tax paid by a tenant does not form part of the landlord's income, and tax deduction at source under Section 194 should be calculated without including service tax.

Late fees under Section 234E of the Income-tax Act, 1961, cannot be levied for periods prior to the introduction of clause (c) to sub-section (1) of Section 200A, which enabled such imposition.

The case is cited for the proposition that orders imposing late fees under Section 234E and demand notices under Section 200A are to be considered in light of the prevailing legal position, particularly when the period under consideration includes dates prior to June 1, 2015.

An assessee is entitled to credit for Tax Deducted at Source (TDS) even if the income in respect of which TDS was deducted is not disclosed in the return. The Income-tax Department cannot deny TDS credit solely on the grounds that the income was not offered to tax.

Once tax has been deducted at source (TDS), the bar of section 205 applies, preventing the deductee from being asked to pay the tax again, even if the deductor fails to deposit the tax or issue TDS certificates.

The liability to deduct Tax Deducted at Source (TDS) under Section 192 of the Income-tax Act arises on the payment of salary and not on an accrual basis.

Interest levied for delayed payment or short deduction of TDS is not an allowable business expenditure.