Landmark Cases on TDS and Withholding

Section 194H of the Income-tax Act is not applicable to discounts extended by a principal to its distributors, as such discounts are not considered commission or brokerage liable for TDS.

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.

The term "any work" in Section 194C(1) of the Income-tax Act includes contracts for mere labour supply and is not restricted solely to traditional works contracts. Consequently, a payer is liable to deduct tax at source for payments made to contractors for any work, including labour, under this section.

Orders issued under Section 201(1) and 201(1A) of the Income Tax Act, 1961, for failure to deduct tax at source, must be passed separately for each financial year/assessment year and cannot be a single combined order covering multiple assessment years.

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 is liable to be deducted at source from payments made towards the purchase of computer software. If TDS is not deducted, the software purchase expenses are subject to disallowance under relevant provisions.

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.

Payment for the purchase of software, even when capitalized with hardware, is not treated as a payment for copyright attracting tax deduction at source under section 194J, thereby precluding disallowance under section 40(a)(ia).

Fees under Section 234E for delays in furnishing statements of tax deducted at source are not leviable for periods prior to June 1, 2015, as the provision does not have retrospective application.

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.

When income is subject to tax deduction at source (TDS), the primary obligation to deduct tax rests with the payer. If the payer fails to deduct tax, they are treated as an assessee in default under Section 201 and are liable for interest, not the recipient of the income for non-payment of advance tax under Section 234B.

This case interprets commercial transactions and contractual arrangements to determine the applicability of Tax Deducted at Source (TDS) provisions under Sections 194H or 194J. The decision emphasizes that the specific terms of the contract are crucial for assessing TDS liability and whether an assessee is in default under Section 201.

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.

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.

No disallowance under Section 40(a)(i) can be made where the assessee could not retrospectively deduct tax at source due to the principle of 'impossibility of performance', especially after statutory amendments like the Finance Act, 2012.

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).

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.

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.

Section 40(a)(ia) of the Income Tax Act, 1961, applies to disallow expenditures even in cases of short deduction of tax at source.

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.

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.

M.S. Hameed v. Director of State Lotteries is authority for the principle that sums retained by an agent, which are in the nature of discounted prices, are not considered commission under specific tax provisions.

TDS provisions do not apply if the payee is not identified at the time of making provision for an expense. The scheme of TDS requires the payer to know the identity of the recipient of the income.

An assessee is required to deduct tax at source on reimbursements, even if the assessee acted under a bona fide belief that such reimbursements were exempt.

Payments made by a hospital to doctors are not subject to TDS under Section 192 if an employer-employee relationship does not exist. The court emphasized that the terms and conditions of engagement determine the nature of the relationship for TDS purposes.

Where the recipient of income is not liable to pay tax in India, the payer has no obligation to deduct tax at source. Consequently, no disallowance under section 40(a)(i) can be made for failure to deduct such tax.

Once Tax Deducted at Source (TDS) is deducted and paid to the Central Government, credit for such tax must be given to the assessee, irrespective of the assessment year to which it relates. This principle applies even to amended provisions of Section 199(1) of the Income Tax Act, 1961.