Landmark Cases on TDS and Withholding

Tax is deductible at source under Section 194A only on interest that has 'partaken the character of income' in the hands of the recipient.

Payments made under an agreement involving profit sharing through joint efforts are not considered payments for "carrying out any work" for the purpose of attracting TDS under Section 194C and consequential disallowance under Section 40(a)(ia).

A difference between the commercial price and published price of airline tickets is not a special commission or brokerage under section 194H, if the airline has discretion to reduce the published price.

The scheme of TDS applies to gross sums payable, even if the entire amount isn't income for the recipient, where income tax is leviable on that sum. This includes payments to contractors where the entire sum may not be income of the recipient.

Income tax is deductible at source under Section 4(2) and Section 192(1) of the Income Tax Act, 1961, where a sum paid to a non-resident is chargeable to tax. These sections are part of the machinery provisions for the collection and recovery of tax.

An order for default committed under Section 206C of the Income Tax Act cannot be passed after the expiry of four years from the end of the relevant financial year. This limitation period is considered reasonable, similar to Section 201(3) concerning tax deduction at source.

Payments made for services rendered, regardless of the nomenclature used, do not attract the provisions of Section 194-I of the Income Tax Act.

Tax is not required to be deducted at source (TDS) on a provision when the payee is not identifiable or ascertainable at the time the provision is made. The mechanism for TDS under Chapter XVII-B cannot be invoked in such circumstances.

The distinction between a 'contract for service' and a 'contract of service' in determining an employer-employee relationship requires examination of factors like independence, control, and intention of the parties as per the contract's provisions.

Interest paid is outside the ambit of Section 194A if it is compensatory and not related to a deposit, debt, or loan.

A clearing and forwarding agent is an intermediary who books cargo and facilitates the contract for carrying goods. Therefore, such an agent is not liable to withhold tax under section 194C from payments made towards air freight on behalf of its customers.

The liability to deduct tax at source does not arise if there is no income embedded in a payment, as TDS provisions are merely an alternative method of tax collection. An amount not includible in a person's total income cannot be considered 'income' for TDS purposes.

The case establishes a precedent in favour of the revenue regarding issues related to Section 194H, Section 201(1), and Section 201(1A) of the Income Tax Act, concerning the treatment of a company as an assessee in default.

The method of settlement of accounts is irrelevant in determining the true nature of a transaction for tax purposes. Export proceeds received in foreign exchange and utilized abroad are considered deemed receipts in India if properly reported.

Interest paid on debentures until their conversion into shares is considered interest on borrowed money and is subject to TDS provisions. Such interest cannot be treated as dividend.

Payments made to foreign agents are not liable for tax deduction at source under Section 195, and consequently, no disallowance under Section 40(a)(i) can be made in the hands of the assessee payer.

Late fees under Section 234E cannot be imposed while processing TDS applications under Section 200A if Section 200A was not in effect during the relevant assessment years.

Late fees under Section 234E and demands under Section 200A are correctly levied for defaults in filing TDS statements, even for periods before the 2015 amendment to Section 200A, as the amendment was clarificatory and not retrospective.

No taxes are required to be deducted at source on discounts. This decision follows the Gujarat High Court's ruling in Ahmedabad Stamp Vendors Association v. Union of India.

No disallowance or proportionate disallowance under Section 40(a)(ia) of the Income Tax Act can be made for short deduction of tax.

The section under which tax is deducted at source (TDS) by the payer does not determine the nature of income in the hands of the recipient. Income received as rent is assessable as business income, not income from house property, even if TDS is wrongly deducted under Section 194-I.

Disallowance under section 40(a)(ia) applies to amounts payable at any time during the financial year, not just those payable on March 31st. The Gujarat High Court in CIT v. Sikandarkhan N. Tunvar (33 taxmann.com 133) held this interpretation.

Levy of late fees under Section 234E is illegal for TDS returns filed prior to June 1, 2015, if the ratio in Fatheraj Singhvi is applied. Matters can be restored to CIT(A) for decision on merits.

Tax is not deductible until the income accrues to the payee, and TDS liability arises only when the quantum of expenses is ascertained and the payee is identified. Provisions for expenses do not attract TDS until the actual work is assigned or completed.

No tax is required to be deducted at source on discounts.

Interest under Section 201(1A) is not leviable if there is no short deduction of TDS, particularly when income has not accrued to the vendor at the time of provision creation and withholding tax provisions are not applicable.

Penalty under Section 272A(2) and 271C cannot be levied for belated TDS deposit if the amount along with interest has been paid, as this constitutes a technical or venial breach and does not cause revenue loss. The Assessing Officer's discretion to levy penalties must be exercised judiciously.

Section 194C applies to contracts where 'work' is carried out, which must be interpreted in a limited sense and extended only to service contracts specifically included in the section by Explanation III.

TDS is not required on the service tax component of a payment if the service tax is payable separately and not included in the fees for professional or technical services, as per the agreement.

The levy of fee under section 234E of the Income-tax Act, 1961, is automatic in cases of delay in filing a statement of tax deducted at source, irrespective of any specific order being passed under section 200A.

Tax is deductible at source on provisions made at the year-end, even if the payee is not identifiable at that point, as the obligation to deduct arises when the sum is credited to a suspense account or similar designation.

Section 194C is attracted when payments are made for carrying out work in pursuance of a contract with a specified person. If vehicles are hired on an 'as and when needed' basis, Section 194C may not apply.

Payment of commission for bank guarantee is not covered by Section 194H of the Income Tax Act. TDS is not required on such payments as they do not represent commission or brokerage in the context of agency.

Payments for online advertising services to a non-resident without a Permanent Establishment (PE) in India are not subject to TDS as they constitute business profits not taxable in India. Consequently, disallowance under Section 40(a)(i) is not applicable.

A payment made to trustees is not liable for TDS under section 194C when the assessee has no obligation to deduct tax at source. The mere fact that funds pass through the assessee's bank account does not make it the assessee's income or the payment to the trustee the assessee's expenditure.

An assessee cannot be denied the credit of tax deducted at source (TDS) if they produce Form 16A, and any demand notice issued under Section 221(1) for non-payment of tax, when TDS credit is due, cannot be sustained.

Payment contemplated under Section 195 includes payments made in kind, not just cash or by cheque/draft.

A deductor is not considered an assessee in default under section 201 if the deductee has paid the taxes due on the income, which is also recognized by the proviso to section 201 inserted in 2012.

Failure to deduct tax at source triggers Section 201 automatically as Chapter XVIIB provisions are for tax recovery. Disallowance under Section 40(a)(i) is distinct from an assessee being in default.

Deduction under a wrong provision of law does not absolve an assessee from the disallowance provisions of Section 40(a)(ia) for short deduction of tax at source.

TDS provisions apply only to sums that are chargeable to tax under the Income-tax Act.