Section 194H of the Income Tax Act
Income-tax Act, 2025: s.393
Section 194H of the Income-tax Act, 1961 corresponds to section 393 (Tax to be deducted at source) of the Income-tax Act, 2025.
Read section 393 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 194H is CIT v. Nagri Mills Co. Ltd. (33 ITR 681), cited in 165 of the 1,314 judgments on BharatTax that turn on this section.
Leading authorities on Section 194H
An addition to income is revenue neutral if its tax impact remains the same regardless of the year in which it is assessed. Assessments should not dispute the year of addition when the tax rate and impact are consistent, to avoid unnecessary disputes and potential loss to revenue.
Discounts offered to distributors under a tightly controlled relationship constitute commission and are subject to tax deduction at source under Section 194H of the Income-tax Act.
The Supreme Court holds that for a service to qualify as 'fees for technical services' under Section 9(1)(vii) of the Income-tax Act or Article 12 of a DTAA, direct human involvement or intervention in rendering the service is essential. This principle applies to telecommunication services like interconnect charges and roaming charges, and also to services related to software use.
Section 194H of the Income Tax Act, 1961, is not applicable on the discount extended to distributors of pre-paid services, as the distributor does not earn income at the time of purchasing pre-paid cards from the assessee. The assessee is not in possession of any income belonging to the distributor at that point.
Section 40(a)(ia) disallowance applies only to expenses that remain payable at the end of the financial year, not to expenses that have been actually paid during the previous year without deduction of tax at source.
Supplementary commission forional or extra services does not fall within the ambit of Section 194H of the Income Tax Act, 1961. This may affect the applicability of certificates issued under Section 197.
For computing book profits under Section 115JB, an Assessing Officer's power is limited to examining duly certified books and making adjustments only as per the Explanation. A provision for bad and doubtful debts, being a diminution in the value of an asset (receivable), does not constitute a 'provision for liability' under Clause (c) of the Explanation and therefore cannot be added back.
Expenditure on technical aid fees for factory setup and rights to sell products under a collaboration agreement is capital in nature, not revenue, as it provides an enduring benefit.
Discounts allowed by a business to grow its operations in a competitive market are acceptable and cannot be disallowed. Expenses incurred for business growth in a competitive world are not to be disallowed.
An assessment order is considered erroneous and prejudicial to the interest of the revenue, warranting revision under Section 263, if there is an inadequate inquiry or non-application of mind by the Assessing Officer, satisfying the two cumulative conditions required for revisional powers.
