TDS Under Section 194H
What is Section 194H?
- Section 194H is for income tax deducted on any income by way of commission or brokerage, by any person responsible for paying to a resident.
- Individuals and Hindu Undivided Family who were covered under section 44AB are also required to deduct TDS. From FY 2020-21, individual and HUF whose turnover from business is above Rs 1 crore or gross receipts from profession are above Rs 50 lakh are also required to deduct TDS.
- Section 194H does not include insurance commission referred to in section 194D.
When does TDS under Section 194H need to be deducted?
- TDS under Section 194H will be deducted at the time of credit of such income to the account of the payee or to any other account.
- Whether called suspense account or by any other name at the time of payment, of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier.
Timelines
1. The ITAT has relied upon respondent’s own case for Assessment Year 2006-2007
2. Appellant is impugning an order dated 30th September 2016 passed by the Income-tax Appellate Tribunal (ITAT) and went to High Court.
3. Appellant has filed Special Leave Petition (SLP) to issue notice against the impugned order passed by High court favouring assesse.
4. Supreme Court has issued Notice on May 20, 2022 in Special Leave Petition filed by Commissioner of Income Tax, TDS -2
Legal Terms simple meaning:
Impugned Order
An impugned order is an order which has been challenged. If an order is not final it is not an impugned order unless it is challenged. An interim order is an order passed partially before a final order is passed in the entire matter.
Special Leave Petition (SLP)
The Constitution of India under Article 136 vests the Supreme Court of India with a special power to grant special leave to appeal against any judgment or order or decree in any matter or cause passed or made by any Court/tribunal in the territory of India.
Point for Discussion (Matter)
Supreme Court has issued Notice on May 20,2022 in Special Leave Petition filed by Commissioner of Income Tax, TDS -2 against order of High Court that where assessee-company engaged in providing laboratory and testing services to customers through third party collection centres had allowed certain discount to such collection centres, since assessee did not perform any act of paying but was only receiving payments from these collection centres, there was no obligation on assessee to deduct tax at source under section 194H on discount so allowed.
Implication
Supreme Court has set aside the impugned order passed by High Court which favoured the order of ITAT. This means matter is not settled yet, ITAT has to study the case in detail and pass the order deciding whether TDS is applicable in this case or not?
Extract from ITAT Order
- Respondent is engaged in providing laboratory and testing services to customers through its own and through third party collection centres. Respondent allowed discounts to the collection centres other than its own centres.
- For example, collection centres would charge a patient Rs. 500 for a particular blood test and hand over the sample drawn to respondent and respondent would charge the collection centre Rs. 400. The difference of Rs. 100, according to appellant, is commission to paid to collection centres and respondent had an obligation under section 194H of the Income-tax Act, 1961 (the IT Act) to deduct TDS. According to appellant, as respondent failed to deduct such TDS, respondent was a defaulter and Assessing Officer passed an order under section 201(1) and 201(1A) of the IT Act.
- Respondent challenged that order before Commissioner of Income-tax (Appeals) [CIT(A)] who allowed the appeal. Against that order, appellant preferred an appeal before Income-tax Appellate Tribunal (ITAT) and ITAT confirmed the order of CIT (A).
- The ITAT has relied upon respondent’s own case for Assessment Year 2006-2007 wherein it has held that discount allowed by respondent to the collection centres is not commission and not attracted by the provisions of section 194H for the reason that there is no principal agent relationship between respondent and the collection centre and the relationship between respondent and collection centres is only principal to principal relationship and therefore, provisions of section 194H have no application
- Under section 194H, the obligations is on any person who is responsible for paying any income by way of commission or brokerage to deduct tax at source at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier.
- In this case, admittedly, respondent has not been paying any money to the collection centres. Respondent was only receiving payment from the collection centres.
- As noted earlier, the collection centres collect money from the patient and pays a reduced amount to respondent and keeps the difference for itself as its margin
- As the section is applicable only to a person who is responsible for paying to deduct tax at the time of credit to the account of the payee or at the time of payment and as respondent does not perform any act of paying, there is no obligation on the company to deduct tax at source.
- We fail to understand appellant’s arguments as to how respondent was to deduct TDS when it was not making any payment. Mr. Suresh Kumar (case represented by) was unable to explain how respondent should have deducted TDS and paid with the treasury when respondent was not making any payment.
- Even the Assessing Officer, who the appellant wishes to support, does not say anything on this. The Assessing Officer’s order is contrary to sense
Section Analysis
Section 194H of the Act reads as under : 194H. Commission or brokerage.—Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rate of [five] per cent : Provided that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed [fifteen thousand rupees].
