Care required in furnishing of TDS/TCS certificates:

[C.A. DEV KUMAR KOTHARI]

Future of profession is in compliance:

The future of accounting and tax professionals lies in compliance under various laws. This is also true in relation to administration of matters relating to TDS and TCS. As far as possible attempt should be made to deduct tax timely, deposit it before due date and issue TDS certificates timely. File returns and statements before last date allowed. Because every default can attract penal action.

Tax Deduction at Source

Under the provisions of Income-tax Act, 1961 certain persons are required to deduct tax while making payment or making credit entries in respect of specified sums payable to other persons in a specified circumstances. The provisions are quite elaborate and popular and in day to day use of the readers.  Therefore, the same are not reproduced or referred for sake of brevity. 

Issue and furnishing of TDS certificate

After deduction of tax, the tax deductor is required to prepare, sign,  issue and furnish (that is  handover  to party)  a certificate in prescribed form about the tax deducted at source by him and such certificate is required to be not only prepared but also to be handed over to the person on whose account tax was deducted. In case of delay in furnishing certificate, penalty can be levied @ Rs.100 per day for each certificate.

Tax deduction and deposit are necessary before issuing certificate.  In the tax deduction certificate details about nature of payment for credit from which tax has been deducted, the relevant period, date of deduction and amount of tax deducted is to be mentioned.  If  only these information are required it was possible for the tax deductor to issue certificate only after making deduction by way of book entry, however, the TDS certificate also requires that the details of deposit made to the credit of Central Government are to be mentioned.  For example, in the latest TDS certificate in Form No.16 as well as form No.16A, the following details are required to be given about tax deducted and deposited under the Central Government account.

Total tax deposited:

BSR code of bank branch:

Date on which tax deposited:

Transfer voucher / challan identification number:

Similar information about payment of TDS return:

Similarly, information about deposit of tax deducted at source is to be given in the TDS return to be filed by the tax deductor.  From these details of deposit of TDS credit will be given to the tax deductor and also to the persons from whose income tax has been deducted. Thus it can be said that deduction and deposit of TDS both are preconditions for issuance and furnishing of TDS/TCS certificates.

Certificates are to be dispensed with from 01.04.2010:

 Issuance of TDS certificates will however be dispensed w.e.f. 01.04.2010 as per S. 203 (3) which reads as follows;

[(3) Where the tax has been deducted or paid in accordance with the foregoing provisions of this Chapter on or after the 1st day of April, [2010], there shall be no requirement to furnish a certificate referred to in sub-section (1) or, as the case may be, sub-section (2).]

TCS certificates S. 206C:

As per S. 206C (5) a person who collects tax is required to issue TCS certificate. This will also be in force till 31.03.2010 and from 01.04.2010 TCS certificates are  to be dispensed with in view of proviso to S. 206C (5).

Incomplete TDS certificate

From above discussion we find that if details of deposit of TDS to the account of Central Government is not given in a TDS certificate, it will be not possible to use the TDS certificate for allowing credit for tax deducted.  Therefore, the TDS certificate will be incomplete and ineffective.  Thus, it can be said that the deposit of amount of tax deducted is a pre-condition for issuance of TDS certificate.

Failure to deposit TDS leads to failure to issue TDS certificate.  If an assessee / tax deductor has failed to deduct or deposit the amount of tax deducted, he can not issue a TDS certificate.  Therefore, the failure to issue a TDS certificate in such circumstances, is a consequential outcome of failure to deduct or deposit the amount of tax deductible.  In such circumstances, it can therefore, be said that issuance of TDS certificate is an impossible event and therefore, an assessee can not be burdened with penalty for an act which he can not take.  Accordingly, it can be said that when a penalty is levied or is leviable for failure to deduct tax or for failure to deposit the amount of tax deducted, he can not be burdened further with penalty for failure in issuance of TDS certificate.

Penalties:

Penalties are provided for various faults relating to TDS  including interalia failure to deduct tax, short TDS, non deposit, non issuance of TDS certificates, non filing of returns etc. In case of issuance of TDS certificate, default in issuance of every certificate is considered an independent default. And per diem penalty can be imposed for each certificate which is issued late.

Penalty u/s 272A(g) for non furnishing  of TDS/TCS certificate:

As discussed above a complete and valid in all respect, certificate can be issued only after deposit of TDS. Therefore, deposit of TDS is a precondition for issuance of TDS certificate. In case there is failure in deposit of TDS or delay in deposit of TDS, then delay in issuance of TDS certificate shall be a consequential default. One can say that in absence of compliance of deposit, issuance of a valid certificate is impossible. In any case, the default in issuance of TDS certificate in such cases will be consequential default. As the certificate cannot be issued, it cannot be furnished to the deductee.

The penalty is at present Rs.100/- per day and it is in relation of each certificate which is furnished belatedly. The maximum amount of penalty is however the amount of TDS, for which the certificate was furnished late or not furnished.

Two recent cases -

Commissioner of Income-tax v. Sri Ram Memorial Education Promotion Society [2006] 287 ITR 155(All)

Penalty was imposed under section 271C for non deduction/ deposit of TDS, again penalty u/s 272A was imposed for non issue/ delayed furnishing of TDS certificates. High Court held that   penalty can not be imposed again for failure to give TDS certificate on consideration of SS, 203, 206, 271C, 272A.

The high Court held that a bare perusal of sections 203 and 206 of the Income-tax Act, 1961, would reveal that the sections would come into operation when tax is deducted at source by the persons, who are responsible for doing so.  The very opening words of section 203, viz., "Every person deducting tax in accordance with the provisions of sections 192 to 194" make it abundantly clear, that the provisions contained therein would only be attracted if tax has been deducted at source.  In case tax is deducted at source, the responsibility lies upon the person deducting the tax in accordance with the provisions of the Act to issue a certificate to the effect that tax has been paid in the manner prescribed in section 203.  If there is a violation on the part of the said person in issuing the certificate to the effect that tax has been deducted within the given period or for violation of any other specific conditions prescribed therein, he would render himself open for imposition of penalty for non-compliance with the provisions of section 203. 

For failure of the assessee in deducting tax at source, penalty can be imposed under section 271C.  Once a person prescribed or concerned or the assessee has been subjected to a penalty under section 271C, for not deducting the tax at source, there would not arise any occasion for levying a penalty under sections 272A(2) (c) and 272A(2)(g) for non-compliance with the provisions of sections 203 and 206.  In other words, in case the tax has not been deducted at source, the question of issuing the certificate of tax under section 203 or that of filing of return under section 206 would not arise at all.  That being so, the question of imposing penalty for violation of the aforesaid provisions, would also not arise.

Judgment of Delhi High Court:

In CIT versus DHIR GLOBAL INDUSTRIES PVT. LTD. [2008 -TMI - 4654 - HIGH COURT DELHI] in Appeal No. - 677/2008 and 679/2008  in judgment of  04 July 2008 a matter about penalty for default in issuncae of TDS certificate arose.

Penalty u/s 272A (2) (g) was imposed for default in issuing the certificate for tax deducted at source. There was delay in deposit of tax and the delay was explained by assessee, the explanation of delay in making the deposit has been accepted, yet penalty for delay in issuance of certificate was imposed. The penalty was deleted by the Tribunal and the same was deleted by the Tribunal. The revenue preferred appeal before the High Court for assessment years 2000-2001 and 2001-02  against the common order of the Tribunal passed on 03.08.2007. 

 The only issue  sought to be  raised by the revenue was as to the question of penalty under Section 272A (2) (g) of the Income Tax Act, 1961  on contention that the levy of such penalty by the Assessing Officer ought to have been confirmed by the Income Tax Tribunal because  the imposition of penalty under Section 272A (2) (g) of the said Act is independent to the penalties that can be levied under Section 221 for default in depositing the tax deducted at source resulting into , ' the assessee being in default' in view of the provisions of Section 201 (1). The default in issuance of TDS certificate falls under Section 203 (1) of the said Act and the two are unrelated and independent.

The high Court noted that the Tribunal has in its order dated 26.08.2005 in ITA Nos. 117 and 118/D/2002, after considering the explanation of the assessee, it held that the assessee was not in default under Section 201 (1) of the said Act and thereby there was no question of imposing penalty under Section 221 of the said Act.  While considering the appeals in relation to penalty for default in issuance of TDS certificate t The Tribunal took the view that if on the basis of the explanation of the assessee the Tribunal has already held the assessee not to be in default under Section 201 (1) of the said Act, then on the basis of the same explanation the assessee cannot be held to be in default, inter alia, under Section 272A (2) (g) of the said Act for levying the penalty. The Tribunal also noted that it was not controverted by the revenue that the filing of the annual TDS returns and issuance of TDS certificates to the deductees was dependent on the deposit of TDS as well as copy of TDS certificate and details of TDS deposits which were required to be given in the TDS returns as also in the TDS certificates. In these circumstances, the Tribunal was of the view that once the explanation for the delay, which is common, both, for the making of the deposit and filing of the TDS return, on the one hand, and the issuance of the TDS certificate on the other, has been accepted, then there is no question of imposing a penalty on the assessee even under Section 272A (2) (g) of the said Act.

The high Court also examined Form 16-A, which is a form in which the TDS certificate was to be issued in terms of Rule 31 (1) (b) of the Income Tax Rules, 1962 and held that  it is apparent from an examination of the said form that the TDS certificate can only be issued after the TDS amount is deposited with the Central Government in the bank. The details of the challan through which the deposit has been made are also required to be filled in the said certificate. Therefore, it cannot be said that the issuance of the TDS certificate is independent to the making of the TDS deposit. The high Court thus dismissed appeal of revenue about penalty for default in issuance of TDS certificates.

The high Court thus held that

a. it cannot be said that the issuance of the TDS certificate is independent to the making of the TDS deposit because details of deposit are required to be given in certificates.

b. once the explanation of delay in making the deposit has been accepted, there is no reason as to why the same cannot be used for the purposes of delay in the issuance of the TDS certificate.

c. The Income Tax Tribunal has committed no error in deleting penalty for default in issuance of TDS certificate as it was due to delay in deposit of tax itself and it was particularly found that the assessee had reasonable cause for delay in deposit of  TDS.

d. No substantial question of law arises from the order of Tribunal.

Learning from the judgment:

The above judgments of the Tribunal and the High Court are very logical and in accordance with the law. However, as usual the tax officials are in practice of raising demands for penalties. Therefore, it is always advisable to take reasonable steps fro compliance of procedural aspects by obtaining written requests from tax deductees for annual certificates, deduct tax and deposit the same in time and issue certificates in time. Once should not wait for the last moment and better course is to issue certificate soon after tax is deposited.

In case there is delay in deposit, there should be reasonable cause fro delay in deposit of TDS. In the above judgment although it has been held that issuance of TDS certificate is not independent of deposit of TDS, however, relief was allowed for the reason that delay in deposit was accepted. Incase delay in deposit of TDS is not accepted, then the revenue is likely to impose both penalties. Therefore, when circumstances shows that there is likely hood of delay in deposit of TDS, a certificate of TDS without  details of deposit can be issued with a rider that these details shall be provided after deposit of TDS, so that un-necessary penalty proceedings are not faced.. 

Care required in furnishing of certificates:

Mere issuance of TDS/TCS certificate and keeping it is not sufficient. The certificate should be furnished to the concerned party and acknowledgement should be obtained. This is because requirement is to furnish such certificates.

In case tax has been deposited but TDS certificate is not issued in time, the default in issuance of TDS certificate shall be an independent default and plea of financial hardship causing delay in deposit of TDS and issuance of certificate shall not be acceptable. In such cases other administrative reasons can be ground for delay. Many times TDS certificates are issued late due to clerical negligence, in some cases it is found that the tax deductor has paid tax and prepared and signed certificate but due to clerical lapsed, the certificates are not handed over to the deductee/ payee. In some cases, other disputes (financial, administrative, or business related) between parties becomes reasons for not handing over of TDS certificates.  However, such grounds may not be valid ground for delay in issuance of certificates. Therefore, care should be taken to ensure that tax is correctly deducted, deposited and certificates are issued. In case annual certificate is issued, a written request from payee should be obtained. Suppose in a year tax was deducted 50 times from a contractor, and an annual certificate has been issued, on good faith and on verbal request of the contractor. This is not proper, a written request from contractor must be obtained as early as possible (preferably at commencement of year or starting business in case of new party) and in any case least before the date by which the first TDS certificate for the previous year was required to be issued. If a written request is not received and the ITO (TDS) require to produce the same and it cannot be produced, the ITO (TDS) can impose penalty for most of occasions of TDS because TDS made before 31^st  March, are likely to be not  complied with requirement of issuance of TDS certificate within prescribed  time. Who knows future suppose the relations between parties is impaired and the deductee can also complain for default in issuance of TDS certificates. 

Annual certificates:

When annual certificates are issued it is advisable to obtain written request from the tax deductee/ income payee at the beginning of  each  previous year from existing old parties and  when TDS is made for the first time in case of a new party. A delayed receipt of written request will not absolve of default in furnishing of certificates in respect of TDS/TCS before such written request.

 There appears no prescribed form for such request. A draft request letter is given below which can be suitable modified in particular circumstances.

 

DRAFT LETTER FROM RECEPIENT OF TDS CERTIFICATES

 for issuance of one TDS certificate for each financial year.

From: Name, address, PAN NO.

 

 

To,

The Tax deducter,

------

Dear Sir,

Sub: Request to issue consolidated annual TDS certificate.

Whereas, it is likely that there will be more than one occasions of tax deduction in each year. Therefore, for our mutual administrative convenience  I/ we  request you to kindly issue me /us  one  consolidated TDS certificate for each financial year.      

In terms of 4^th proviso to Rule 31(3) I / we request you to kindly issue me one consolidated TDS certificate for  tax deducted  during any financial year ending on 31st March latest by following  30th April/ 14^TH June, in case some TDS is made on 31^st March which can be deposited by 31^st May**. 

For your record and reference I also enclose a copy of my PAN Card.

Thanking you,

Yours faithfully,

** This is added by author because otherwise two TDS certificates will be required- one to be issued by 30^th   April as per 4^th proviso and another after deposit of TDS which can be deposited by 31^st may for accounting adjustments made on the last day of previous year. If certificate is issued by 30^th April without payment details, as payment would be made by  31^st May the certificate will be incomplete.