TMI BlogTDS by agent when he is liable to pay and not by principal, even if reimbursement is made.X X X X Extracts X X X X X X X X Extracts X X X X ..... TDS by agent when he is liable to pay and not by principal, even if reimbursement is made. - By: - CA DEV KUMAR KOTHARI - Income Tax - Dated:- 21-3-2016 - - Consignment Agents : Manufacturer of goods, whole sellers, and other business entities, engage agents in different parts of country for selling goods as Consignment Agents. Consignment Agents sell goods on behalf of principal and during the course of business use their own establishment and infrastructure. Consignment Agents engage many persons and parties for doing various work. Consignment Agents claim reimbursement of some expenses and some expenses are borne by them. This depends of trade practices, usages and terms and conditions settled between principal and agent. Consignment Agent is not an employee : Consignment Agent is not an employee of principal. He is a distinct entity. A Consignment Agents can work for many principals. In context of provisions of the Income tax Act about taxation and about provisions relating to TDS/ TCS, the Consignment Agent is a different entity and is liable for compliance of his own payment of tax on income as well as TDS/ TCS where he is liable person for payment to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... others or while receiving payment from others. People and other parties engaged by Consignment Agents : When a Consignment Agents engage any person as his employee or service provider, he enters into agreement with employee and other party. For example, Consignment Agents may take shops on rent, engage transporters, engage other service providers, and engage salesmen on salary and / or commission basis. The Consignment Agent is principal for all such persons / parties engaged by his for doing his business of Consignment Agent. Consignment Agents may claim reimbursement from principal : A Consignment Agents as per terms and conditions, can claim reimbursement of expenses. Some expenses are on actual basis and some can be on reasonable allocation/ estimate basis. For example, transportation costs paid can be directly allocated whereas a part of salary of sales team can be claimed on estimated basis. Whether any reimbursement is claimed or not from principals, the Consignment Agents remain person responsible to make payment to such persons/ parties engaged by him. Tax Deduction by Consignment Agents : In such cases the Consignment Agents is the person respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsible to pay to employee (salary), land-lord (rent) , service providers (commission to sub agents, contractors payment to transporters, and advertising agency and other work). Some expenses like, rent, salary of staff may be fully borne or partly claimed reimbursement from any principal, some expenses may be fully claimed reimbursement from principals. When expenses are fully recovered from principal then also the Consignment Agents is person responsible to pay to landlord, employees, contractors etc. Therefore, the Consignment Agents, is person responsible to deduct tax at source and not he principal. For example let us analyse S. 194C to ascertain liability to deduct tax: Payments to contractors. 194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor ) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall , at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier, deduct an amount equal to- Xxxx On reading of the above provision and its application, we find that: the Consignment Agent is the person responsible for paying to contractor, the Consignment Agent is the person who enter into contract with transport contractor or other service providers, the contract is between the Consignment Agents and the contractor. the Consignment Agent is the person who credits account of contractor, the Consignment Agent is the person who pays to the contractor. Therefore the Consignment Agent is responsible to deduct and pay tax deductible at source, if any, and not the Principal of the Consignment Agent. From some other provisions relating to TDS also we find that the person who is responsible to pay is the person who is liable to deduct tax at source, For example the following provisions : Salary. 192 . (1) Any person responsible for paying any income chargeable under the head Salaries shall, at the time of payment , deduct income-tax 1 [***] on the amount payable at the average rate of income-tax 2 [***] computed on the basis of the 3 [rates in force] for the financial year in which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payment is made, on the estimated income of the assessee under this head for that financial year. Interest on securities. 193 . The person responsible for paying 1 [to a resident] any income 2 [by way of interest on securities] shall, 3 [ at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier], deduct income-tax 4 [***] at the rates in force on the amount of the interest payable : 1 [Interest other than Interest on securities . 194A . (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income 2 [by way of interest on securities], shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : 1 [Commission or brokerage. 194H . Any person, not being an individual or a Hindu undivided family, who is responsible for paying, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 2 [ ten ] per cent : [Rent. 194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to 2 [a resident] any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, 3 [deduct income-tax thereon at the rate of- 1 [Fees for professional or technical services. 194J. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of- Therefore, it is clear that the person liable to pay any such income is liable to deduct tax at source, if applicable. When an agent is liable to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay to others engaged by him for doing any work, the agent is liable to pay and deduct tax from payment or /credit allowed to recipient. In such circumstances the principal is not liable to deduct tax, merely because agent has claimed and principal has made reimbursement in respect of payments made by agent in relation to work of principal. Section 194C is reproduced below with highlights for analysis: Income-tax Act, 1961 1 [Payments to contractors. 194C . (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- (i) one per cent. where the payment is being made or credit is being given to an individual or a Hindu undivided family; (ii) two per cent. where the payment is being made or credit is bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein. (2) Where any sum referred to in sub-section (1) is credited to any account, whether called Suspense account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source- (i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or (ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice. (4) No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. (5) No deduction shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed 17 [thirty thousand rupees]: Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds 18 [ seventy-five thousand rupees], the person responsible for paying such sums referred to in sub-section (1) shall be liable to deduct income-tax under this section. (6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, 19 [where such contractor owns ten or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with] his Permanent Account Number, to the person paying or crediting such sum. (7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form and within such time as may be prescribed. Explanation .- For the purposes of this section,- (i) specified person shall mean,- (a) the Central Government or any State Government; or (b) any local authority; or (c) any corporation established by or under a Central, State or Provincial Act; or (d) any company; or (e) any co-operative society; or (f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or (g) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or (h) any trust; or (i) any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or ..... 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(j) any Government of a foreign State or a foreign enterprise or any association or body established outside India; or (k) any firm; or (l) any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person,- (A) does not fall under any of the preceding sub-clauses; and (B) is liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor; (ii) goods carriage shall have the meaning assigned to it in the Explanation to sub-section (7) of section 44AE ; (iii) contract shall include sub-contract; (iv) work shall include- (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods or passengers by any mode of transport other than by railways; (d) catering; (e) man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.] relevant notes :- ------------------------- 17. In sub-section (5), for the words twenty thousand rupees , the words thirty thousand rupees has been substituted vide Finance Act, 2010 , with effect from the 1st day of July, 2010. 18. In sub-section (5), in the proviso, for the words fifty thousand rupees , the words seventy-five thousand rupees has been substituted vide Finance Act, 2010 with effect from the 1st day of July, 2010. 19. Substituted vide THE FINANCE ACT, 2015 w.e.f. 1st day of June, 2015, before it was read as, on furnishing of TDS may not be applicable to agent: When agent is liable to pay income to any person, he is liable to deduct tax. However, tax may not be deductible due TDS provisions not applicable in his case or in case of payee. Therefore, applicability will have t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be checked according to facts and circumstances prevailing between agent and payee and facts and circumstances in case of principal will not be applicable. For example, agent being individual or HUF having no obligation to deduct tax due to lower turnover ( no tax audit obligation) , will not be liable merely because his principal would be liable if the principal, instead of agent, be the person liable to pay to the payee. - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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