Tds applicability

[sunil mehta]

A proprietor (under  44AB audit in F.Y.2008-09) takes car on hire for his out city trips through a treavel agent .The travel agent does not own any car.He simply books the car through another car hire vendor. There is no contract /agreement between the businessman and the travel agent.The businessman sometimes take car on hire from other vendor also.The travel agent raises for lumpsum car hire charges(incld. petrol/road tax/driver chgs.)Per trip bill is below Rs.20000/-But total bills of travel agent for the financial year exceeds Rs.150000/- Query:-1)Whether Tds is applicable on above nature of transactions? 2)If yes, the u/s 194A or 194I ? 3)Quote any circular or judgement in support of the answer.

[Rama Krishana]

IN my view, you are liable to TDS under section 194C only.

[DEV KUMAR KOTHARI]

CAUTIONARY NOTE- S. 40(a) (ii) is more important than avoiding compliance of TDS- play safe while considering tax to be deducted. Proprietor (P) simply books the car through another car hire vendor- this means car is taken with driver. So the car is not leased to P, it is under control of car owner / operator. Therefore S. 194 I will not apply. S. 194 C will apply becasue "works" include carriage of goods or passengers .. So to avoid controvery let P be considered as passenger. As total payment exceed Rs,50K, tax is required to be deducted. Tax should be deducted u/s 194 C @ 2% of gross amount or at lower rate, in case the payee furnishes certificate from his AO to that effect. Provision of disallownce u/s 40(a)(ii) are more serious and can have serious repurcussions so one should adopt play safe approach while considering TDS, becasue there is no loss excpet that for some time amount of payee may be blokced in TDS but that is again not serious, becasue entire amount of likely TDS can be considered even while paying first installment of TDS by payee. ITO (TDS)might be sleeping, so far smaller cases are concerned,however, ITO who is asessing income is vigilant becasue he can disallow proportionately large sum for failure to deduct and pay tax of very small sum. For example for failure to deduct tax @1% amounting to Rs one lakh ,from contractor on say Rs. one crore, the entire sum of Rs.one crore can be disallowed.

AI Summary

TDS on contract payments applies to car hire via intermediaries; deduct under contractor withholding rules and secure lower certificate if available. Withholding tax applies to payments for car hire booked through an intermediary because the arrangement amounts to contracted carriage of passengers; lease-based withholding is inapplicable since the vehicle is not leased. Where aggregate payments exceed the statutory threshold, tax must be deducted at the contractor withholding rate on gross payments, unless a lower-deduction certificate is furnished. Failure to deduct risks a consequential disallowance under the tax disallowance provision, so practitioners should adopt a cautious approach to TDS compliance.