1.  194C – TDS on Payments to Contractor  194J – TDS on fees for Professional or Technical Services Prepared By: Jagrati Kookada Shaili Shah M. V. Damania & Co. Chartered Accountants

2.  TDS is one of the modes of collection of taxes, by which a certain percentage of amounts are deducted by a person at the time of making/crediting certain specific nature of payment to the other person and deducted amount is remitted to the Government account.  We have mainly emphasized on section 194C and 194J as there is a confusion under which head TDS has to be deducted. There are certain overlapping issues under both the heads which are focused in this presentation along with supporting case laws.

3.  Applies to a person responsible for “paying any sum to a resident contractor or sub-contractor”.  Time of Deduction : earlier of credit of any sum to the account of contractor or at the time of payment

4.  Nature of Payment: deduction is to be done for payment for carrying out any work(including supply of labour) in pursuance of a contract between the contractor and a specified person.  Meaning of Work "Any work" means any work and not supply of labour to only a “contract carry out a work for work"

5. Work includes: › advertising; › Broadcasting and telecasting including production of programs for such broadcasting or telecasting ; › carriage of goods or passengers by any mode of transport other than by railways;

6. › catering ; › manufacturing or supplying a product according to the requirement or specification of a customer by using INCLUDES DOES NOT INCLUDES material supplied material purchased from by the customer a person other than (contract of work), such customer (Contract for sale) Therefore, 194C will cover all those cases where work is carried out for any tangible product which is not equal to contract for sale.

7. contract  A B supply uniform as per A’s specification purchasing material from another person Dominant object is the sale of product as product and not just execution of work.

8. contract  A B supply uniform as per A’s specification Material supplied by A. Dominant object is the execution of work and not the supply of uniforms.

9.  main object is the transfer of property and the delivery of the possession of a movable property even though goods might have been manufactured as per the requirement and specification of the client  principal object of the contract is one of work and labour even though some material might have been used in the execution of the contract. SC Case Law

10.  article has an identifiable existence prior to its delivery to the purchaser, and when the title to the property vests with the purchaser only upon delivery.  Article is brought into existence by applying work and labour and materials are consumed in execution of the work.

12. Mr A. XYZ Advertising & Co. Sony TV (Client) (Advertising Agency) (Media) Pays Rs. 1,00,000 for Makes payment for designing an adv. giving ad on their 194C Channel Makes payment to No 194C models, artists etc. 194J Payment directly to Sony TV – 194C

13.  As per the circular no. 715 dated 08-08-1995, Nature of payment for carrying out a work Therefore, 194C will be applied Cannot be taken under technical service under 194J

14. Rate of TDS:  1% -for Individual and HUF recipient  2% - for any other person recipient  For 1 single Contract – 30,000/- For aggregate in a year – 75,000/- Exemptions:  No TDS by an Individual or an HUF -- personal purposesHUF  No TDS-- for sum credited/paid to a contractor during the course of business of plying/hiring/leasing of good/carriages on furnishing Pan to the payer/ deductor.

15.  Applies to a person responsible for “paying any sum to a resident as”: 1. Fees for professional services, 2. Fees for technical services, 3. Any remuneration, fee or commission by whatever name called paid to a director, which is not in the nature of salary 4. Royalty, 5. Any sum referred to in clause (va) of section 28 which relates to non-compete payment, or

16.  Point of deduction : Earlier of- The time of actual payment of such fees or its credit to the account of the payee.  Tax Rate Applicable: 10% on such income.

17. 30,000 Professional Services Technical Services Royalty Non- Compete Fees Cut off amount: No TDS – if aggregate of the amounts credited or paid to payee does not exceed:

18.  Meaning of Professional Services Professional Services means services rendered by a person in the course of carrying on: 1. legal, 2. Medical consultancy for business purpose, 3. engineering, 4. architectural profession, 5. the profession of accountancy, 6. technical consultancy, 7. interior decoration, 8. Advertising consultancy and add designs, 9. such other profession as is notified by the Board for the purposes of section 44AA or of this section.

19.  Meaning of “Fees for Technical Services” Fees for technical services means any consideration (including any lump sum consideration) for the rendering of any: 1. managerial, 2. technical or 3. consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any service which would be income of the recipient under the head “Salaries”. * As per the Supreme Court judgment in CIT v. Bharti Cellular LTD. (SC), technical service would include services rendered by a human; it would not include any service provided by machines or robots.

20. Mr. A. Paid To BSE for “Bolt” system (assessee) Rs 5.17 crore as “transaction charges” (in the nature of managing and maintaining the system) ? -Will TDS be deducted on amount paid as transaction charges? Ans-Such payments are included in definition of “fees for technical services”. Hence TDS u/s 194J will apply.

21. BSNL/ MTNL Provides services of Interconnect/ port/access/toll 194J – Reference to only technical service rendered by a human; it would not include any service provided by machines or robots. Therefore, it will not be construed as technical service and therefore 194J will not apply.

23. Activity WorkService Nature Physical and Tangible Intellectual or Mental Service Contract Not involving any work – No 194C Eg- Services of engineers, accountants, architects, consultants. However, covered under 194J.

24. Payment Recruitment Agency For services rendered ? -Will TDS on payment made to recruitment agency will be deducted under section 194C or 194J? Ans-Section 194C apply to a contract for carrying out any work which results into a tangible product. Payments to recruitment agencies are in the nature of payments for services rendered. Hence, TDS will be deducted under section 194J and not 194C.

25.  Notes: 1. No surcharge, education cess or SHEC shall be added to the abov e rates. Hence, tax will be deducted at source at the basic rate. 2. The rate of TDS will be 20% or higher as applicable in all cases, if P AN is not quoted / provided by the deductee on or after 1-4-2010. 3. An Individual or a Hindu undivided family, whose total sale, gross receipts or turnover from the business or profession carried on by him exceed 1 crore or 25 lakhs respectively. 4. Credit made in suspense/Adjustment a/c -TDS to be deducted. 5. As per section 197, on application by payee in Form no. 13, if the Assessing Officer is satisfied that this total income justifies no deduction of tax or deduction at lower rate, he may issue a certificate in Form No. 15AA to that effect directly to the payer.

26. Any Questions??? Thank You !!!!