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Person responsible for paying to a resident, any income by way of commission (other than insurance
commission) or brokerage shall deduct tax at source there from.
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The liability to deduct Income tax at source is on any
person except individual and HUF. However, individual and HUF are also covered by liability to deduct
tax at source if their books are required to be audited under section 44AB during the immediately
preceding financial year. [The turnover from
business/profession exceeds the limits specified u/s 44AB during the financial year immediately
preceding the financial year in which the commission or brokerage is paid or credited].
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Tax is to be deducted at source at the time of payment or credit whichever is earlier.
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Tax has to be deducted @5%.
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There is no requirement of deduction of tax at source as
per Indian Income Tax Act if the aggregate amounts of commission or brokerage paid/credited or likely
to be paid/credited during the financial year to the payee does not exceed
Rs.15,000/-.
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No deduction shall be made by BSNL or MTNL to their PCO
franchisees.
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Commission or Brokerage includes any payment received or
receivable, directly or indirectly, by a person acting on behalf of another person for services
rendered (not being professional services) or for any services in the course of buying or selling of
goods or in relation to any transaction relating to any asset, valuable article or thing, not being
securities.
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Discount availed by stamp vendors is not
‘commission’ or ‘brokerage’ - It is not
possible to accept the contention of that the definition of “commission or brokerage” as contained in
the Explanation to section 194H is so
wide that it would include any payment receivable, directly or indirectly, for services in the course
of buying or selling of goods and that, therefore, the discount availed of by the stamp vendors
constitutes commission or brokerage within the meaning of section 194H. If this contention were to be
accepted, all transactions of sale from a manufacturer to a wholesaler or from a wholesaler to a semi-wholesaler or
from a semi-wholesaler to a retailer would be covered by section 194H. Thus, the discount made
available to the licensed stamp vendors under the provisions of the Gujarat Stamps Supply and Sales
Rules, 1987, does not fall within the expression “commission” or “brokerage” under section 194H -
Ahmedabad Stamp Vendors Association v.
Union of India [2002] 257 ITR 202/124
Taxman 628 (Guj.)/Kerala State Stamp
Vendors Association v. Office of the Accountant General [2006] 150 Taxman 30 (Ker.).
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Deduction of tax by airlines from its agent: Tax should
be deducted at source under section 194H on amount available to agents being difference between air
fare fixed by airlines and price at which agents are enabled to sell tickets - Around the World Travels & Tours (P.) Ltd.
v.Union of India [2004] 141 Taxman 53
(Mad.)
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Commission to Wholetime Directors:
In Jahangir Biri Factory (P) Ltd Vs. Dy. CIT
(2009) 28 (II) ITCL 114 (Kol 'C' Trib), it was held that Commission paid to directors is not in the
nature of commission or brokerage as envisaged in Section 194H.
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Discount given to distributors/franchisees on sale
of SIM Cards and recharge coupons: In
Vodafone Essar Cellular Limited Vs. Asst. CIT (2010) 332 ITR 255 (Ker), it was held that the
discount given at the time of sale of sim cards and recharge coupons by the assessee to distributors
was a payment received or receivable by the distributor for services rendered to the assessee and
hence, it is covered under Section 194H.
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Turnover Commission payable by RBI to Agency
Banks-
Requirement of tax deduction at source under
section 194H is not applicable in respect of Turnover Commission payable by the Reserve Bank of
India to the Agency Banks (Banks authorized for conducting Government business) for performing
the general banking business of the Central
and State Governments on behalf of RBI - Circular : No. 6/2003, dated
3-9-2003.
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Sometimes, the commission or brokerage is retained by the
agent/consignee and not remitted to the principal/consignor while remitting the sale consideration. In
such a case, retention of commission/brokerage by the agent/consignee amounts to constructive payment
of the same to him by the principal/consignor and TDS needs to be made from such amount. Therefore, the
principal/consignor shall have to remit TDS to the credit of the central government within the
prescribed time. [Circular No.619 dt.4-12-1991].
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An issue came up before Kolkata Bench of the Tribunal as
to whether the difference in purchase and sale price enjoyed by the distributors / franchisees is to be
treated as commission or discount by the assessee who is in the business of cellular mobile telephone
services. Assessee company having treated the same as commission and deducted tax under Section
194H discontinued such approach from July, 2002 and treated the same as discount and not liable for any
TDS formalities. Assessing Officer (AO) rejected such contention and treated the ‘assessee’ as
‘assessee in default’ and charged interest under Section 201(1A) of the Income Tax Act, 1961. CIT
(A) agreed with assessee’s contention and held the same as discount which is not liable for any TDS
deduction under Section 194H. On an appeal to the Tribunal it was held that the agreement between
the assessee and its distributors showed that the rights with the prepaid card at all times vested in
the assessee till they were sold to the customers. Distributors / Franchisees have no liberty to
tinker with the ultimate price at which it is to be sold to the customer, which was fixed by the
assessee. In the case of principal to principal, relationship the distributor will enjoy full
freedom in fixing the ultimate retail price within the maximum price level fixed by the original vendor
manufacturer. However, in the instant case distributors have no independence to reduce their
margins and sell at a lower price than what is fixed by the assessee. In a normal principal to
principal situation one cannot control the other. Assessee was not only holding ownership but
also regulating the manner of the business operations of the distributor. Hence, the margins
enjoyed by the distributors are to be treated as commission which is liable for TDS under Section 194H
and thereby AO’s action was endorsed. ACIT Vs. Bharti Cellular Ltd (2007) 294 ITR (AT) 283
(Kolkata)
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Where the transaction between the assessee-publishing
newspaper and its sales agents is on principal to principal basis, assessee is justified in not
effecting any TDS from discount given to newspaper agents and charges/commissions retained by
advertising agents under section 194H, as commission paid to circulation agents is in the nature of
trade discount. CIT Vs. Samaj [2001] 77 ITD
358 ( Cuttack).
