Chapter Xvii-b of the Income-tax Act, 1961 - Collection and Recovery of TAX - Deduction at Source - Clarification Regarding TDS under Chapter Xvii-b on Service TAX Component Comprised of Payments Made to Residents Circular No. 1/2014 [F.no.275/59/2012-it(b)], Dated 13-1-2014
Circular 1/2014, dated 13-1-2014 was issued by the Central Board of Direct Taxes on 13 January 2014. Its subject is Chapter Xvii-b of the Income-tax Act, 1961 - Collection and Recovery of TAX - Deduction at Source - Clarification Regarding TDS under Chapter Xvii-b on Service TAX Component Comprised of Payments Made to Residents Circular No. 1/2014 [F.no.275/59/2012-it(b)], Dated 13-1-2014.
This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.
Extends to the whole of Chapter XVII-B the rule that was earlier stated only for rent. Where the agreement or contract between payer and payee shows the service tax component in the amount payable to a resident separately, tax is to be deducted at source on the amount paid or payable without including that service tax component. The Board acts under section 119 and issues this after examining the matter afresh.
The Board's circular of 28 April 2008 had said this for rent under section 194-I, and representations asked whether the same principle extended to other provisions. The Board also had before it the Rajasthan High Court's judgment of 1 July 2013 in CIT (TDS) Jaipur v. Rajasthan Urban Infrastructure, holding that no deduction is required on the service tax component under section 194J where the agreement provides for it to be paid separately.
CHAPTER XVII-B OF THE INCOME-TAX ACT, 1961 - COLLECTION AND RECOVERY OF TAX - DEDUCTION AT SOURCE - CLARIFICATION REGARDING TDS UNDER CHAPTER XVII-B ON SERVICE TAX COMPONENT COMPRISED OF PAYMENTS MADE TO RESIDENTS CIRCULAR NO. 1/2014 [F.NO.275/59/2012-IT(B)], DATED 13-1-2014
The Board had issued a Circular No.4/2008 dated 28-04-2008 wherein it was clarified that tax is to be deducted at source under section 194-I of the Income-tax Act, 1961 (hereafter referred to as 'the Act'), on the amount of rent paid/payable without including the service tax component. Representations/letters has been received seeking clarification whether such principle can be extended to other provisions of the Act also.
2. Attention of CBDT has also been drawn to the judgement of the Hon'ble Rajasthan High Court dated 1-7-2013, in the case of CIT (TDS) Jaipur v. Rajasthan Urban Infrastructure (Income-tax Appeal No.235, 222, 238 and 239/2011), holding that if as per the terms of the agreement between the payer and the payee, the amount of service tax is to be paid separately and was not included in the fees for professional services or technical services, no TDS is required to be made on the service tax component u/s 194J of the Act.
3. The matter has been examined afresh. In exercise of the powers conferred under section 119 of the Act, the Board has decided that wherever in terms of the agreement/contract between the payer and the payee, the service tax component comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XVII-B of the Act on the amount paid/payable without including such service tax component.
4. This circular may be brought to the notice of all officer for compliance.
In a short-deduction order under section 201(1) or in a Centralised Processing Centre default intimation where the department computed deduction on the gross invoice including service tax.
A professional bills fees of Rs. 10,00,000 with service tax shown separately, and the contract provides for it to be paid separately. Deduction under section 194J is on Rs. 10,00,000 alone, and a short-deduction demand computed on the tax-inclusive total does not stand.
It mentions. Circular No. 1/2014, Circular No. 4/2008
Source: the Income Tax Department’s own published text — its page for this instrument.