QUESTION: I own a commercial building giving me a rent of Rs. 4 lakhs a month.

The
tenant is deducting 20 per cent as TDS and informing me, that this amount is deducted
and the balance amount is being remitted. For the past one year, this process is going
on. He has not paid this amount to the Income-tax Department. He has not issued TDS
Certificate in Form 16A to me. The department is being reminded by me every month
with a copy to the Central Board of Direct Taxes (CBDT). Sec. 205 of Income-tax Act
protects me from the department making a demand on me. I am showing in my returns
this amount as Form 16A receivable, but the assessing officer does not give credit for
the TDS amount to be adjusted against the other demands on me from the department.
This matter may drag on for some time. Meanwhile if my tenant declares himself as
insolvent, what is my position as against the Income-tax Department? The department
could have applied Sec. 276BB and collected the TDS. It has not done so.
In the long run, do I have any method to make the department permit me to adjust this
TDS amount from the demands pending against me? In the Income-tax Act, 1961
nothing is specifically mentioned. Justice and equity demands that some provision in the
Act should have been there to enable me to adjust the deducted amount against my
dues to the department. Are there any directions or circulars from CBDT on this subject?
ANSWER: The plight of the reader is not unusual nor is it confined only for those
receiving rent from tenants. Even in respect of payment of interest or salary, the amount
deducted at source does not always get deposited, so that the deductee entitled to the
benefit of tax deduction is put to hardship because of the departmental
misunderstanding of the provisions of law in this regard. Sec. 190 provides for payment
of tax either directly or by way of deduction or collection at source. Hence, the charge of
the tax on the taxpayer under section 4 of the Act does not cease to exist, because of
TDS provisions. But, where tax is deducted, deduction itself is understood by the section
as payment.
Sec. 191 provides for direct payment only in following circumstances as clearly stated in
the section which reads as under: "191. Direct Payment. In the case of income in
respect of which provision is not made under this Chapter for deducting income-tax at
the time of payment, and in any case where income-tax has not been deducted in
accordance with the provisions of this Chapter, income-tax shall be payable by the
assessee direct". (Emphasis supplied)
From the above, it is clear that only where the income-tax has not been deducted at all
as required under the provision, income tax shall be payable by the assessee directly.
The question of direct payment should not arise, where tax has been deducted at source.
But the officers do not carry out this mandate of law merely because the assessee is
unable to produce a certificate of tax deduction at source.
Where tax has been deducted but certificate is not issued, it is not the fault of the
person who suffers tax deduction. A reasonable construction of law in such cases is that
where a taxpayer asserts that tax has been deducted at source and is also able to show
by some evidence that he had received payment less tax, the Income-tax Department
after verification of the claim should grant credit and take appropriate action for recovery
against the defaulter, who had failed to deposit the tax deducted.
Law provides for prosecution under Sec. 276B with rigorous imprisonment for the
offence for a term not less than three months but which may extend to seven years with
fine. Penalty is exigible for non-compliance with Sec. 206 requiring such persons to
furnish prescribed return with the consequence of penalty of Rs. 100 per day for each
day of default starting from the day on which such return was due. Where tax has been
deducted and deposited, but tax deduction certificate is not issued, prosecution is
spared, but penalty would be leviable.
What now happens is that the Department is content to deny tax credit to the sufferer,
who is the victim of the offence, while taking either no action or only nominal action of
notice without pursuing either collection or otherwise enforcing the law against the
offender. In doing so, the Department itself commits two defaults, one by denying a
person a legitimate credit and the other by being negligent in enforcing tax collection
from the person from whom it has to be collected. TDS certificate in Form 16A is only an
evidence of tax deduction, so that if there is other proof available, tax credit is bound to
be given. Lack of information about date of payment in Form 16A, even where it is
issued, need not lose the right to credit, since such information has to be construed only
as an aid for department to enforce recovery for non-payment, since deposit of tax
deduction is not a pre-condition for credit under the statute. Deductors are obliged to
issue TDS certificates wherever tax has been deducted, whether such tax has been
deposited or not.
Sec. 219 prescribing the manner of determination of advance tax would permit that
credit can be taken for tax deductible at source. Sec. 140A(1A) providing for self-
assessment also enables the assessee to take credit for not only any tax paid by way of
advance tax, but also any tax deducted or collected at source. It is sufficient that if the
assessee establishes tax has been deducted at source, since even Sec. 140A does not
expect the assessee to ensure that the deducted tax had been deposited.
The answer from the Income-tax Department for the complaint as that of the reader in
this regard is an amendment made by the Finance Act, 2002 with effect from June 1,
2002 by insertion of a proviso to Explanation (c)(i) to sub-section (9) of Sec. 139
enabling filing of TDS certificate even two years after the end of assessment year. If the
taxpayer is unable to get the tax deduction certificate till the date of filing the return,
which is almost a year after the default, his prospect of getting it later cannot be much
brighter. In such cases, the Income-tax Department should suo motu take such action
against defaulter as is warranted by law, not only in fairness to the assessee, but also
because of the responsibility placed by the statute on the authorities to collect the tax
from persons, who are obliged to pay under the law. As otherwise, the elaborate
provisions and the powers relating to tax deduction at source makes no sense at all. This
position of law has been pointed out in ACIT v Om Prakash Gattani (2000) 242 ITR 638
(Gauh). Revenue audit which is expected to carry out a systems audit, is also apparently
not geared for pointing out the neglect of this aspect of work causing ultimately
considerable loss of revenue.
The mandate of Sec. 205 barring direct demand is in clearest of the terms, when it
provides "the assessee shall not be called upon to pay the tax himself to the extent to
which tax has been deducted from that income". It follows that, notwithstanding the
present misunderstanding of the law on the part of the authorities, the reader should be
spared liability in the event of default to deposit tax deducted by the tenants even
belatedly. The best the reader could do now is to inform his assessing officer as well as
TDS Cell, preferably the respective Commissioners giving details of the default and
declaring that he will not be responsible for any loss of revenue on account of any lapse
on the part of the authorities to enforce the law. At any rate, the reader will not be liable
for the tax deducted, whether authorities wake up from their slumber and take steps for
recovery from the defaulter or allow the chances of recovery to be lost because of their
indifference to their duties.



Duties of tax deduction can be overlapping
Q: We are a private limited company registered under the Companies Act, 1956 and
licensed by the Insurance Regulatory and Development Authority (Government of India)
under the IRDA (Insurance Brokers) Regulations, 2002. Sec. 19 of this Act stipulates
payment of remuneration to insurance brokers (whether individual or otherwise) by
Insurance Companies for various services rendered by them as defined in Sec. 3 of this
Act.
Now some insurance companies while deducting TDS on our brokerage follow Sec. 194D
of Income-tax Act, 1961 and deduct 20 per cent tax and 2.5 per cent surcharge (total
20.5 per cent) while others relying on Sec. 194H of Income-tax Act, 1961 deduct 5 per
cent tax and 2.5 per cent surcharge (total 5.125 per cent). A copy of circular dated
October 17, 2003 issued by the New India Assurance Company Ltd. to their operating
offices is enclosed. Since our functions as defined in Sec. 3 of IRDS (Insurance Brokers)
Regulation, 2002 are much wider compared to an insurance agent (individual or
companies), it is not correct to equate us with such agents for the purpose of deduction
of TDS. We feel Sec. 194H of the Income-tax Act, 1961 should apply to us and not
194D. Advise.
A: There are many provisions which require tax deduction at source from different
payments. Sec. 194D, which was brought into the statute with effect from April 1, 1973
requires tax deduction from insurance commission for soliciting or procuring insurance
business including business relating to continuance, renewal or revival of policy of
insurance. This provides for tax deduction at rates in force where the payment exceeds
Rs. 50,000. The rate in force is 10 per cent for residents in India other than a company
and 20 per cent for a resident company.