TDS on Audit fee

Hi Pardeep Ji,

No issue at all here! You need to go through Section 199 of the I TAct.It's been held in numerous Tribunal cases that credit for TDS is tobe given in the year in which the assessee (the recipient of income)offers the income for taxation. Chartered accountants follow cashsystem of accounting. Their auditee companies on the other handfollow the mercantile system of accounting, which requires that theyprovide for accrued expenses on 31st March. Now the year mentionedon the TDS certificate, in case of TDS made on 31.03.2009, would beA Y 2009-10. But the payee would be accounting for that income onlyin the financial year 2009-10, the relevant A Y for which is 2010-11. So in the event, would he have any problem in claiming such TDSin his computation of income? No.But the FA 2008 has amended Section 199 to insert the following sub-section:[(3) The Board may, for the purposes of giving credit in respect oftax deducted or tax paid in terms of the provisions of this Chapter,make such rules as may be necessary, including the rules for thepurposes of giving credit to a person other than those referred toin sub-section (1) and sub-section (2) and also the assessment yearfor which such credit may be given]The power to make rules for the purposes of giving or denying creditfor TDS has been vested in the CBDT. I am not aware of any rulesbeing brought onto the statute book that have disturbed the statusquo. I think we shall still continue to be entitled to claim creditfor TDS in the year in which we offer the income for taxation. If Ifollow cash system of accounting, I shall claim, and be allowed bythe AO, the TDS deducted by my clients on 31st March 2009, in myreturn of income for the A Y 2010-11. TDS works on the matchingconcept: you get to claim an amount of TDS only in the year in whichyou submit for taxation the income upon which tax has been deductedat source.In Pradeep Kumar Dhir v. Asstt. CIT [2007] 107 ITD 118 (Chd.) (TM),the assessee, a commission agent received commission from variousprincipals and TDS was made by the payers on accrual basis as soonas they booked the commission expense. The commission agent since hefollowed cash system of accounting accounted for the income onlyafter he'd actually received it. The Tribunal held that the TDSclaim was admissible as and when the assessee offered for assessmentthe income subjected to TDS.The decision of the Mumbai Bench in the case of Toyo Engg. IndiaLtd. v. Joint CIT [2006] 5 SOT 616 (Mum.) is also an instructiveone. In this case also, it became difficult to establish a nexusbetween income and TDS, the assessee being engaged in providingtechnical services and recognizing his income only on the completionof a project. The Tribunal laid down the following rules:[The income or loss is the cumulative result of the working carriedon by the assessee and measured for each assessment year. Therecould be no immediate or direct nexus between the income chargeableto tax and the tax deducted out of the payments made.Tax deduction is basically a machinery provision for collecting taxon the potential income of the assessee. But there is no conclusivepresumption that tax is invariably deducted out of income. That iswhy the expression is `tax deducted at source' instead of `taxdeducted from income'It is not possible to correlate the amount of TDS with a specificamount of income earned by the assessee in a particular assessmentyear. When section 199 says that credit shall be given for the TDSon the production of TDS certificate for the assessment year forwhich such income is assessable, it is implied that the nexusbetween the TDS and the income would remain rather notional orconceptual only]Based on the above discussion, I think we should have any problem inclaiming TDS deducted by a company on 31st March 2009 even if weaccount for that income in the A Y 2010-11.Thanks,CA Sanjeev Bedi--- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=zD1uXsMdXKf_Nx1yyDnOihMzeSubeBb7NIE3D0-IdMyFJNXWT43cb--8aE2d2RpP-yOsT0Np_0z9G26DHucoFGidND2d05T4TIQ, pardeep gupta wrote:>> Dear Sanjeev Ji> I have joined the group very recently, and i have gone through urreply on various queries which are extremely helpful and logical.After reading ur views I m really a big fan of urs. I will be highlyobliged if u please help me in clarifying a issue related to TDS onAudit fee.> > As u know in every balancesheet a provision for audit fee is beingcreated on say as on 31st March of previous year. while we (CA) areissuing the fee bill in the year we conduct our audit and chargeservice tax (if applicable). Now if the company deducts TDS onprovision of audit fee (as is required by Sec. 194 J), how can we(CA) can claim benefit of that Tax deducted by the compnay duringprevious year while we would be able to show the same only duringnext financial year when we actually conduct the audit and raisedfee bill. now if the company does not deduct tax on provision madein books , we are liable to qualify our report. and if the companydeducts tax we are not able to claim the benefit of TDS.> Could u please suggest the remedy for this practical situation,since i think most of our member will be facing the same problem.> > CA Pradeep Gupta> Haridwar> 9897238017>