Tax Deduction at Source (TDS) on Commission or Brokerage: Section 194H

Overview:

Section 194H of the Income Tax Act, 1961 pertains to the deduction of TDS on commission or brokerage. Let’s break down the key provisions and relevant case laws associated with this section.

Who Shall Deduct Tax:

• Any person, excluding an individual or Hindu undivided family (HUF).
• Also applicable to an individual or HUF if their total sales, gross receipts, or turnover from the business or profession exceed one crore rupees in the case of business or fifty lakh rupees in the case of a profession during the financial year preceding the year in which such commission or brokerage is credited or paid.

Definition of Commission or Brokerage:

• Includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (excluding professional services) or for services related to the buying or selling of goods or any transaction involving assets, valuable articles, or things (excluding securities).
• Professional services refer to legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, or professions notified by the Board under section 44AA.

Principal-Agent Relationship:

• The relationship of “Principal and Agent” is crucial for invoking Section 194H.
• Not applicable when the relationship is “Principal to Principal.”

Relevant Case Laws:

1. Ahmedabad Stamp Vendors Association Vs. UOI (2002) 257 ITR 202 (GUJ):

   • Stamp vendors’ purchases based on a principal basis are not liable under Section 194H.

2. PCIT Vs Dempo Industries Pvt. Ltd. (2021) 126 ITR 112 (Bombay):

   • Trade discounts given are not considered as commission; hence, Section 194H does not apply.

3. CIT VS Singapore Airlines Ltd (2009) 319 ITR 29 (Del):

   • Collection of fare from travelers established a principal-agent relationship; Section 194H is applicable.

4. Delhi Milk Scheme Vs. ITO (2008) 301 ITR 373 (Del.):

   • Consideration paid by the assessee to vans was considered commission, attracting Section 194H.

5. CIT Vs. Idea Cellular Ltd. (2021) 125 taxman.com 172 (SC):

   • Sim card/recharge coupons sold ultimately to subscribers constitute direct sales, not covered by Section 194H.

6. PCIT Vs Make my trip India (P) Ltd. (2019) 104 taxmann.com 263 (Del):

   • Fees paid by the company to banks are liable under Section 194H.

7. PCIT Vs. Shalimar Chemical Works Ltd. (2018) 257 Taxman 590 (Cal):

   • Payment of target incentives to dealers is liable for TDS under Section 194H.

Rate of TDS:

• TDS shall be deducted at 5%. If PAN is not available, the tax rate shall be 20%.

Relevant Circulars:

1. Circular No. 619, dated 04.12.1991:

   • Clarifies that the retention of commission by the consignee/agent amounts to constructive payment, requiring deduction of TDS.

2. Circular No. 6/2003 dated 03.09.2003:

   • Turnover Commission payable by RBI to authorized banks is exempted from TDS under Section 194H.

3. Notification No. 47/2016/ F. No. 275/53/2012 – IT(B):

   • Specifies payments exempted from TDS, including bank guarantee commission, cash management service charges, and others.

When Tax is Not to be Deducted or Deducted at Lower Rate (Section 197 and Rule 28 & 28AA):

• Application for certificates for deduction at lower rates or no deduction of income-tax.

Conclusion: Section 194H plays a crucial role in regulating TDS on commission or brokerage, ensuring compliance and fair taxation in business transactions involving intermediaries. Understanding the intricacies of this section and staying updated on relevant case laws and circulars is essential for both payers and recipients of such commissions or brokerage.