Business

Changes in TDS provisions

(This is the continuation of the answer to the question on "Changes in TDS provisions" that appeared in these columns on April 15.)

Section 197A authorises resident recipients of interest on securities under Sec. 193, dividend under Sec. 194, other interest under Sec. 194A and dividends from UTI and mutual funds under Sec. 194K to file self-declaration in relevant Form and avoid TDS for persons, whose tax liability is nil. A cap is now placed on such declaration, if the total amounts eligible for such declarations exceeds the minimum amount liable for tax, that is, Rs. 50,000, even if there is no tax payable by the assessee, an unnecessary restriction requiring tax deduction, where no tax may be finally due.

Q: What is the change brought about for tax credit, where taxpayer is unable to get TDS certificate from deductor?

A: Tax deduction certificate even if not available does not bar credit, if such certificates are filed within two years from the end of the assessment year as long as the claim is made in the original return by an amendment to Sec. 139(9), the credit actually being given after filing such certificate by an order under the proposed sub-section 155(14). Sec. 155(14) has a proviso which prescribes the condition that the income relating to the tax has been deducted has been disclosed in the return of income. Presumably, where it is not taxable, the disclosure of such income as being not taxable, should not be a bar for credit.

This new provision also overlooks that even under the present law, there is no bar to the credit, where tax has been deducted at source, even if it is not deposited by the deductor with the Government or having deducted and paid, the deductor does not issue a tax deduction certificate. The entire scheme of TDS would look only to the deductor, where deduction has to be made and certainly also where deposit of tax deducted has actually been made. Sec. 191 specifically provides that direct payment is necessary only where provision for deduction at source is not made. Sec. 199 clearly provides any deduction actually made and paid to the Central Government "shall be treated as a payment of tax on behalf of the person from whose income deduction was made". Sec. 205 further provides that "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 even if the deductee is unable to obtain at the end of two years a tax deduction certificate, but is able to prove tax deduction, the assessee would be entitled to the credit, where it has been deducted. Where it has been paid, the records of the Income-tax Department itself would confirm the deduction so that there is absolutely no case for denial of credit in such cases merely because TDS certificate could not be filed for no fault of the assessee. This new provision, which purports to be fair, would refuse credit for tax deducted and even paid, if the assessee is unable to obtain the certificate even after two years, for no fault of his.

This proposal is inconsistent with other provisions and against the scheme underlying tax deduction at source.

Q: What are the provisions relating to Settlement Commission in the Finance Bill, 2002?

A: The Bill provides for a time limit of one year for admission and four years for disposal of an application for settlement before the Settlement Commission. In absence of any provision for deeming admission or settlement as filed, when they are not dealt with within the time limit, the time limit can only be treated as directory and not mandatory. A shorter time limit would have been advisable.

(To be continued)

S. Rajaratnam

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