TDS on commission payment to wholetime directors

[P.D.RUNGTA]

---------- Forwarded message ----------
From: sunil jain <suni...@hotmail.com>
Date: Tue, Nov 30, 2010 at 6:25 PM
Subject: RE: [PDRUNGTA] RE: rate of TDS on director's remuneration of a foreigner
To: forumforCA <foru...@googlegroups.com>

I had faced one peculiar problem regarding deduction of TDS on commission payment to wholetime directors as under.
1) The commssion is calculated as a percentage of net profit of the company and therfore can quantified only at the time of finalisation of accounts.
2) The journal for the provision of commission is to be passed on 31t March
3) As per the provision of Sec 192 of the IT ACT, TDS on salary has to be paid with in 7 days from the date of payment or provision whichever is earlier.
Now, since the computation could be done only at the time of finalisation of accounts i.e some time in july wheras the liability for payment dues is on 7th April.
Now, the company has received a notice for payment of interest as well as notice for penalty for delay payment of TDS.
cAN ANY BODY FROM THIS AUGUST HOUSE ENLIGHTEN ME THE RECOURSE TO THIS PREBLEM WHICH WOULD BE IN GENERAL FOR ALL WHO SOEVER ARE PAYING SALARY IN LIEU OF COMMISSION AS A PERCENTAGE OF PROFIT
 
REGARDS
SUNIL KUMAR JAIN, FCA
6 COMMERCIAL BUILDINGS,
23A N. S. ROAD
KOLKATA -700001
9831036310
 
Best Regards,
Pramod Dayal Rungta
M.Com.,LL.B.,AICWA.,DISA(ICAI).,FCA
Member EIRC ICAI (2010-12)

P.D.Rungta & Co.
Chartered Accountants

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[K Krishnamoorthy]

Dear Mr.  Jain,

 

This situation could have been avoided if in  the income-tax return filed by the Company for a particular financial year,  say March 31, 2010, the commission payable (which was debited to P/L Account and credited to liability account in the statutory accounts as per Companies Act) was added to the Profit arrived.   In other words, the profit declared in the Income-tax return will be higher to the extent of commission so payable and tax liability of the Company calculated accordingly.       In this situation, deduct the TDS as and when you pay the same to the directors, once the accounts are approved by the Board and deposit the TDS within the due date thereby not inviting any penalty for delayed payment of TDS.  Here, assumption is that commission is accounted for on “cash basis” (as far as income tax return is concerned) and TDS is deducted/paid accordingly.

 

The position is different if monthly salary is paid in lieu of commission wherein within 7 days of the date of payment, TDS has to be deposited.

 

Regards,

 

K. Krishnamoorthy,

Bangalore

9980744334

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[Kalidas Ramaswami]

In my view the Departmental stand on this is not tenable.there is a case which i cannot get hold of right now which says that as the commission is  payable only when the Accounts of the company are approved by the share holders whish is subsequent to the close of the year the income is assessable in the director"s hands only in the next financial year.pl give me 2 days by which time i will hunt out the judgement. 

regards
kalidas 

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Date: Wed, 1 Dec 2010 16:10:37 +0530
Subject: [PDRUNGTA] TDS on commission payment to wholetime directors
From: pdru...@gmail.com
To: foru...@googlegroups.com

[surendrajoshi]

As per provisions of sec.192 , deduction of TAS shall be made only at the time of payment and not at the time of provisions for salary. Hence there should be not issue if the commission to WOD is paid as part and parcel of the salary. Anyway the commission to WOD is to be computed as income from salary only.

[Bikash Bogi]

Dear Sunil Ji

 

Rule 30 of the IT Rules states the time limit for deposit of TDS. For better understanding of the said rule, we would like to highlight the circumstances in which the Rule 30 had come into force. On the last date of the Accounting Year i.e. on 31^st  March, it is not certain to the assessee regarding the quantum of the liability. As the quantum is not known, then in which amount TDS would be deducted is a very big question prevailing in every assessee’s mind. To overcome this difficulty, Rule 30 makes a way out regarding the uncertain liability as on 31^st March. A time limit of 2 month had been provided to the assessee to crystallize the liability and accordingly deduct the TDS on the same and deposit till 31^st May. In this background we can presume that only for unknown liabilities existed on 31^st March, liberal time limit has been provided.  For the liability which is known on 31^st March, TDS may be deposited within one week from the end of the month.

 

This intention of the legislature is also shown in case of TDS on salary u/s 192. There is no relaxation regarding the payment of TDS u/s 192 as given in other provisions . Relevant portion of the section is reproduced herein below:

 

“ Rule 30 (1A) All sums paid under sub-section (1A) of section 192 shall be paid to the credit of the Central Government—

                        (a)        in the case of payment on behalf of the Government, on the same day;

     (b)        in all other cases, within one week from the last day of each month on which the income-tax is due under sub-section (1B) of section 192.”

Now two important things coming from above discussion. First is that Section 192 Talks about payment only and not the credit. Second is that payment of commission is not certain on 31st March.

Thanks & Regards

 

CA Bikash Bogi (Partner)  SBR & CO. CHARTERED ACCOUNTANTS

Lokhandwala Complex, Mumbai (India) ,+91-9930934403, Email:  sbr...@gmail.com

 

Visit on my Blog :  http://bikashbogi.blogspot.com/  Linkedin   :  http://in.linkedin.com/pub/bikash-bogi/24/b7a/ba2

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[vineet.agrca08]

Dear Sir,

Referring to your below mail, we also facing the similar problem, where we had booked the commission to non- executive  directors on 31st March 2016 and the same is approved by shareholders in the AGM held in the month of July 2016. We had paid the commission in the month of June 2016 deducting TDS u.\/s 194 J 1(ba). But now during tax audit auditor is asking to mention under clause 21 b(ii) of 3CD as tds require to be deducted but not deducted. Moreover, auditors are also asking to compute interest on tds amount u/s 201 (1A) till the due date of filling TDS return.

1. My query is unless and until AGM approved the directors' commission how can we deduct tds on commission. The liability was not crystal clear on 31st March. Can we deduct tds on commission on cash basis.

2. Under which section commission to a director would be disallowed in the AY 2016-17 (relating to FY 2015-16) as it was not a clear liabilty/ expense in FY 2015-16, if not u/s 40a(ia).

Sir, you had quoted that you will cite some case law on this, it would be helpful for me if you could give me now.

Thanks,

Vineet Agarwal

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