Rate of TDS

[dugarsanjay]

Dear all

A TDS survey was conducted in a company. The company was deducting TDS @ 2%+s/c etc on certain kinds of payments. The AO was of the view that TDS should be deducted @ 5% + s/c etc and issued notice to the company. The company accepted the contention of the AO and started deducting TDS @ 5% + s/c etc.

Few years later, the decision of the HC, similar payments made by the company of same industry came, which says that the TDS on such payment should be 20% + s/c etc.

Now the department is again disallowing the expenses u/s 40(a) taking its stand on the HC order.

can my client take the stand that it was the view of IT Dept only that the TDS to deducted 5%+ and hence my client has not defaulted.

[sivaiah G]

if TDS is deducted, in my opinion, expenses cannot be disallowed. proportinate disallowance is not envisaged in sec 40a(ia). for earlier years it can be argued that the tax liability is already discharged by the deductee. For currrent year the deductee can be convinced and tax can be deducted at the rate of 20% as has been held by the High Court. Any demand u/s 201 raised for current year  cannot be avoided. There is no ground to argue against the said demand. For other earlier years, proportinate disallowance cannot be made u/s 40(ia). Demands u/s 201(1) cannot be raised for ealier years as the deductees must have already discharged their liabiity.