Taxpublishers.in - Monday Corner Answer to the Quiz for the week (20 Jan 2025)

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Quiz for the week (20 Jan 2025): Adarsh Traders owned by Sunil is engaged in job work activities and the annual gross receipts never exceeded Rs.10 crores. Adarsh Traders obtained contract receipts from Bimal & Co (firm) exceeding Rs.50 lakhs during the financial year 2023-24. Sunil has PAN number but did not furnish the same to Bimal & Co. Also, Sunil has not furnished ITR from the assessment year 2021-22 onwards. TDS credit of Sunil always exceeded Rs.1 lakh per annum. Discuss the consequences from both the payer and payee’s perspective. Best Answer : The facts of the case show that Sunil proprietor of Adarsh Traders is engaged in executing contractors to Bimal & Co a partnership firm. The aggregate contract receipts for the financial year 2023-24 has exceeded Rs.50 lakhs from Bimal & Co to Sunil. It is also given in the quiz that the aggregate turnover or gross receipt of Sunil never exceeded Rs.10 crores. Therefore, firstly it can be concluded that there is no tax collection obligation with Sunil. As regards Bimal & Co a partnership firm being the party making contract payments to Sunil, proprietor Adarsh Traders, provisions of section 206AA and section 206AB have to be looked into. As per section 206AA any person entitled to receive any sum on which tax is deductible at source under Chapter XVII-B of the Income-tax Act shall furnish his PAN to the person responsible for deducting tax at source. In the event of the payee failing to provide the PAN, the payer shall deduct at higher of the following rates namely:- (i) at the rates specified in the relevant provision of the Act; or (ii) at the rates in force; or (iii) at the rate of 20%. The proviso to section 206AA(1) says that in respect of TDS under section 194-O it shall be taken as 5% instead of 20%. Similarly, further proviso to section 206AA(1) says that in respect of TDS under section 194Q it shall be taken as 5% instead of 20%. Section 206AB deals with special provision for deduction of tax at source for non-filers. Though the section in its title uses the term 'non-filers' it contains only the meaning of the term "specified person". The section says that where any tax is required to be deducted under Chapter XVII-B (other than sections 192, 192A, 194B, 194BA, 194BB, 194-IA, 194-IB, 194LBC, 194M or 194N) on any sum or income or amount paid, or payable or credited by a person to a specified person, the tax shall be deducted at the higher of the following rates namely:- (i) at twice the rate specified in the relevant provision of the Act; or (ii) at twice the rate or rates in force; or (iii) at the rate of 5%. Section 206AB(3) says “specified person” means a person who has not furnished the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be deducted, for which the time limit for furnishing the return of income under section 139(1) has expired and the aggregate of TDS/TCS in his case is Rs.50,000 or more in the said previous year. Adverting to the facts of the case, the TDS credit of Sunil always exceeded Rs.1 lakh and therefore, the provisions of section 206AB would be attracted since he has not filed the return of income for the preceding previous years. Also, it is stated in the quiz that he has not furnished his PAN to deductor Bimal & Co. Since Bimal & Co does not have the PAN of Sunil it cannot say with certainty whether he is a non-filer or not. Hence, Bimal & Co cannot apply section 206AB of the Act. Section 206AA is attracted in this case, Bimal & Co has to deduct tax at source @20% being the highest rate of tax given therein.

Quiz for the week (20 Jan 2025):

Adarsh Traders owned by Sunil is engaged in job work activities and the annual gross receipts never exceeded Rs.10 crores. Adarsh Traders obtained contract receipts from Bimal & Co (firm) exceeding Rs.50 lakhs during the financial year 2023-24. Sunil has PAN number but did not furnish the same to Bimal & Co. Also, Sunil has not furnished ITR from the assessment year 2021-22 onwards. TDS credit of Sunil always exceeded Rs.1 lakh per annum. Discuss the consequences from both the payer and payee’s perspective.

Best Answer :

The facts of the case show that Sunil proprietor of Adarsh Traders is engaged in executing contractors to Bimal & Co a partnership firm. The aggregate contract receipts for the financial year 2023-24 has exceeded Rs.50 lakhs from Bimal & Co to Sunil. It is also given in the quiz that the aggregate turnover or gross receipt of Sunil never exceeded Rs.10 crores. Therefore, firstly it can be concluded that there is no tax collection obligation with Sunil.

As regards Bimal & Co a partnership firm being the party making contract payments to Sunil, proprietor Adarsh Traders, provisions of section 206AA and section 206AB have to be looked into.

As per section 206AA any person entitled to receive any sum on which tax is deductible at source under Chapter XVII-B of the Income-tax Act shall furnish his PAN to the person responsible for deducting tax at source. In the event of the payee failing to provide the PAN, the payer shall deduct at higher of the following rates namely:-

(i) at the rates specified in the relevant provision of the Act; or

(ii) at the rates in force; or

(iii) at the rate of 20%.

The proviso to section 206AA(1) says that in respect of TDS under section 194-O it shall be taken as 5% instead of 20%. Similarly, further proviso to section 206AA(1) says that in respect of TDS under section 194Q it shall be taken as 5% instead of 20%.

Section 206AB deals with special provision for deduction of tax at source for non-filers. Though the section in its title uses the term 'non-filers' it contains only the meaning of the term "specified person". The section says that where any tax is required to be deducted under Chapter XVII-B (other than sections 192, 192A, 194B, 194BA, 194BB, 194-IA, 194-IB, 194LBC, 194M or 194N) on any sum or income or amount paid, or payable or credited by a person to a specified person, the tax shall be deducted at the higher of the following rates namely:-

(i) at twice the rate specified in the relevant provision of the Act; or

(ii) at twice the rate or rates in force; or

(iii) at the rate of 5%.

Section 206AB(3) says “specified person” means a person who has not furnished the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be deducted, for which the time limit for furnishing the return of income under section 139(1) has expired and the aggregate of TDS/TCS in his case is Rs.50,000 or more in the said previous year.

Adverting to the facts of the case, the TDS credit of Sunil always exceeded Rs.1 lakh and therefore, the provisions of section 206AB would be attracted since he has not filed the return of income for the preceding previous years. Also, it is stated in the quiz that he has not furnished his PAN to deductor Bimal & Co.

Since Bimal & Co does not have the PAN of Sunil it cannot say with certainty whether he is a non-filer or not. Hence, Bimal & Co cannot apply section 206AB of the Act.

Section 206AA is attracted in this case, Bimal & Co has to deduct tax at source @20% being the highest rate of tax given therein.