The Hindu Business Line : Rebate on child's tuition fee yo-yoing between parents

MY WIFE paid my son's tuition fee the last year. She had, therefore, claimed the rebate under Section 88 in respect of the tuition fee paid for my son's education. In the current year will it be possible for me to claim the rebate?

P. Padmanabhan

Reply

You can claim the rebate provided you are the person paying the tuition fee of your son. The person paying for the education of children will be eligible to get the rebate.

Under Section 88, tuition fees (excluding development fees, donations or other payments of similar nature) paid for fulltime education of any two children of an individual will qualify for rebate. This payment of tuition fee should be to a university, college, school or other educational institutions situated within India.

The amount that will qualify for rebate should not exceed Rs 12,000 per child subject to a maximum of two children. Further, the section requires that the purpose of the payment of fee should be towards fulltime education.

Query

Our company frequently purchases raw materials and other goods from suppliers on free on rail (FOR) basis. The parties who supply the material send the goods by lorry and the lorry receipt (LR) is made on "freight to pay basis".

Our company, therefore, pays the freight to the lorry drivers and debits the suppliers' account as if it were a payment made to the supplier in advance towards supply of material.

The lorry freight, as such, is not debited to our accounts. We wish to know whether we are required to deduct tax at source on payments made towards freight and also whether Section 40A(3) will be attracted when we pay freight exceeding Rs 20,000 in cash?

R. Balakrishnan

Reply

Under Section 194C, tax is to be deducted at source on payments towards a works contract where the payment to the contractor exceeds Rs 20,000 or where it exceeds Rs 50,000 per annum. Tax is required to be deducted under this section by the person responsible for paying the contractor. The Board has, through Circular No. 715 dated August 8, 1995, clarified that tax is required to be deducted even when the goods are received on "freight to pay" basis.

In the instant case, your company will be responsible for paying the freight to the contractor and, therefore, would be required to deduct tax at source under Section 194C. Tax is to be deducted under this section to a contractor other than an advertising contractor at 2 per cent (as increased by the appropriate surcharge and additional surcharge).

With regard to the applicability of Section 40A(3) it is felt that the same will be attracted in your case. In your case, what is in effect being done is a payment towards supply of materials which under instructions and based on the understanding with your supplier is being made to the transporter.

Therefore, the expenditures by way of freight, though not accounted in your books, and by way of purchases for which you are actually making the payment by settling the transporter are booked as expenditure in your accounts.

That being the case, it would be possible for the disallowance under Section 40A(3) to be attracted on the expenditure incurred by you, which is essentially towards purchases.

You may note that the Supreme Court, in Attar Singh Gurmukh Singh vs ITO (1991 191 ITR 667), has held that even purchase of stock-in-trade by payment otherwise than through a crossed cheque or draft can attract disallowance under Section 40A(3).

The Section provides for a disallowance of 20 per cent of an expenditure if the payment made is a sum exceeding Rs 20,000, otherwise than through a crossed cheque or draft, except in cases where they fall under the exceptions in Rule 6DD.

Query

I worked for a software company during the previous year (PY) 2002-03. Prior to this year, I have been filing my return regularly. For the PY 2002-03 — that is, assessment year (AY) 2003-04. I was unable to file a return since my employer did not issue me Form 16. I have since changed my employment and my new employer has given me a TDS certificate for the PY 2003-04 (AY 2004-05).

I am now going to file a return for this year, that is, AY 2004-05. I wish to fill the gap in not filing the return for the AY 2003-04. It would not be possible for me to obtain a TDS certificate in Form 16 from my employer for that year. What is the recourse available to me?

Srinivasa Reddy

Reply

The problem that you face is a procedural one and it would be difficulty to find any one solution to your problem. The Income-Tax (I-T) Department is very likely to refuse your return for the AY 2003-04 on the pretext that Form 16 has not been enclosed with the return. The only solution would be for you to approach the Departmental authorities in person and explain the situation to them. It is believed that they would, in all fairness, accept your return without the TDS certificate.

You may note that by virtue of Section 205 of the Act, if tax has been deducted at source from a payment made to you, the sum so deducted cannot be recovered from you.

The onus of proving that tax has been deducted would, however, be on you. You may also note that if there is a refund that is due, the same is unlikely to be granted unless you produce the TDS certificate.

It may also be noted that it is mandatory for the employer to issue a TDS certificate if tax has been deducted at source and a failure to do so may entail penal consequences.

Query

I propose to purchase agricultural land. For this purpose I propose to take a loan from the bank. Will repayment of the loan or payment of interest of the said loan qualify for any tax benefits?

Hari Krishna Reddy

Reply

Neither the repayment nor the interest will qualify for any tax benefit. You may note that agricultural income is exempt from income-tax and also that no expenditure can be claimed against exempt income.

*********

Flash: In CIT vs G. V. Venugopal (ITA No.983 of 2004), the Madras High Court, in its order dated December 6, 2004, held that in the case of employees who have opted for VRS, the excess over the exempt portion of the VRS compensation under Section 10(10C) will be eligible for relief under Section 89(1).

Woes of a tax deductor

I AM required to deduct tax at source on commission, professional fees, and so on. I understand that it is mandatory to mention the Permanent Account Number (PAN) of the deductee in the TDS certificate issued by us.

I also understand that while filing the e-TDS returns, one of the columns requires the PAN of the deductee. There are many situations where the deductee has not made available his PAN, probably because he has not obtained the same. What is recourse available to me?

Ganapayy

Reply

You are right that the deductee's PAN must be quoted in the TDS certificate issued by you to the deductee. You are also right that PAN needs to be quoted in the e-TDS return.

Where the payee has not made available the PAN to you for any reason, you cannot be faulted for not quoting the same either in the TDS certificate or in the e-TDS return.

It is possible that the e-intermediary will inform you that the PAN of the payee is not quoted in the e-TDS return. You will only have to explain to the e-intermediary that the same has not been quoted since the payee had not furnished it.

(Mail your queries to taxtalk@thehindu.co.in or by post to Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.)

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