The Hindu Business Line : TDS at a BPO into medical billing

I represent a BPO company, which does data conversion, e-publication and medical billing services. We are a 100 per cent Export Oriented Unit (EOU). All our clients are foreign enterprises with whom we enter into service agreements.

In most cases we perform the work using our available facilities. But, at times, we get a part of our work done by vendors providing similar services though nothing is mentioned in our main service agreements with foreign enterprises as to such arrangements.

As foreign enterprises are exempt from the provisions of deducting TDS on contract payments to us, we receive our full contractual payments. But with respect to the work outsourced by us to residential vendors, we are deducting TDS at contractor rates on payments made to them. Some of us are of the opinion that subcontract TDS rates will be applicable instead of contract TDS rates for vendor payments.

Some others feel that there is no liability for TDS deduction for vendors as the foreign enterprises under the primary agreement are exempt. What is the correct view? If there is liability for TDS deduction, then will the deduction be at contractor or subcontractor rates.

Lakshmi Mannni, email

To me it appears, you are the contractor having been awarded a BPO contract. Therefore, any subsequent assigning of the job to some other person would become a sub-contract.

Accordingly, you will have to deduct tax at source from payment made to them at 1 per cent plus surcharge and educational cess — the rate applicable to sub-contractors as prescribed in Section 194C.

Big-ticket lease

What is big-ticket lease?

Shyam Sunder Gupta, Ludhiana

It is not really a form of leasing like operating and financial lease. It is a picturesque description of a leasing transaction on a gargantuan scale.

For example, if Air-India takes, say, one hundred planes on lease from Boeing, the media would describe it as a big-ticket lease merely to drive home the huge size of the transaction. But it can assume the form of either operating lease or financial lease depending on the features of the lease agreement.

Corporate dividend tax

I have a query regarding corporate dividend tax. We are a software development limited company. Our shares are not listed in any stock exchange. Punjab Venture Capital Ltd, an arm of the Punjab Government, has invested Rs 75 lakh in our company. We have allotted 7,500 preference shares of Rs 1,000 each to it.

We have paid PVCL preference Dividend. My question is whether we have to pay corporate dividend tax. PVCL is a government enterprises.

Amit Gupta, email

Yes, distribution tax is as much payable on distribution of dividend to preference shareholders as it is on distribution to equity shareholders, except in situations contemplated by Section 2(22) which are not treated as dividend. Dividend to preference shareholders is clearly covered by clause (a) of Section 2(22) and is, therefore, liable to distribution tax. Of course, such distribution must have been made out of accumulated profits. Else, it is not liable to distribution tax.

Sector-specific funds

Doesn't a sector-specific fund go against the very grain of mutual fund?

Mohamed Yakoob, Mumbai

Yes if one concedes that the raison d'etre of mutual funds is spreading of risks across sectors and companies. It may be contended that in a sector-specific fund, risks are spread across companies albeit in the same sector but the truth is in a given sector there are a few shining jewels on which attention of investors is invariably riveted.

A sector-specific fund would thus be joining the rat race and fuelling the boom in that sector. Investors in such funds no doubt are exposed to greater risks vis-à-vis investors in vanilla schemes. But the market regulator has permitted such schemes and there are takers for them.

(ASK! Send in your querieson accounting, auditing, corporate law and taxation to ask@thehindu.co.in.)

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S. Murlidharan

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