U/S 24(b) & U/S 80C

Query 1]

1. Please refer to the Tax Talk dated 30.05.2011 wherein it is mentioned in reply to the first part of Query No. 1 that ”Ownership is a condition precedent for claiming deduction towards Interest on housing loan u/s 24(b) & towards Principal repayment u/s 80C of the Income Tax Act -1961. Without ownership, deduction claim shall not be admissible.”
2. I am a DDO of PSU. The sale deed of the land is in the name of the wife of our employee. However, the employee (along with wife) has taken housing loan from the bank and repaying the same, and wants to claim deduction u/s 24 and 80C for self occupied property.
3. On the basis of your opinion in Tax Talk dated 30.05.2011 & Opinion of Shri A.N. Shanbhag in Hitavada Dated 23.05.2011, we have refused claim for deduction u/s 24(b) & U/s 80C in respect of one of the employee as the land was in the name of wife and the Husband (employee) name was there only in the loan documents/certificate. It is submitte by the employee that he is the owner of the structure (house) on the land and as such the building (house) and so also loan belong to the husband only. He want us to allow the deduction u/s 80C & U/s 24(b) relying on the 2 ITR 209, 120 ITR 476.
4. You are requested to give your opinion in view of above for making TDS from salary income.
5. Further, we want to know whether the deduction u/s 80E is admissible on the interest on the education loan taken by an employee from employees co-operative society for higher education of his wards. In other words, whether employee co-op society is a financial institution with reference to section 80E?

[dubaldhaniya@gmail.com]

Opinion:

1. At the cost of repetition, it may be reiterate that

   “Ownership is a condition precedent for claiming deduction towards Interest on housing loan u/s 24(b) & towards Principal repayment u/s 80C of the Income Tax Act -1961”

2. Income Tax Law recognizes the concept of dual ownership in respect of immovable property i.e., the ownership of plot/ Land by one person and building by another. However, proper documentations / records are to be kept to prove the separate ownership of the assets.
3. It may be very relevant to mention here the relevant part of the Circular No. 05/2011 [F.NO. 275/192/2011-IT(B)], Dated 16-8-2011 issued for deduction of Tax at Source u/s 192 from Salary Income which reads as under:
   “DDOs to satisfy themselves of the genuineness of claim:
   The Drawing and Disbursing Officers should satisfy themselves about the actual deposits/ subscriptions / payments made by the employees, by calling for such particulars/ information as they deem necessary before allowing the aforesaid deductions. In case the DDO is not satisfied about the genuineness of the employee’s claim regarding any deposit/subscription/payment made by the employee, he should not allow the same, and the employee would be free to claim the deduction/ rebate on such amount by filing his return of income and furnishing the necessary proof etc., therewith, to the satisfaction of the Assessing Officer.”
4. Deduction admissible u/s 80E towards interest payment of education loan is available only if the loan is take from any financial institutions. Financial institution, for the purpose, means a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf. HDFC Ltd & Credila Financial services private limited are notified financial institution for the purpose of section 80E. In short, no deduction u/s 80E shall be available in respect of loan taken by an employee from employees co-operative society.

 

Query 2]

Please provide more clarification on TDS applicability on services provided by Customs House Agent (whether section 194C or 194H) and the amount on which TDS is applicable. Usually CHA gives

1. Service charge invoice (with service tax) as applicable &
2. Reimbursement of various expenses like container charges, transport charges, ICD charges and various other charges. [******goyenka@gmail.com]

Opinion:

1. Normally, Custom House Agents (CHA) or Clearing & Forwarding (C&F) Agents operate on a contractual basis and so the tax is deductible u/s 194C of the Income Tax Act-1961.
2. Section 194C (1) provides that any person responsible for paying any sum to any resident contractor, for carrying out any work in pursuance of a contract, shall deduct tax at source at a specifie percentage.
3. Custom House Agents (CHA) or Clearing & Forwarding (C&F) Agents make payments on behalf of the importers and exporters towards statutory levies, for example, port dues, customs duties, etc., and other reimbursable expenses like Container charges, ICD Charges, stamp charges, and processing other statutory charges. The important question arises about the amount on which tax is to be deducte? There is a great confusion which leads to a dispute between the tax authorities and the tax payers as to whether tax is to be deducted on reimbursement of actual expenses incurred by the CHA and C&F.

4. Arguments for deduction of tax at source on the entire amount:

   a] Clarification by Circular No. 715, dt. 8-8-1995:
   

   Circular No. 715, dt. 8-8-1995 has clarified that sections 194C and 194-J refer to any sum paid. So, reimbursements cannot be deducte out of the bill amount for the purpose of tax deduction at source.

   b] Supreme Court decision in the case of Associated Cement Co. Ltd. v. CIT (1993) 201 ITR 435:

   The Department often relies on the Supreme Court decision in the case of Associated Cement Co. Ltd. v. CIT (1993) 201 ITR 435 (SC) wherein in was hold that section 194C does not permit exclusion of amount of reimbursement of actual expenditure incure by the payee for getting the work complete.

5. Arguments for non-deduction of tax at source on the Reimbursement of Expenses:

   a] Sub-section (2) of section (4) reads as under:
   

   “(2) In respect of income chargeable under sub-section (1), income-tax shall be deduct at the source or pay in advance, where it is so deductible or payable under any provision of the Act.”
   One can interpret that if the income is not chargeable to tax in the recipient’s hands under section 4(1), then, the provision for deduction of tax at source under sub-section (2) of section 4 will not be applicable.

   b] Supreme Court decision in the case of Transmission Corporation of AP Ltd. v. CIT (1999) 239 ITR 587:

   It was hold that since, the deduction of tax. At source must be in relation to an income or trading receipt only. The actual cost reimbursements and other statutory charges do not come within the purview of section 194C.

   c] The Central Excise Department, in their Trade Notice No. 5 of 1997, Dt. 12-6-1997

   also clarifies that the payment towards statutory levies and various other reimbursable expenses incure by Custom House Agent on behalf of the client, are not to be include for computing the service tax.

   d] In case of Rajiv Cumber v. Bharat Sanchar Nigam Ltd. (2002) 128 STC 494 (SC):
   

   It was held that the contract had to examine the facts for making deductions from the total bills submit by the contractor. Therefore, the contractor cannot make deduction mechanically.

6. We are of a consider opinion that if a consolidate bill is raise for charges as well as of expenses. Then the entire amount should be subject to TDS. However, if a separate bill is given for charges and expense. Then the reimbursement of expenditure should not be subject to deduction of tax at source.

U/S 24(b) & U/S 80C

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