Tag: #TDS

Kerala High Court on 6 August 2021, held that priests and nuns who work as teachers for educational institutions are liable to pay TDS (Tax Deduction at Source). This judgment was made scratching about 50 writ appeals.

The history of this issue can be dated back to 1944 when it was observed that all the priests and nuns are exempted from paying the TDS even if they work for government-aided institutions keeping in mind their poverty but this was changed in 2014. In 2014, it was ordered that the priests and nuns have to pay the TDS if they wish to work outside their religious congregations after which several appeals were filed in the Honorable High Court of Kerala where these appeals were dismissed by the Single Judge Bench and the appellants further went to the Honorable High Court of Kerala Division Judge Bench. The judges of the division bench were Justice SV Bhatti and Justice Bechu Kurian Thomas.

The Court held that the appeals only about the employees of the government and whose TDS is deducted are maintainable and not the ones where nuns and priests worked in their congregations and hence maximum pleas were scratched. It violates section 129 of the Income Tax Act if the TDS is not deducted from the employees of the educational institution irrespective of whether the salary is donated or utilized for personal use. The concept of civil death is not known and irrelevant to the Income Tax Act when argued that the priests and nuns live a life of poverty and in the end lead to civil death. The right to practice and profess any religion guaranteed under Article 25 of the Indian Constitution does not provide any immunity from taxation as it is subject to a legitimate law of the land.

Thus, the court once again proved that although the Fundamental Rights are guaranteed to everyone they are subject to reasonable restrictions by the state because of the public. Hence, the TDS system is non-violative of Article 25 of the Indian Constitution.

-Report by PREYANSI ANAND DESAI

The Supreme Court in one of its judgments held that the payments made by resident Indian end-users or distributors on import of ‘shrink-wrapped’ software cannot be considered as a royalty payment, leading to no withholding of tax obligations in India against such payments.

At several levels of judicial appeals, it has been held that the payments made for the import of shrink-wrapped software overseas can be assessable to tax as Royalty under the provisions of the I-T Act. Since the Indian distributors failed to meet the TDS obligations, they were held as ‘assessees at the default’ and were faced with certain heavy tax penalties. With the advent of this judgment, they can now file for refunds as well.

For 20 years, including the incessant appeals in February, the apex court heard nearly 80 appeals before it on the issue of ‘Royalty’ payment. Which included several big-shot corporations like Samsung Electronics, IBM India, Sonata Information Technology, etc. the contention raised by these corporations was that the use given to the Indian companies was limited to making a backup copy or of its redistribution. They were not granted the exclusive right to modify the shrink-wrapped software. In one of the judgments by an HC, the payment made to the overseas supplier could not be categorized as business income by overseas entities and hence there was not any tax withholding obligation. The Supreme Court, in this case, set aside the High Court judgment and held the otherwise. 

With this judgment, long-standing litigation on this particular issue was finally put to rest, and relief to Indian companies was provided who was pursued by the I-T department for the alleged withholding of income tax. The apex court also held that the appeals made before it could be categorized in a bunch of 4 sets of appeals. 

1. The first category involves the case where computer software is purchased directly by an end-user, a resident of India from a foreign, non-resident supplier or manufacturer.
2. The second category deals with cases where resident Indian companies act as distributors or resellers by purchasing software from foreign, non-resident suppliers or manufacturers and then reselling the same to resident Indian end-users.
3. The third category comprises cases where the distributor is a foreigner who, after buying the software from a foreigner resells the same to the Indian resident distributors or end-users. 
4. And the last category includes cases where the computer software is affixed onto the hardware and is sold as an integrated unit/equipment.

The case was adjudged by a 3-judge bench comprising of Justice R F Nariman, Justice Hemant Gupta, and Justice B.R. Gavai 

Reported By- TANUJ SHARMA