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Question ID : 880
is tds applicable on demurrage charges

is tds applicable on demurrage charges '
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posted by Priya Bachani on Nov 09, 2005

filed under DIRECT TAXES

Answer ID : 1227
Member's Comment
It seems you are treating demurrage as godown rent? Demurrage is defined as charge for undue delay in clearance of goods at a place or destination.Demurrage is not paid for carriage of goods but delay in carriage of goods.Thus neither it is Freight nor it is rent.Thus provisions would accordingly not apply for TDS.

posted by RANJAN KUMAR on Nov 11, 2005

Answer ID : 1233
Member's Comment
Madam, It is necessary to understand the term “demurrage”, in order to give a proper reply. According to Black’s Law Dictionary, “demurrage” is a liquidated penalty owed by a charter to a shipowner for the charter’s failure to load or unload cargo by a certain time. The Oxford Dictionary also defines it as a similar charge on railway trucks or goods. The CBDT has, inter alia, issued Circular Nos. 715, dt. 08.08.1995 and 718, dated 22.08.1995, which throw light on TDS provisions. Some clarifications given thereunder are as follows : A.(1) Tax u/s 194I shall be deductible on warehousing charges because the meaning of rent includes other agreement or arrangement for the use of any land or building, etc. (2)Clearing and forwarding agents act as independent contractors. Any payment made to them would, therefore, be liable to for deduction of tax at source. They would also be liable to deduct tax at source while making payment to a carrier of goods. B.(1) Issue relating to payment to port trust is covered in Circular No. 93, dt. 26.09.1972. (2)You may also bear in mind that payments made for carriage of goods and passengers by railways is not covered u/s 194C. It will be a safe view that demurrage partakes the character of the original payment, even though it is penal in nature. Therefore, if the original payment is liable to TDS, then the demurrage included therein too will also be so liable. With regards,

posted by B L Bhojwani Kota on Nov 11, 2005

Answer ID : 1245
Member's Comment
Demurrage charges are somewhat in the nature of storage of goods for delay in lifting the goods from that place for any reason, as such according to circular issued by CBDT no. 715 & 718 as the original payment for the such provision of storage facilities are covered under the TDS provision the same should continue and TDS should be deducted from the said payment.

posted by SANTOSH KULTHIA on Nov 13, 2005

Answer ID : 1263
Member's Comment
Circular issued by the income tax department are clarificatory in nature and should be applied in that spirit.In famous case of ACC Cement for section 194C `Any work" was defined by Supreme Court to include everything threin in ! What is important is the words used and there established meaning .The term demmurage has been held by the income tax dpartment as penalty and disallowed.The issue of deductibility was discussed at length in the case of Nanhoo Mal Jyoti Prasad Vs.Comm.Income Tax 123 ITR 269.The deduction was finaly allowed due to these expenses being found to be incidental to bsiness .The judiciary in itself has never held these expenses as warehousing charges or godown rent!Still in my opinion since the issue has never been tested from TDS angle therfore we can think of taking the other view also especially when A. there is no explanation in law but only a clarification by way of circular B. the need for clarification (circular) arose as the term used in Income Tax act is `Rent" where relationship and intention has to exist (clear) before the use is made for rent .

posted by RANJAN KUMAR on Nov 14, 2005

Answer ID : 26910
Member's Comment

posted by CA. Pawan Kumar Jain on Oct 19, 2010


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