Every purchaser, whose total sales, gross receipts or turnover from the business carried on by him exceed Rs. 10 Crores during the preceding year, who purchases goods from a resident seller for the value or aggregate of such value exceeding Rs. 50 Lakhs in a year shall at the time of credit or payment, whichever is earlier, deduct a sum equal to 0.1% of the value of goods exceeding Rs. 50 Lakhs as TDS from the seller.
The above provision shall come into effect from 1 July 2021
Issue under consideration
The point of deduction of tax on purchase of goods operates in similar manner as several other TDS provisions. TDS on purchase of goods u/s 194Q shall be made:
- At the time of entry/booking of purchase in accounts or
- At the time of payment of such sum to resident seller
Whichever is earlier.
Further, section 194Q is applicable from 1 July 2021 onwards there arises an important issue which generally would be faced by all the companies i.e. when one of the two events being payment of invoice happens after the date of applicability of the section while booking of invoice has already been made prior to 1st July whether section 194Q will apply?
Analysis
Following two views emerge on TDS applicability in these cases:
View 1: TDS should not be levied on these transactions
As the trigger date for making TDS (i.e. date of booking or payment, whichever is earlier) falls before 1 July 2021, TDS should not be applicable on such transactions. This view states that TDS should only apply on those transactions for which both the events (i.e. booking and payment) has happened after the date of applicability of the section (1 July 2021).
To support the said view, in case of J.P. Jani, ITO v. Induprasad Devshanker Bhatt1, it has been held by Hon'ble Supreme court that retrospective operation is not taken to be intended unless that intention is manifested by express words or necessary implication. Further it provides that a statute or a section is not to be construed so as to have larger retrospective operation than its language renders necessary.
Further, in case of Ochhavlal Laljibhai Dharia2 it has been held that
"whereas substantive law defines and provides for rights, duties and liabilities, procedural law deals with the application of substantive law to particular cases, and it goes without saying that the law of evidence is part of procedural law.
The cardinal principle in deciding the question whether an enactment is to operate prospectively or retrospectively is that statutes must always be interpreted prospectively unless the language of the statutes makes them retrospective either expressly or by necessary implication. However, it is well settled that procedural amendments to a law apply, in the absence of anything to the contrary, retrospectively in the sense that they apply to all actions after the date they came into force even though the actions may have begun earlier or the claim on which the action is based may be of an anterior date. Alterations in the form of procedure are always retrospective, unless there is some good reason or the other why they should not be. If a statute deals merely with the procedure in an action and does not affect the rights of the parties, it will be held to apply prima facie to all actions, pending as well as future. "
Introduction of section 194Q cannot be considered as procedural amendment. Also section does not state it is not retrospective amendment. Therefore, considering the same, it should not be given extended applicability.
Further, above is based on principle of 'Nova constitution futuris formam imponere debet non praeteritis', i.e. a new law ought to regulate what is to follow, not the past.
Thus, TDS should not apply when one of the event has already occurred.
View 2: TDS should be levied on these transactions
Section 194Q is to be applied at the time of credit or payment whichever is earlier.
In the present scenario, one of the two events (i.e. credit) has already happened before section 194Q becomes operational. In this situation it would be advisable that tax is deducted considering payment as a trigger. It is important to note that what could be relevant u/s 194Q is not that both the events must occur after the provision is operational, what is important is that tax must be deducted whether there is payment or credit.
Under this view importance is given to the events occurring after the provision becomes operational. Thus, even one of the required events contemplated in the section (i.e. payment) happens after the provision is operational should suffice applicability of TDS under said section.
In this regard the proviso to section 194J can be noted which was made effective 1 July 1995. The proviso provides that:
"Provided that no deduction shall be made under this section from any sum as aforesaid credited or paid before the 1st day of July, 1995"
Above provisions indicate that if TDS was not required in case any one event (payment or credit) happens prior to the effective date of section 194Q, provision similar to section 194J may have been inserted. In the absence of such a provision, TDS would be required.
It can be implied that the lawmakers have intentionally decided not to include similar proviso in section 194Q as it did not intend to provide such leeway.
Conclusion:
On conservative basis, considering implications of non-deduction of minuscule amount could lead to disallowances, view 2 is a better view i.e. to make TDS while making payments on or after 1 July 2021 for those invoices booked before 1 July 2021.
Also, it is to be noted that TCS is liability on receipt of consideration. In such cases, only booking would have taken place and seller is not liable to collect TCS in absence of payment before 1 July 2021. Thus, the seller would not need to levy TCS and TDS would be made by the buyer while making the payment. Hence, there is no double levy of TDS and TCS on same transaction. An alignment would be required in such regard while applying view 2 on side of buyer and seller for smoother operation of such position.
