Bank liable to deduct TDS on MICR charges

Publication:Economic Times Delhi;
Date:Jul 15, 2008;
Section:Policy;
Page Number:8

THE Ahmedabad Income-Tax Tribunal has held that where charges are incurred towards MICR facilities regarding identifying, reading and clearing cheques through special kind of machines, the same would be in the nature of fees for technical services (FTS) and would accordingly be liable to deduct tax at source (TDS) under section 194J. In the relevant case, the assessee was engaged in the business of banking activities/services. During verification of the TDS return, the AO observed that the assessee had made payment towards MICR charges to MICR centre managed by State Bank of India without deducting TDS. The tribunal held that the definition of the term FTS is very wide. The services of MICR facilities involve human skills as well as computerised machines and that it is not automatic. In that sense, it is not hiring/leasing or making available the technical equipment working on its own. But it is fully supported by services of personnel and requires human application of mind along with technical equipment. Since other banks pay charges for the MICR facilities through its special machines, the same is in the nature of FTS and therefore, would be exigible to TDS under section 194J.