Bank liable to deduct TDS on MICR charges

*Bank liable to deduct TDS on MICR charges*

New Delhi
July 15, 2008

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.

[Source: The Economic Times]

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Thanks & Regards
ABHASH KUMAR