section 194 i

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Practical Issues in Section – 194I

Presentation by-Rishabh Vohra

Lunawat & Co.

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Purview of Section 194 I a) Any person other than an individual or HUF

responsible for paying any income by way of rent to a resident is required to deduct tax.

b) An individual or a HUF whose total sales or gross receipts or turnover from business exceeds Rs.100 lacs or whose gross receipts from profession exceeds Rs.25 lacs during the financial year immediately preceding the financial year in which such sum is credited or paid shall be liable to deduct tax at source.

c) No deduction shall be made where the amount of such income or the aggregate of amounts of such income credited/paid during the financial year does not exceed Rs.1,80,000/-.

Lunawat & Co.

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d) ‘Rent’ means any payment by whatever nature called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any:

I. land, orII. building (including factory building), orIII. land appurtenant to a building (including a

factory building), orIV. machinery, orV. plant, orVI. equipment, orVII.furniture, orVIII.Fittings.

Purview of Section 194 ILunawat & Co.

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e) where any income is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

Purview of Section 194 ILunawat & Co.

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Issue

The building in question was owned by various co-owners.

The rent paid to each co-owner was less than Rs. 1.20 lakhs (Which is 1.80 lakhs now) in the year, the assessee did not deduct tax at source under section 194-I on rent paid.

Should Assesse deduct tax individually for each Co-owner ?

Rent Paid to Co-owners Lunawat & Co.

Senior Manager, SBI 20 taxmann.com 40 (Allahabad)

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Held

It has come on record that each of the co-owners has a definite share in the building.

It is not necessary that there should be a physical division of the property by metes and bounds in order to attract the provisions of section 26.

It will come into play the moment the share of each co-owner in the property is determined and ascertainable.

The income from such property is to be assessed in the individual hands of such person.

Rent Paid to Co-owners Lunawat & Co.

Senior Manager, SBI 20 taxmann.com 40 (Allahabad)

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Issue

• Whether security deposit for hiring a premises which was to be reduced every six months by an amount of rent which became payable in accordance with the agreement is subject to TDS?

Security Deposit

Reebok India Co. (291 ITR 455) (Delhi HC)

Lunawat & Co.

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Held

• The security deposit was not a fully ‘refundable deposit amount’.

• It was in the nature of advance rent and accordingly, TDS under section 194I is applicable.

Security Deposit

Reebok India Co. (291 ITR 455) (Delhi HC)

Lunawat & Co.

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Issue

The holding company had taken office premises on rent and it permitted the assessee to use portion of said premises.

The rent for the whole premises was paid directly by the holding company to the lessors and tax was deducted under section 194I.

The assesse company reimbursed its part of rent to the Holding Company and didn’t deduct TDS on it.

Whether TDS is applicable on reimbursement of rent expenditure by the assessee to its holding company?

Reimbursement of Rent

Result Services (P.) Ltd. (52 SOT 598) (Delhi ITAT)

Lunawat & Co.

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Held

The lease deed provided for use of the premises by the subsidiary companies .

The actual payments were made by the lessee (holding company) to the lessor after deducting tax therefrom .

Also, the holding company had not debited the whole rent amount in its books of account. It had only debited that portion of the rent which pertained to the part of the premises occupied by it.



Lunawat & Co.

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Therefore, there was no lessor and lessee relationship between the holding company and assessee (Subsidiary Company) where the provisions of section 194I were attracted.

The assessee (Subsidiary Company) had been paying rent to the holding company as reimbursement for last many years and this position had been accepted by the department so far and was accepted thereon.



Lunawat & Co.

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Issue

The assessee was an advertising/media agencyThe assessee had incurred expenditure on

advertisement through outdoor display which included payment for advertisement on hoarding/board .

Whether TDS U/s 194I is applicable on the Assesse?

Advertisement on Hoardings

Madison Communication (P.) Ltd. (4992 taxmann.com 208) (Mumbai ITAT)

Lunawat & Co.

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Held

Being an advertising/media agency, the assessee does not put up a hoarding or takes any space on rent. It only pays to the hoarding contractors for allowing the assessee to display its client's advertisement on their hoarding.

The assessee had sub-contracted the work for putting up the hoardings to hoarding contractors and the prime responsibility of payment of rent of the sites was of the hoarding contractor and not of the assessee who acted as the main contractor.



Lunawat & Co.

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Therefore , the assesse was liable to deduct TDS u/s 194C for the payment made to sub contractor on Display of advertisement of its Clients on such hoardings.



Lunawat & Co.

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Key Circulars

Lunawat & Co.

Circular No.

Gist

715 (dated 8 August 1995)

• Subletting a rented premise (fully or in part) for putting up a hoarding would be liable to TDS under section 194I (and not section 194C) • TDS is applicable with respect to business centre agreements

718 (dated 22 August 1995)

• TDS is applicable on warehousing charges • No TDS on municipal taxes, ground rent, etc., borne by the tenant

1 (dated 10 January 2008)

• TDS under section 194I is not applicable for cooling charges for cold storage (the customer is not given any right to use any demarcated space/place or the machinery of the cold store and thus does not become a tenant) • However, since the arrangement is basically contractual in nature, TDS under section 194C is applicable

4 (dated 28 April 2008)

• TDS is applicable on the amount of rent paid / payable without including service tax thereon

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Name : Rishabh VohraContact No. : 9811008436E-mail : [email protected]

Lunawat & Co.

section 194 i

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