Practical issues in section 194 I

1. Presentation by-
Rishabh Vohra
Lunawat & Co.
1

2. 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.
2

3. 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, or
II. building (including factory building), or
III. land appurtenant to a building (including a
factory building), or
IV. machinery, or
V. plant, or
VI. equipment, or
VII.furniture, or
VIII.Fittings.
Purview of Section 194 I
Lunawat & Co.
3

4. 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 I
Lunawat & Co.
4

5. 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.
5
Senior Manager, SBI 20 taxmann.com 40 (Allahabad)

6. 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.
6
Senior Manager, SBI 20 taxmann.com 40 (Allahabad)

7. 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.
7

8. 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.
8

9. 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.
9

10. 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.
Reimbursement of Rent
Result Services (P.) Ltd. (52 SOT 598) (Delhi ITAT)
Lunawat & Co.
10

11.  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.
Reimbursement of Rent
Result Services (P.) Ltd. (52 SOT 598) (Delhi ITAT)
Lunawat & Co.
11

12. Issue
 The assessee was an advertising/media agency
 The 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.
12

13. 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.
Advertisement on Hoardings
Madison Communication (P.) Ltd. (4992 taxmann.com 208) (Mumbai ITAT)
Lunawat & Co.
13

14.  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.
Advertisement on Hoardings
Madison Communication (P.) Ltd. (4992 taxmann.com 208) (Mumbai ITAT)
Lunawat & Co.
14

15. 15
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

16. 16
Name : Rishabh Vohra
Contact No. : 9811008436
E-mail : rishabh@lunawat.com
Lunawat & Co.