Pls clear a doubt
This query is : Resolved
10 January 2009
There was an query on TDS
(for refrence)
"Company is hiring vehicle on monthly fixed payment and variable rate per km on actual vehicle running. The vehicle is available with us for 16 hours in a day.
Vehicle registration number is not mentioned in the contract. The driver, maintenance, oil & fuel is under the contractor scope.
On this transaction which TDS is attracted 194C or 194I."
In this regard our expert said that
"As the vehicle is not in the full control of the hirer, Tax at Source is to be deducted u/s 194C."
I want to know that is there any condition U/S 194I that to fall within this section vehical should be fully in control of hirer.
in my point of view Tds should be deducted U/S 194i because as per interpretation rule 194I is a specific section on rent so it will prevail.
I believe that respected seniors will help me to clear this one.
Thanx & regards
(for refrence)
"Company is hiring vehicle on monthly fixed payment and variable rate per km on actual vehicle running. The vehicle is available with us for 16 hours in a day.
Vehicle registration number is not mentioned in the contract. The driver, maintenance, oil & fuel is under the contractor scope.
On this transaction which TDS is attracted 194C or 194I."
In this regard our expert said that
"As the vehicle is not in the full control of the hirer, Tax at Source is to be deducted u/s 194C."
I want to know that is there any condition U/S 194I that to fall within this section vehical should be fully in control of hirer.
in my point of view Tds should be deducted U/S 194i because as per interpretation rule 194I is a specific section on rent so it will prevail.
I believe that respected seniors will help me to clear this one.
Thanx & regards
10 January 2009
Definition of Rent for the purpose of this section:
Rent means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,
1.
Land; or
2.
Building (including factory building); or
3.
Land appurtenant to a building (including factory building); or
4.
Machinery; or
5.
Plant; or
6.
Equipment; or
7.
Furniture; or
8.
Fittings,
Whether or not any or all of the above are owned by the payee. Also tax shall now also be deductible for leasing or hiring of machinery, plant, equipment, furniture and fittings whether given separately or together.
PLEASE NOTE:
*
TDS on shall be deductible whether or not any or all of the above are owned by the payee.
*
Hiring of an asset does not amount to a contract for carrying out any work but will be covered under Section 194- I. [CIT vs. Poompuhar Shipping Corporation Ltd.]
*
Landing fee for parking fee of Aircraft is rent within the meaning of Explanation (i) to Section 194(1) and thus liable to TDS as landing of aircraft or parking aircraft amounts to usage of land of airport and hence covered Clause (c) above. [United Airlines vs. CIT]
*
Where agreement is only for use of land and warehouse and no services of any type are provided by the warehouse keeper as such, in that case amount paid by the assessee should necessarily be considered under this section. [Hindustan Coca- Cola Beverages (P) Ltd. vs. CIT]
DEPARTMENTAL CLARIFICATIONS
Copyscape
*
Whether tax is required to be deducted at source where a non-refundable deposit has been made by the tenant?
In cases where the tenant makes a non-refundable deposit tax would have to be deducted at source as such deposit represents the consideration for the use of the land or the building, etc., and, therefore, partakes of the nature of rent as defined in section 194-I. If, however, the deposit is refundable, no tax would be deductible at source. It is further clarified that if the deposit carries interest, the tax to be deducted on the amount of interest will be governed by section 194A of the Income-tax Act.
*
Whether the tax is to be deducted at source from Warehousing charges?
The term Rent as defined under Section 194-I means any payment by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any building or land. Therefore, the warehousing charges will be subject to deduction of tax under section 194-I.
*
On what amount the tax is to be deducted at source if the rentals include Municipal tax, Ground rent, etc.?
The basis of tax deduction at source under section 194-I is income by way of rent. Rent as defined, in the Section 194-I (i), to mean any payment under any lease, tenancy, agreement, etc., for the use of any land or building. Thus, if the municipal taxes, ground rent, etc., are borne by the tenant, no tax will be deducted on such sum.
*
Whether payments made to a Hotel for Rooms hired during the year would be of the nature of Rent?
Payments made by persons, other individuals and HUFs for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS under section 194-I.
*
Whether the limit of Rs. 1, 20,000 per annum would apply separately for each Co-owner of a property?
Under section 194-I, the tax is deductible from payment by way of rent, if such payment of the payee during the year is likely to be Rs. 1, 20,000 or more. If there are a number of payees, each having definite and ascertainable share in the property, the limit of Rs. 1, 20,000 will apply to each of the payee/co-owner separately. The payers and payees are, however, advised not to enter into sham agreements to avoid TDS provisions.
*
Whether the rent paid should be enhanced for notional income in respect of deposit given to the landlord?
The tax is to be deducted from actual payment and there is no need of computing notional income in respect of a deposit given to the landlord. If the deposit is adjustable against future rent, the deposit is in the nature of advance rent subject to TDS.
*
Whether payments made by company taking premises on rent but styling the agreement as a business centre agreement would attract the provisions of section 194-I ?
The tax is to be deducted from rent paid, by whatever name called, for hire of a property. The incidence of deduction of tax at source does not depend upon the nomenclature, but on the content of the agreement as mentioned in clause (i) of Explanation to section 194-I.
*
Whether in a case of a composite arrangement for user of premises and provision of manpower for which consideration is paid as a specified percentage of turnover, section 194-I of the Act would be attracted?
If the composite arrangement is in essence the agreement for taking premises on rent, the tax will be deducted under section 194-I from payments thereof.
*
Whether section 194-I is applicable to rent paid for the use of only a part or a portion of any land or building?
Yes, the definition of the term any land or any building would include a part or a portion of such land or building.
*
Excerpts taken from Circular 715 (dtd. 8th Aug' 1995) and Circu
Rent means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,
1.
Land; or
2.
Building (including factory building); or
3.
Land appurtenant to a building (including factory building); or
4.
Machinery; or
5.
Plant; or
6.
Equipment; or
7.
Furniture; or
8.
Fittings,
Whether or not any or all of the above are owned by the payee. Also tax shall now also be deductible for leasing or hiring of machinery, plant, equipment, furniture and fittings whether given separately or together.
PLEASE NOTE:
*
TDS on shall be deductible whether or not any or all of the above are owned by the payee.
*
Hiring of an asset does not amount to a contract for carrying out any work but will be covered under Section 194- I. [CIT vs. Poompuhar Shipping Corporation Ltd.]
*
Landing fee for parking fee of Aircraft is rent within the meaning of Explanation (i) to Section 194(1) and thus liable to TDS as landing of aircraft or parking aircraft amounts to usage of land of airport and hence covered Clause (c) above. [United Airlines vs. CIT]
*
Where agreement is only for use of land and warehouse and no services of any type are provided by the warehouse keeper as such, in that case amount paid by the assessee should necessarily be considered under this section. [Hindustan Coca- Cola Beverages (P) Ltd. vs. CIT]
DEPARTMENTAL CLARIFICATIONS
Copyscape
*
Whether tax is required to be deducted at source where a non-refundable deposit has been made by the tenant?
In cases where the tenant makes a non-refundable deposit tax would have to be deducted at source as such deposit represents the consideration for the use of the land or the building, etc., and, therefore, partakes of the nature of rent as defined in section 194-I. If, however, the deposit is refundable, no tax would be deductible at source. It is further clarified that if the deposit carries interest, the tax to be deducted on the amount of interest will be governed by section 194A of the Income-tax Act.
*
Whether the tax is to be deducted at source from Warehousing charges?
The term Rent as defined under Section 194-I means any payment by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any building or land. Therefore, the warehousing charges will be subject to deduction of tax under section 194-I.
*
On what amount the tax is to be deducted at source if the rentals include Municipal tax, Ground rent, etc.?
The basis of tax deduction at source under section 194-I is income by way of rent. Rent as defined, in the Section 194-I (i), to mean any payment under any lease, tenancy, agreement, etc., for the use of any land or building. Thus, if the municipal taxes, ground rent, etc., are borne by the tenant, no tax will be deducted on such sum.
*
Whether payments made to a Hotel for Rooms hired during the year would be of the nature of Rent?
Payments made by persons, other individuals and HUFs for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS under section 194-I.
*
Whether the limit of Rs. 1, 20,000 per annum would apply separately for each Co-owner of a property?
Under section 194-I, the tax is deductible from payment by way of rent, if such payment of the payee during the year is likely to be Rs. 1, 20,000 or more. If there are a number of payees, each having definite and ascertainable share in the property, the limit of Rs. 1, 20,000 will apply to each of the payee/co-owner separately. The payers and payees are, however, advised not to enter into sham agreements to avoid TDS provisions.
*
Whether the rent paid should be enhanced for notional income in respect of deposit given to the landlord?
The tax is to be deducted from actual payment and there is no need of computing notional income in respect of a deposit given to the landlord. If the deposit is adjustable against future rent, the deposit is in the nature of advance rent subject to TDS.
*
Whether payments made by company taking premises on rent but styling the agreement as a business centre agreement would attract the provisions of section 194-I ?
The tax is to be deducted from rent paid, by whatever name called, for hire of a property. The incidence of deduction of tax at source does not depend upon the nomenclature, but on the content of the agreement as mentioned in clause (i) of Explanation to section 194-I.
*
Whether in a case of a composite arrangement for user of premises and provision of manpower for which consideration is paid as a specified percentage of turnover, section 194-I of the Act would be attracted?
If the composite arrangement is in essence the agreement for taking premises on rent, the tax will be deducted under section 194-I from payments thereof.
*
Whether section 194-I is applicable to rent paid for the use of only a part or a portion of any land or building?
Yes, the definition of the term any land or any building would include a part or a portion of such land or building.
*
Excerpts taken from Circular 715 (dtd. 8th Aug' 1995) and Circu
11 January 2009
It is a lengthy question!
07 November 2021
Correct. As the vehicle is not in the full control of the hirer, Tax at Source is to be deducted u/s 194C.
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