T.D.S problem

This query is : Resolved

arvind kapoor (Querist)
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13 December 2007 Dear Sir,
One of my client had opened a Drug store in a Charitable Hospital with a contract that half of the net profit(after all expenses) will be paid to the Hospital.
There is no fixed minimum amount that will be paid to the Hospital.The amount to be paid will be calculated from the audited balance sheet of the Drug store.
Now the Query is:-
1)T.D.S. to be deducted under which section rent or contract
2)Admissibility of the contract fee paid to Hospital under I.T Act.

Thanking You

R.V.RAO

R.V.RAO (Expert)
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14 December 2007 SEC194I COMES INTO OPERATION FOR USE OF ANY LAND OR BUILDINGS .....WHETHER OR NOR SUCH BUILDING IS OWNED BY THE PAYEE.

I PRESUME THE BUILDING IS OWNED BY HOSPITAL, AND THE DRUG STORE IS ALLOEWED THE USE OF PART OF SUCH PREMISES.
BUT THE AGREEMENT FOR COMPENSATING THE OWNER OF THE BUILDING(HOSPITAL) IS IN THE NATURE OF PROFIT SHARING.
RENT IS NORMALLY A FIXED AMOUNT WITH A CLAUSE FOR ESCALATION OVER A PERIOD OF TIME.THIS IS NOT THE CASE HERE.
IT IS A CONTRACTUAL PAYMENT TO SHARE A PART OF THE BUILDING.
IT IS DESIRABLE TO MAKE OUT A WRITTEN AGREEMENT FOR A CONTRACT FEES PAYMENT UNDER SEC 194C ( TDS IS 2% PLUS CESS).
THIS IS ALSO BENEFICIAL FROM THE VIEW OF 20% TDS APPLICABLE FOR RENT UNDER SEC 194I PLUS CESS.
AS FOR ADMISSIBILITY OF CONTRACT FEES,SEC 37 SAYS ANY REVENUE EXP. LAID OUT WHOLLY AND EXCLUSIVELY FOR BUSINESS DURING THE PREVIOUS YEAR , FOR A LAWFUL PURPOSE, NOT OF CAPITAL NATURE AND NOT IN THE NATURE OF PERSONAL EXP. ARE ALLOWED AS DEDUCTION UNDER BUSINESS EXP.
FROM THE HOSPITAL POINT OF VIEW ALSO THIS IS BUSINESS INCOME SINCE CLAUSE (i) of SEC 28 WHICH DEALS WITH CHARGEABILITY OF INCOME TO TAX SAYS ANY PROFIT OR GAIN OF ANY BUSINESS OR PROFESIION which was carried on by the sassessee at ANY TIME DURING THE PREVIOUS YEAR IS INCOME CHARGEABLE TO TAX .
SO LOGICALLY, WHEN THE HOSPITAL HAS THIS BUSINESS INCOME, THE DRUG STORE HAS THE BUSINESS EXP.
R.V.RAO

Shyam Lal Naik

Shyam Lal Naik (Expert)
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14 December 2007 The amount paid is not for carrying out any work and hence 194C is not applicable.

Please check the agreement. If the payment is construed as a consideration for use of the store, 194I may get attracted.

The amount paid should be allowed under u/s 37.

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K V Subba Rao

K V Subba Rao (Expert)
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14 December 2007 In the instant case, Charitable Hospital is rather modest in asking for sharing of Net Profit which is obviously worked out after meeting all expenses.

Generally, Providers of space for carrying out business demand consideration worked out at an agreed and pre-fixed percentage of Turnover instead of Net Profit.

For instance, we find Person Weighing Scales installed in Bus stations. As per Agreement, the Weighing Scale Company has to pay fifty percent of Collections to the Passenger Transport Corporation. I request Experts' Views looking the Query from this different dimension as well