T.D.S. Problem

This query is : Resolved

arvind kapoor (Querist)
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24 May 2008 One of my clent had opened a Drug store in a hospital on a condition that the hospital will be paid 50% of the net profit as per audited P& l A/c.What is T.D.S. Liability of the client and under what section it will be deducted 194I or 194C.And also Profit can be ascertained only after 31 st March.So when to deduct the TDS -on 31st March itself and to deposit it by 31 st May or whenever some payment is made to Hospital during the year.

Shyam Lal Naik

Shyam Lal Naik (Expert)
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24 May 2008 Saw some replies to the query. I beg to differ that ratio of partnership can be applied here.

Its not a contractual payment. 194C can not be applied.

The entire agreement needs to studied. If it can be construed as consideration for use of the premise, 194I may be applicable.

Look forward for more opinion.

CA Anil Jain

CA Anil Jain (Expert)
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24 May 2008 It will not fall u/s 194I i.e Rent as it does not fulfill any condition for being rent, moreover the amount consideration will vary according to profit.
It will depend upon the terms of the agreement b/w the parties and Probably Section 194C will apply.

Notify me If I am wrong!

Regds/-
Anil Jain

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Shyam Lal Naik

Shyam Lal Naik (Expert)
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26 May 2008 Rent, simply means consideration for use of premise etc. Quantification of rent(share of profit, in this case), though differ from year to year, does not alter the substance of the transaction.

Since the payment can not be construed as consideration for carrying our any work by the contractor(hospital in this case) on behalf of the principal(the client in this case), 194C is not applicable.

We need to answer the following.

1) Is there any contract between the parties for CARRYING OUT ANY WORK?
- The contract is just to allow the drug vendor to operate his business within the hospital complex.

2) Is there any agency relationship between the parties? Is the drug vendor and the hospital can be termed as Principal and Contractor respectively?

-In my humble opinion, No.