TDS on occupancy Charges
This query is : Resolved
28 April 2010
Does TDS apply for Room charges paid to a private guest house.
If so, under which section does it attract TDS>
If you have case laws to support your standpoint, pls quote the same.
Radhe Krishna
If so, under which section does it attract TDS>
If you have case laws to support your standpoint, pls quote the same.
Radhe Krishna
28 April 2010
Room taken on rent on a regular basis shall attract TDS u/s 194I.
28 April 2010
Payments for hotel accommodation - Circular No. 715, dated 8-8-1995 has been issued by the Central Board of Direct Taxes to clarify various provisions relating to tax deduction at source under various provisions of the Income-tax Act. Question No. 20 of the aforesaid Circular related to applicability of the provisions of section 194-I in respect of payments made to a hotel for rooms. The relevant question and answer is reproduced below :—
“. . . Q. No. 20 : Whether payments made to a hotel for rooms hired during the year would be of the nature of rent?
Ans. : Payments made by persons other than individuals and HUF for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS under section 194-I.” [Emphasis supplied]
In this context, doubts have been raised as to what constitutes “hotel accommodation taken on regular basis” for the purpose.
The Board have considered the matter. First, it needs to be emphasised that the provisions of section 194-I do not normally cover any payment for rent made by an individual or HUF except in cases where the total sales, gross receipts or turnover from business and profession carried on by the individual or HUF exceed the monetary limits specified under clause (a) or clause (b) of section 44AB. Where an employee or an individual representing a company (like a consultant, auditor, etc.) makes a payment for hotel accommodation directly to the hotel as and when he stays there, the question of tax deduction at source would not normally arise (except where he is covered under section 44AB as mentioned above) since it is the employee or such individual who makes the payment and the company merely reimburses the expenditure.
Furthermore, for purposes of section 194-I, the meaning of ‘rent’ has also been considered. “‘Rent’ means any payment, by whatever name called, under any lease . . . or any other agreement or arrangement for the use of any land. . . .” [Emphasis supplied]. The meaning of ‘rent’ in section 194-I is wide in its ambit and scope. For this reason, payment made to hotels for hotel accommodation, whether in the nature of lease or licence agreements are covered, so long as such accommodation has been taken on ‘regular basis’. Where earmarked rooms are let out for a specified rate and specified period, they would be construed to be accommodation made available on ‘regular basis’. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement.
However, often, there are instances, where corporate employers, tour operators and travel agents enter into agreements with hotels with a view to merely fix the room tariffs of hotel rooms for their executives/guests/customers. Such agreements, usually entered into for lower tariff rates, are in the nature of rate-contract agreements. A rate-contract, therefore, may be said to be a contract for providing specified types of hotel rooms at pre-determined rates during an agreed period. Where an agreement is merely in the nature of a rate contract, it cannot be said to be accommodation ‘taken on regular basis’, as there is no obligation on the part of the hotel to provide a room or specified set of rooms. The occupancy in such cases would be occasional or casual. In other words, a rate-contract is different for this reason from other agreements, where rooms are taken on regular basis. Consequently, the provisions of section 194-I while applying to hotel accommodation taken on regular basis would not apply to rate contract agreements.—Circular : No. 5/2002, dated 30-7-2002.
“. . . Q. No. 20 : Whether payments made to a hotel for rooms hired during the year would be of the nature of rent?
Ans. : Payments made by persons other than individuals and HUF for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS under section 194-I.” [Emphasis supplied]
In this context, doubts have been raised as to what constitutes “hotel accommodation taken on regular basis” for the purpose.
The Board have considered the matter. First, it needs to be emphasised that the provisions of section 194-I do not normally cover any payment for rent made by an individual or HUF except in cases where the total sales, gross receipts or turnover from business and profession carried on by the individual or HUF exceed the monetary limits specified under clause (a) or clause (b) of section 44AB. Where an employee or an individual representing a company (like a consultant, auditor, etc.) makes a payment for hotel accommodation directly to the hotel as and when he stays there, the question of tax deduction at source would not normally arise (except where he is covered under section 44AB as mentioned above) since it is the employee or such individual who makes the payment and the company merely reimburses the expenditure.
Furthermore, for purposes of section 194-I, the meaning of ‘rent’ has also been considered. “‘Rent’ means any payment, by whatever name called, under any lease . . . or any other agreement or arrangement for the use of any land. . . .” [Emphasis supplied]. The meaning of ‘rent’ in section 194-I is wide in its ambit and scope. For this reason, payment made to hotels for hotel accommodation, whether in the nature of lease or licence agreements are covered, so long as such accommodation has been taken on ‘regular basis’. Where earmarked rooms are let out for a specified rate and specified period, they would be construed to be accommodation made available on ‘regular basis’. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement.
However, often, there are instances, where corporate employers, tour operators and travel agents enter into agreements with hotels with a view to merely fix the room tariffs of hotel rooms for their executives/guests/customers. Such agreements, usually entered into for lower tariff rates, are in the nature of rate-contract agreements. A rate-contract, therefore, may be said to be a contract for providing specified types of hotel rooms at pre-determined rates during an agreed period. Where an agreement is merely in the nature of a rate contract, it cannot be said to be accommodation ‘taken on regular basis’, as there is no obligation on the part of the hotel to provide a room or specified set of rooms. The occupancy in such cases would be occasional or casual. In other words, a rate-contract is different for this reason from other agreements, where rooms are taken on regular basis. Consequently, the provisions of section 194-I while applying to hotel accommodation taken on regular basis would not apply to rate contract agreements.—Circular : No. 5/2002, dated 30-7-2002.
28 April 2010
Aditya and Shyam,
I appreciate your replies.
Mr.Aditya's reply in particular was extremely knowledgeable.
Now, what is a hotel in the context, is one of the questions that come to my mind.
Apart from that, while the company takes rooms on regular basis, there absolutely is no contract or agreement between the two parties and have no rooms earmarked specifically for the company.
The Invoice reads 'Room Charges'(No mention of rent anywhere.
I appreciate your replies.
Mr.Aditya's reply in particular was extremely knowledgeable.
Now, what is a hotel in the context, is one of the questions that come to my mind.
Apart from that, while the company takes rooms on regular basis, there absolutely is no contract or agreement between the two parties and have no rooms earmarked specifically for the company.
The Invoice reads 'Room Charges'(No mention of rent anywhere.
28 April 2010
Dear Sanath
Can you explain "Regular Basis".
Regards
Can you explain "Regular Basis".
Regards
28 April 2010
Regular Basis - Renting 'atleast' 10 rooms days a month.
Why would you wanna know that?
Why would you wanna know that?
28 April 2010
Dear Sanath,
Yours is a very interesting case. According to you rooms are taken on regular basis without any agreement and not having a set of rooms earmarked. Following point is important in your case----
In case of payment to hotels for rooms hired, if the earmarked rooms are let out for a specified rate and specified period, they are construed to be accommodation made available on regular basis and subject to TDS. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement. [Circular No.5/2002 dt.30-7-2002].
But in your case, if i am not wrong, the party is under no obligation to provide you such type of rooms and hence TDS should not be required to be deducted.
Having said that the Assessing Officer may argue that just not having a agreement in place does not allow to escape such amount from TDS purview.
It is a complicated case and hence it would be better to discuss the same with your TDS Assessing Officer.and if it has already taken place then hope for the best.
I also urge other experts to give their opinion on this.
Regards.
Yours is a very interesting case. According to you rooms are taken on regular basis without any agreement and not having a set of rooms earmarked. Following point is important in your case----
In case of payment to hotels for rooms hired, if the earmarked rooms are let out for a specified rate and specified period, they are construed to be accommodation made available on regular basis and subject to TDS. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement. [Circular No.5/2002 dt.30-7-2002].
But in your case, if i am not wrong, the party is under no obligation to provide you such type of rooms and hence TDS should not be required to be deducted.
Having said that the Assessing Officer may argue that just not having a agreement in place does not allow to escape such amount from TDS purview.
It is a complicated case and hence it would be better to discuss the same with your TDS Assessing Officer.and if it has already taken place then hope for the best.
I also urge other experts to give their opinion on this.
Regards.
28 April 2010
Yes agree with Sanjayji. But ITO can take view which can a view different then what is stated above. However if the event has already happened and no TDS has been deducted then you can take help of Circular : No. 5/2002, dated 30-7-2002 which states
For this reason, payment made to hotels for hotel accommodation, whether in the nature of lease or licence agreements are covered, so long as such accommodation has been taken on ‘regular basis’. Where earmarked rooms are let out for a specified rate and specified period, they would be construed to be accommodation made available on ‘regular basis’. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement
Where an agreement is merely in the nature of a rate contract, it cannot be said to be accommodation ‘taken on regular basis’, as there is no obligation on the part of the hotel to provide a room or specified set of rooms. The occupancy in such cases would be occasional or casual. In other words, a rate-contract is different for this reason from other agreements, where rooms are taken on regular basis. Consequently, the provisions of section 194-I while applying to hotel accommodation taken on regular basis would not apply to rate contract agreements
For this reason, payment made to hotels for hotel accommodation, whether in the nature of lease or licence agreements are covered, so long as such accommodation has been taken on ‘regular basis’. Where earmarked rooms are let out for a specified rate and specified period, they would be construed to be accommodation made available on ‘regular basis’. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement
Where an agreement is merely in the nature of a rate contract, it cannot be said to be accommodation ‘taken on regular basis’, as there is no obligation on the part of the hotel to provide a room or specified set of rooms. The occupancy in such cases would be occasional or casual. In other words, a rate-contract is different for this reason from other agreements, where rooms are taken on regular basis. Consequently, the provisions of section 194-I while applying to hotel accommodation taken on regular basis would not apply to rate contract agreements
28 April 2010
Agree with Aditya Ji.
You can take shelter only under those point mentioned above by Adiya ji. The main point in you favour is that you dont have any agreement.
Regards
You can take shelter only under those point mentioned above by Adiya ji. The main point in you favour is that you dont have any agreement.
Regards
28 April 2010
welcome
28 April 2010
You are welcome.
29 April 2010
A good discussion, I fully agree with Aditya and Sanjay. Just want to add one more point that, in the circular 5/2002 one important argument is hidden
“Where earmarked rooms are let out for a specified rate and specified period”, they would be construed to be accommodation made available on ‘regular basis’. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement
Thus where there is no agreement in place with hotel even if the same room is hired for a longer period, there is no TDS required to be deducted, secondly if the agreement is in place, but no obligation of the hotel to provide the room, the same room is booked even on daily basis, No TDS is required to be deducted. Thus where the , the element of “obligation” and “earmarked” is missing, no need for TDS to be deducted.
“Where earmarked rooms are let out for a specified rate and specified period”, they would be construed to be accommodation made available on ‘regular basis’. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement
Thus where there is no agreement in place with hotel even if the same room is hired for a longer period, there is no TDS required to be deducted, secondly if the agreement is in place, but no obligation of the hotel to provide the room, the same room is booked even on daily basis, No TDS is required to be deducted. Thus where the , the element of “obligation” and “earmarked” is missing, no need for TDS to be deducted.
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