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Whether expenses allowed or not....???

Arvind Sharma (ACA) (1432 Points)

10 June 2011

Hiii..............

Dear All, I have a query as below:-

A Ltd pays Rent, to X Ind after deducting TDS, on behalf of B Ltd.. B reimburse the same..

Tell me whether B can claim this Rent as expense...??

Please keep in mind the Provision of Sex 40a which requires the assessee (here B Ltd.) to deduct TDS in order to claim expenses.... and since B has not deducted TDS (A Ltd deducted), so he should not be eligible to claim Rent as expense.

Please clerify....

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8 Replies

CA ADITYA SHARMA (CA IN PRACTICE ) (16719 Points)
Replied 10 June 2011

if A LTD. IS WORKING AS THE AGENT OF BLTD. THAN BLT. CAN CLAIM THE RENT AS EXPENSE

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CA ADITYA SHARMA (CA IN PRACTICE ) (16719 Points)
Replied 10 June 2011

HERE AS PER YOUR PROBLEM IT SEEMS THAT ALTD. IS PAYING RENT OF BLTD. AS AGENT OF B LTD.

rachit jain (chartered accountant ) (635 Points)
Replied 10 June 2011

According to me B ltd can not claim as it is not deducting tds. there is a principal agent relationship exist between A and B under which A will pay the rent on behalf of B so it is a kind of understanding between them so it should come under the purview of sec 194c (tds on contract) therefore if B ltd want to claim all exp it has to deduct tds on payment made to A ltd u/s 194c.

Arvind Sharma (ACA) (1432 Points)
Replied 10 June 2011

thanks for replies., but what if instead of rent, there is staff welfare exp., will it be allowed to B...???

rachit jain (chartered accountant ) (635 Points)
Replied 10 June 2011

again if A ltd is paying on behalf of B ltd 194 c will attract

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CA,CMA,CS Karan Gogia (Employed) (230 Points)
Replied 10 June 2011

my inputs..

yes boss offcourse it is allowed...see u can come across infinite pratical situations but stick to concepts..

here A is makin payment as agent of B....completly fine..

net payment reach to party....

TDS reach to govt....

i will support my ans with one SC judgement

crux is..

there is no reason to grill assesee on tax neutral trasaction where dept doesnot suffer any loss..

C.A. Jignesh N. Mehta (C.A.) (1030 Points)
Replied 10 June 2011

Regarding the deduction of TDS on rent paid by A Ltd on behalf of B Ltd. The matter is prone to litigation.

It is clear from the facts that TDS has been deducted on an payment, the question whether allowable in hands of B ltd, yes it is allowable as A ltd deducted and paid tds and rent on behalf of B ltd. Even though the provisions of section 40a requires assessee to deduct tax but this is an exceptional case.

Further the government got the revenue.

Now with respect to staff welfare, for me no requirement of tds is warranted as the companies are either sharing the expense or one is paying on behalf of other. No TDS on staff welfare.