Section 194I : TDS on Rent

⁷⁸[Rent.

⁷⁹194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to ⁸⁰[a resident] any income by way of rent⁸¹, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, ⁸²[deduct income-tax thereon at the rate of—

⁸³[(a)  two per cent for the use of any machinery or plant or equipment; and

(b)  ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings:]]

Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed⁸⁴[one hundred and eighty thousand rupees] :

⁸⁵[Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section.]

Explanation.—For the purposes of this section,—

⁸⁶[(i)  "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,—

(a)  land; or

(b)  building (including factory building); or

(c)  land appurtenant to a building (including factory building); or

(d)  machinery; or

(e)  plant; or

(f)  equipment; or

(g)  furniture; or

(h)  fittings,

whether or not any or all of the above are owned by the payee;]

(ii)  where any income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.] 

78.  Inserted by the Finance Act, 1994, w.e.f. 1-6-1994.

79.  See also Circular No. 699, dated 30-1-1995, Circular No. 715, dated 8-8-1995, Circular No. 718, dated 22-8-1995, Circular No. 735, dated 30-1-1996, Circular No. 736, dated 13-2-1996, Circular No. 5/2001, dated 2-3-2001, Circular No. 5/2002, dated 30-7-2002, Circular No. 12/2002, dated 22-11-2002, Circular No. 1/2008, dated 10-1-2008 and Circular No. 4/2008, dated 28-4-2008. For details, see Taxmann's Master Guide to Income-tax Act.

See rules 28, 28AA, 28AB, 30, 31, 31A, 31AB and 37BA and Form Nos. 13, 16A, 24G, 26AS, 26B, 26Q and 27A.

80.  Substituted for "any person" by the Finance Act, 2003, w.e.f. 1-6-2003.

81.  For the meaning of the term "rent", see Taxmann's Direct Taxes Manual, Vol. 3.

82.  Substituted for "deduct income-tax thereon at the rate of twenty per cent:" by the Finance Act, 1995, w.e.f. 1-7-1995.

83.  Substituted by the Finance (No. 2) Act, 2009, w.e.f. 1-10-2009. Prior to its substitution, clauses (a), (b) and (c), as substituted by the Finance Act, 2007, w.e.f. 1-6-2007, read as under :

"(a)  ten per cent for the use of any machinery or plant or equipment;

 (b)  fifteen per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings where the payee is an individual or a Hindu undivided family; and

 (c)  twenty per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings where the payee is a person other than an individual or a Hindu undivided family:"

84.  Substituted for "one hundred and twenty thousand rupees" by the Finance Act, 2010, w.e.f. 1-7-2010.

85.  Inserted by the Finance Act, 2002, w.e.f. 1-6-2002.

86.  Substituted by the Taxation Laws (Amendment) Act, 2006, w.e.f. 13-7-2006. Prior to its substitution, clause (i) read as under :

 '(i)  "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee;'

Q : Whether landing of aircraft or parking aircraft amounts to user of land of airport and, hence, landing fee and parking fee will amount to rent and hence the Assessee liable for Deduction of TDS on Rent?

Answer Yes, [2006] 152 TAXMAN 516 (DELHI) HIGH COURT OF DELHI United Airlines^* v. Commissioner of Income-tax  Section 194-I of the Income-tax Act, 1961 - Deduction of tax at source - Rent - Whether landing of aircraft or parking aircraft amounts to user of land of airport and, hence, landing fee and parking fee will amount to rent within meaning of Explanation (i) to section 194-I - Held, yes

Similar Point was also discussed in the case of [2009] 180 TAXMAN 188 (DELHI) HIGH COURT OF DELHI Commissioner of Income-tax, Delhi-XVII v. Japan Airlines Co. Ltd.

Q Whether consideration paid to Assessee by its customers under agreements for use and occupation of hotel rooms fell within meaning of rent and liable for TDS u/s 194I ?

Answer Yes, [2002] 123 TAXMAN 709 (AP) HIGH COURT OF ANDHRA PRADESH ,Krishna Oberoi v. Union of India ,Section 194-I of the Income-tax Act, 1961, read with article 226 of the Constitution of India - Deduction of tax at source - Rent - Petitioner was engaged in hospitality business and was running a five-star hotel - At hotel, petitioner provided to its customers various types of furnished rooms with certain other facilities for a consideration which was normally known as ‘room charges’ - It was contended that since rent payable under agreement to petitioner included not only charges for occupancy but also charges of other facilities provided by hotel management, payment could not be regarded as ‘rent’ within meaning of section 194-I - Whether there is no weighty or sound reason to limit meaning of word ‘rent’ occurring in Explanation to section 194-I only to payment made by a tenant or a lessee for use of land or buildings demised to him - Held, yes - Whether consideration paid to petitioner by its customers under agreements for use and occupation of hotel rooms squarely fell within meaning of term ‘rent’ as defined under Explanation to section 194-I - Held, yes

Q whether the Lease premium paid by assessee for acquiring leasehold land for a period of 60 years amounts to Rent and hence liable for TDS on Rent under section 194I ?

Answer IT: Lease premium paid by assessee to CIDCO for acquiring leasehold land for a period of 60 years in order to develop a Special Economic Zone (SEZ) amounted to capital expenditure which did not fall within meaning of 'rent' under section 194-I and, therefore, assessee was not liable to deduct tax at source while making said payment.[2013] 38 taxmann.com 218 (Mumbai - Trib.) IN THE ITAT MUMBAI BENCH 'B Income-tax Officer-(TDS), (OSD), Range-2 v. Navi Mumbai SEZ (P.) Ltd.

Q: Whether where assessee-school hired buses from a transport contractor for point to point transportation of its students and staff, TDS is to be deducted u/s 194I or 194C ?

Answer : 194I as per  [2014] 49 taxmann.com 401 (Allahabad) HIGH COURT OF ALLAHABAD Commissioner of Income-tax v.Apeejay School, Apeejay School Campus* ,Section 194C, read with section 194-I, of the Income-tax Act, 1961 - Deduction of tax at source - Contractors/sub-contractors, payments to (Transporters) - Assessment year 2008-09 - Whether where assessee-school hired buses from a transport contractor for point to point transportation of its students and staff, it was to be regarded as service contract governed by provisions ofsection 194C - Held, yes [In favour of assessee] Circulars and Notifications : Circular No. 558 dated 28-3-1990

Q Where property in question leased out to a bank was owned by various co-owners and each owner was having a definite and ascertainable share in property, whether the threshold limit for purpose of deduction of tax at source under section 194-I would apply to each of co-owners separately ?

Answer Yes , [2012] 20 taxmann.com 40 (All.) HIGH COURT OF ALLAHABAD

Commissioner of Income-tax, Muzaffar Nagar v. Senior Manager, SBI Section 194-I, read with section 26, of the Income-tax Act, 1961 - Deduction of tax at source - Rent - Assessment years 1996-97 to 2002-03 - Building in question was owned by various co-owners and each co-owner was having definite and ascertainable share in property - Co-owners executed a registered lease deed in respect of said building in favour of assessee-bank - Since share of each owner was definite, bank paid rent to all co-owners by separate cheques - Since rent paid to each co-owner was less than Rs. 1,20,000, bank did not deduct tax at source on rent paid - Assessing Officer initiated proceedings under sections 201(1) and 201(1A) against assessee-bank on ground that bank was paying rent to AOP, therefore, it was assessee in default for non-deduction of tax at source under section 194-I - On appeal, Commissioner (Appeals) allowed appeal of assessee and set aside order of Assessing Officer - Tribunal upheld order of Commissioner (Appeals) - It was found that CBDT in circular No. 715, dated 8-8-1995 had clarified that in case of deduction of tax at source under section 194-I, if there are a number of payees and each having a definite and ascertainable share in property, limit of Rs. 1,20,000 will apply to each of payees/co-owners separately - Whether clarification issued by CBDT in Circular No. 715, dated 8-8-1995, squarely covered instant case as each of co-owners had received less than Rs. 1,20,000 as rent in a year from bank - Held, yes - Whether, therefore, Tribunal was justified in upholding order of Commissioner (Appeals) - Held, yes [In favour of assessee]

Circulars and Notifications : Circular No. 715, dated 8-8-1995 and Circular No. 684, dated 10-6-1994

When there are a number of owners of a property, limit or ceiling of Rs. 1.20 for purposes of application of section 194-I will apply to each and every owner separately notwithstanding fact that amount has been paid by crediting aggregate sum in joint account of owners [Assessment years 2001-02 & 2002-03] [In favour of assessee] [2009] 226 CTR 310 (RAJ.) HIGH COURT OF RAJASTHAN Commissioner of Income tax v  Manager, State Bank of India

Q  When payments were made to the travel agency on kilometer basis whether the TDS on Rent is to be deducted u/s  194I ?

Answer No, In Kandla Port Trust's case  was that the assessee took on rent various vehicles from a travel agency. The payments were made to the travel agency on kilometer basis. The assessee deducted tax at source under section 194C and whereas the revenue held that the payments were in the nature of rent liable for tax deduction under section 194-I. The Tribunal drew a distinction between a contract payment for rendering of service vis a vis a rent payment by keeping possession of vehicle by the assessee. It held that as per the agreement the assessee was not in possession of vehicles. Only where the possession was given to the assessee, that the character of payment could be taken as rent. The Tribunal made reference to Vodafone Essar Ltd. v. Dy. CIT[2011] 45 SOT 82 (Mum.)(URO) and held that a payment could not be called as rent merely because the assessee was eligible for making the use of facility without himself using the equipment and without taking possession on to himself.

Q  Once landlord paid amount of short deduction of TDS with interest on amount of rent, whether the tenant/assessee could be construed as an assessee-in-default for short deduction of TDS ?

Answer , No [2012] 17 taxmann.com 126 (Kar.) HIGH COURT OF KARNATAKA Commissioner of Income-tax, Central Circle v. Sony India (P.) Ltd.

Section 194-I of the Income-tax Act, 1961 - Deduction of tax at source-Rent- Assessment year 2002-03 - Assessee took a premises on lease on monthly rent - It was deducting 15 per cent instead of 20 per cent of the said rent towards tax deducted at source and remit same to Department - Assessing Officer held that assessee was in default and they raised demand for payment of 5 per cent along with interest thereon - While doing so, Assessing Officer rejected assessee's contention that not deducting 5 per cent was a bona fide mistake but the owner had paid difference in tax and it had also paid interest for delayed payment and, thus, assessee could not be made to pay over and again either tax portion or interest on it - Tribunal, however, accepted assessee's contention and, accordingly, held that there was no liability on part of assessee to pay tax as well as interest - Whether once landlord paid amount of short deduction of TDS with interest, tenant/assessee could not be construed as an assessee-in-default - Held, yes - Whether since, on basis of material on record one could not make out when landlord paid difference in tax alongwith interest, matter was to be remanded back to assessing authority to give an opportunity to assessee to produce all relevant material to show payment of tax and interest and thereafter to pass appropriate orders - Held, yes [In favour of assessee]