By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi Chartered Accountants
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Section 194I – Reimbursement by the assessee to its holding company of amount of rent for a portion of premises being used by the assessee company, which premises were taken on lease by the holding company from the landlord and the lease deed provided for use of part of the premises by the subsidiary company, do not qualify for TDS u/s 194I since there was no lessor and lessee relationship between the holding company and the assessee.
Facts:
M, a holding company of the assessee, had taken certain premises on lease/leave and license basis. The lease/leave and license agreements was for the premises to be used by M, its subsidiaries, affiliates, group entities and associates. However, the obligation to pay rent was of the lessee i.e. M. The amount of rent paid by M under these agreements was paid after deduction of TDS u/s 194I.
Part of the premises taken on lease/leave and license were used by the assessee. The assessee reimbursed to M certain amounts towards such user. However, these amounts were paid without deduction of TDS u/s 194I. The Assessing Officer (AO) while assessing the total income of the assessee, disallowed a sum of Rs. 56,23,456 paid by the assessee to M u/s 40(a) (ia) on the ground that tax was not deducted at source u/s 194I.
Aggrieved, the assessee filed an appeal to the CIT(A) who deleted the addition made by the AO.
Aggrieved, the revenue preferred an appeal to the Tribunal.
Held:
The Tribunal noted that the assessee was paying rent to the holding company as reimbursement since many years. This position was accepted by the department all through and it was never disputed even when the provisions of section 194I were introduced on the statute w.e.f. 1.6.1994. It also noted that even after amendment to section 40(a) (ia) w.e.f. 1.4.2006, this position was not disputed. It noted that there is no material change in the facts and law during the year under consideration. It also noted that the lease deed provided for use of the premises by the subsidiary companies. Tax was deducted at source from the actual payments made by the holding company to the lessor and holding company had not debited the whole of rent to its P& L account but had only debited rent pertaining to the part of the premises occupied by it. Considering these facts, the Tribunal held that there was no lessor and lessee relationship between the holding company and the assessee which could attract the provisions of section 194I. The Tribunal upheld the order of CIT(A).
