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TDS on rent section 194 I apply only when rent paid or debited

Since section 194-I very clearly states that TDS liability arises only and only when an assessee pays rent or when it debits rent, whichever is earlier, it is erroneous to reckon period of delay from the date on which rent fell due for each of the month

• The assessee operates its hotel business from a leasehold building premises. The land lords had demanded lease rent of Rs. 75,00,000 per month for the said premises as against Rs. 50,00,000 per month offered by the assessee.

• The assessee though made provision of Rs. 9 crores as lease rental for the year 2006-07 but due to non-finalisation, no rent was paid and no TDS effected; and accordingly, assessee offered the entire Rs. 9 crores for taxation.

• Subsequently, by lease agreement, monthly rent of Rs. 50 lakhs was agreed upon from 1-4-2006 and accordingly, the assessee reversed the excess lease rent provision of Rs. 3 crores and also remitted TDS, as applicable on actual lease rent of Rs. 6 crores per annum, together with interest.

• Subsequent to a survey under section 133A, the ITO, TDS determined TDS on lease rent of Rs. 9 crores as against Rs. 6 crores and also enhanced amount of interest on delayed payment.

• The law that 'mere book entries will not determine the correct income or expenditure' is well settled. This principle was upheld by the Apex Court in Shoorji Vallabhdas & Co. 46 ITR 144 and also in Godhra Electricity Co. 225 ITR 746.

• It is the income which determines the extent of tax to be deducted at source. Income sought to be taxed by taxing statutes is always the real income.

• When in a situation where assessee had only claimed Rs. 6 crores as expenditure and that too during the period when the rent payable was agreed upon and the land lord was also entitled to receive only Rs. 6 crores as lease rent, if TDS was sought to be made on Rs. 9 crores and not on Rs. 6 crores, such a contention was both absurd and untenable.

• Further, the difference of Rs. 3 crores on which revenue was seeking TDS and also interest thereon was not anybody's expenditure or income. It was neither expenditure for the assessee nor was it income for the land lord; then how could revenue tax the same.

• Since the provisions of section 194-I very clearly state that the liability to deduct TDS arises only and only when an assessee makes payment of rent or when the assessee debits rent as an expenditure, whichever is earlier, the revenue's contention that in assessee's case the lease rent fell due every month by virtue of a contractual obligation and hence the period of delay should be reckoned from the date on which the rent fell due for each of the months, does not hold much water. - [2012] 24 taxmann.com 90 (Bangalore - Trib.)
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