TDS on Rent of Casual Accommodation

 

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The Income Tax Appellate Tribunal (ITAT), Mumbai Bench held that TDS cannot be deducted on the rent if the accommodation services were taken on a casual basis. The assessee, Dadiba kali Pundole Esplanade House is engaged in the business of auctioning fine and decorative arts, promoting, publishing, documenting, executing, and selling arts. The assessee filed its return of income declaring his total income, which was processed under section 143(1) of the Act. Thereafter, the case of the assessee was selected under scrutiny and statutory notices were issued and served upon the assessee. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has paid Rs.4,68,543 towards rent of hotel accommodation to Royal Bombay Yacht Club on which no TDS was deducted. Accordingly, a show cause was given to the assessee as to why the same should not be disallowed under section 40(a)(ia) of the Act for non- deduction of Tax Deducted at Source. The assessee also submitted that no single payment was made in excess of Rs.1,80,000 at any point in time. The assessee also referred to Circular No.5 dated July 30, 2020, issued by CBDT, wherein it has clarified the provisions relating to tax deduction at source regarding changes introduced through Finance Act, 1995. The assessee also submitted that in the said Circular the Board clarified that the TDS is applicable to the payments made by persons other than individual and HUF for hotel accommodation taken on a regular basis which will be in the nature of rent would be subject to TDS under section 194-I of the Act. The AO disallowed and added the same under section 40(a)(ia) of the Act for non-deduction of TDS. The CIT(A) confirmed the addition by holding that the assessee has paid accommodation charges for the hotel accommodation which is on a regular basis from the club without deduction of TDS at source. The two-member bench headed by the Vice- President, Mahavir Singh observed that the accommodation was booked by the assessee in the club not on a regular basis but on casually and occasionally as and when the foreign consultants visited the assessee in connection with the assessee’s business. “We are quite convinced with the arguments of the learned Counsel that this accommodation is occasional/ casual as no specific accommodation is earmarked and the same is made available to the assessee on the availability basis,” the tribunal noted. Therefore, the tribunal while setting aside the order passed by CIT(A) held that the Circular has very clearly mentioned that the provision of section 194(I) is applicable where the accommodation is taken on a regular basis, which means that a specific accommodation is earmarked to be let out for the specific period but in the present case the facts are different