2002 (6) TMI 29 - HC - Income Tax

Deduction Of Tax At Source, Deduction From Rent, Interpretation Of Taxing Statutes - even accepting that the obligation to effect TDS creates hardship, financial inconvenience to the first petitioner, even then, that circumstance itself cannot be a valid or legal ground to take out the payments received by the payee from the patrons for use of the hotel rooms in pursuance of agreements between them from the purview of rent as defined in the Explanation to section 194-I. If TDS results in hardship, financial burden on the recipient, Parliament itself has made the provision in section 197 for obtaining a certificate for deduction at lower rate or no deduction of income-tax. Section 197 of the Income-tax Act relating to certificate for deduction of income-tax at lower rate or for no deduction of income-tax in appropriate cases has been amended to include income by way of rent within the scope of the said section. Therefore, it is open for the first petitioner to make necessary application under section 197 if there is any justification or hardship for it to do so. In conclusion, we hold that the charges paid to the first petitioner-company by its customers like respondents Nos. 4 and 5, for use and occupation of the hotel rooms should be regarded as rent within the meaning of section 194-I of the Act.

Issues Involved:

1. Whether the charges paid/payable to the petitioner-company by its customers on account of room charges are in the nature of rent within the meaning of section 194-I of the Income-tax Act, 1961.
2. Whether the corporate customers are entitled to effect TDS with regard to the rents paid or payable to the petitioner.
3. Interpretation of the term "rent" under section 194-I of the Income-tax Act, 1961.
4. Whether the financial hardship due to TDS can be a ground to exclude the application of section 194-I.
5. Impact of TDS on the fundamental rights under article 19(1)(g) of the Constitution of India.

Detailed Analysis:

1. Nature of Room Charges as Rent:

The petitioner argued that the room charges received by the hotel are not in the nature of rent as defined under section 194-I of the Income-tax Act, 1961. The petitioner contended that the relationship between the hotel and its customers is a licensing arrangement rather than a leasing arrangement, and thus, the consideration received cannot be treated as rent.

2. Entitlement of Corporate Customers to Effect TDS:

The court examined whether the corporate customers, such as Indian Airlines Limited and Asian Paints India Limited, are entitled to deduct TDS under section 194-I. The respondents contended that the payments made for accommodation under agreements with the petitioner fall within the ambit of section 194-I.

3. Interpretation of "Rent" under Section 194-I:

Section 194-I defines "rent" as any payment under any lease, sub-lease, tenancy, or any other agreement or arrangement for the use of any land or building. The court emphasized that the expressions "any payment" and "any other agreement or arrangement" have the widest import, meaning each and every payment made for the use and occupation of the hotel rooms.

The court referred to various judgments, including Associated Hotels of India Ltd. v. R.N. Kapoor and State of Punjab v. British India Corporation Ltd., to support the interpretation that "rent" in its wider sense includes payments made by licensees for the use of land or buildings.

4. Financial Hardship Due to TDS:

The petitioner argued that the deduction of TDS at 23% resulted in significant financial hardship, depriving them of working capital. The court held that financial difficulties are not a valid ground to exclude the application of section 194-I. The court noted that section 197 provides a mechanism for obtaining a certificate for deduction at a lower rate or no deduction in cases of hardship.

5. Impact on Fundamental Rights:

The petitioner contended that the TDS obligation violated their fundamental rights under article 19(1)(g) of the Constitution of India. The court dismissed this argument, stating that the constitutionality of section 194-I was not challenged. The court reiterated that mere excessiveness of tax or financial burden does not render it an unreasonable restriction on the freedom guaranteed under article 19(1)(g).

Conclusion:

The court concluded that the charges paid to the petitioner-company by its customers for the use and occupation of hotel rooms should be regarded as "rent" within the meaning of section 194-I of the Income-tax Act, 1961. The writ petition was dismissed, and the court held that the provisions of section 194-I are applicable, and the corporate customers are entitled to deduct TDS on the payments made to the petitioner.

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