2016 (3) TMI 591 - AT - Income Tax

TDS U/S 194I - disallowance u/s 40(a)(ia) - compensation paid by the assessee to the tenants towards alternative accommodation - Held that - On a plain reading of the definition of rent, it becomes clear that the payment made by the assessee does not come within the purview of rent as prescribed in the said provision as the assessee is not making such payment for use of any land, building, etc. On the contrary, if the facts involved are considered as a whole the payment made by the assessee is nothing else but in the nature of compensation. The Tribunal in case of Jitendra Kumar Madan ( 2012 (5) TMI 316 - ITAT MUMBAI ) while considering the nature of payment received for alternative accommodation by the recipients held such payments at their hand as income from other sources instead of income from house property. That being the case, the payment made by the assessee also being in the nature of compensation for alternative accommodation cannot be treated as rent. Moreover, such compensation cannot be treated as rent for the simple reason that not only the assessee is not using any land and building but it may also be a fact that persons to whom such payments have been made may not be incurring any expenditure on account of rent. In any case of the matter, payments made by assessee under no circumstances can be construed to be coming within the meaning of Rent as provided under section 194I. Thus, we are of the considered opinion that compensation paid by the assessee to the tenants towards alternative accommodation not being in the nature of rent as defined in section 194I, there is no requirement for deduction of tax under the said provisions. Therefore, the disallowance made under section 40(a)(ia) of the Act cannot be sustained. Consequently, we delete the addition made on that account. - Decided in favour of assessee

Summary

Issues:
1. Whether the disallowance of an amount under section 40(a)(ia) for non-deduction of tax at source by the assessee is justified.
2. Whether the compensation paid by the assessee to tenants towards alternative accommodation can be treated as rent under section 194I of the Income Tax Act, 1961.

Analysis:
Issue 1:
The appeal was against the addition of Rs. 51,84,000 under section 40(a)(ia) for non-deduction of tax at source under section 194I. The Assessing Officer disallowed the amount as the assessee did not deduct tax at source on compensation payments to tenants. The Commissioner (Appeals) upheld the disallowance. The assessee argued that the payments were not rent but compensation for alternative accommodation. The Tribunal examined the agreement between the assessee and the tenants, noting that the payments were for enabling tenants to meet rent expenditure due to vacating premises for construction. The Tribunal held that the payments were not rent as defined under section 194I, thus disallowance under section 40(a)(ia) was not justified.

Issue 2:
The Departmental Representative contended that the payments were in the nature of rent, falling under section 194I. The Tribunal analyzed the agreement terms, highlighting that the payments were compensation for rent expenditure, not rent for property use. Referring to a similar case precedent, the Tribunal concluded that the compensation for alternative accommodation did not qualify as rent under section 194I. The Tribunal emphasized that the payments were not for property use, and the recipients might not be incurring rent expenses. Therefore, the compensation paid by the assessee could not be considered as rent under section 194I. Consequently, the disallowance under section 40(a)(ia) was deemed unsustainable, and the addition was deleted. The Tribunal allowed the appeal in favor of the assessee.

In conclusion, the Tribunal ruled in favor of the assessee, holding that the compensation paid to tenants for alternative accommodation did not constitute rent under section 194I, thereby rejecting the disallowance under section 40(a)(ia) for non-deduction of tax at source.