The Income Tax Appellate Tribunal (ITAT), Mumbai Bench made a judgement that said TDS on the Rental Income can’t get deducted if the accommodation services have been used on a casual basis.

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Dadiba Kali Pundole Esplanade House is the assessee in this case who is engaged in the business of auctioning fine and decorative arts, promoting, publishing, documenting, executing, and selling arts.

Dadiba Kali Pundole Esplanade House has filed its return of income declaring his total income, which got processed under section 143(1) of the Income Tax Act. Then the case of the assessee got chosen 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 had paid Rs.4,68,543 towards rent of hotel accommodation to Royal Bombay Yacht Club on which no TDS amount was deducted.

Therefore, a show-cause was issued 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.

So the assessee replied for the show-cause notice that there was no single payment ever made more than Rs.1,80,000 at any point in time. The assessee has 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.

And the assessee also added in its reply for the show-cause notice that in the said Circular the CBDT has clarified that the TDS applies to the payments made by persons other than individual and HUF for hotel accommodation taken regularly, which will be in the nature of rent would be subject to TDS under section 194-I of the Act.

The Assessing Officer (AO) disallowed the reply given by the assessee and added the same under section 40(a)(ia) of the Act for non-deduction of TDS. The CIT(A) confirmed the addition of AO 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 the source.

Vice-President Mahavir Singh headed the two-member bench of ITAT and has recognised that the accommodation was booked by the assessee in the club not on a regular basis but on a casual and occasional basis as and when the foreign consultants visited the assessee in connection with the assessee’s business.

The Tribunal noted, “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.”

Accordingly, the tribunal held that the Circular has very clearly mentioned that the provision of section 194(I) is applicable where the accommodation is taken regularly, 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 so, it has set aside the order passed by CIT(A).

With Warm Regards,

CL Bureau.

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