LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

Preliminary expenses

Baljeet Singh (Chartered Accountant) (32 Points)

28 July 2015

Dear All,

I have a client who is going to start Restaurent and had already taken premises on rent. This is a partnership firm. As deed is still in process. Please provide me the resolution that, partner has paid the rent of 2 lacs plus service tax from their personal account. Whether we need to deduct TDS on this service tax amount, if yes, how to deposit tds as deed in process and TAN number still not applied. It will take around a month for all the formalities.

Thanks in advance

Reply
Follow
Share

4 Replies

Rajagopalakrishnan R (PARTNER) (1417 Points)
Replied 28 July 2015

As soon as the deed is finalised and signed by all partners, you may treat the rent paid by the partner as capital contribution and debit rent paid account. The date of payment can be taken as this date and TDS deducted and paid with reference to that date. TDS is applicable on rent only and not on the service tax.

Z ( ) (2960 Points)
Replied 29 July 2015

@ Rajagopalakrishnan R

Sir, is TDS applicable in this case?

OP mentioned that the partnership deed is absent at the moment and hence there wont be PAN of the firm either. The firm wont be even registered for the purpose of tax deduction. On the rent agreement the signature and the contract would be in name of the partner only (i.e an individual) . OP also mentioned that business is to be started so commercial acticity has not started as of yet.

The individual himself does not has to transact the business but its the firm which will be transacting the business, hence , isn't the above expenditure in nature of personal expense , for which there is no obligation to deduct tax ?

Even if its not a personal expense then by virtue of S.194 I , an indivdual is not liable to deduct tax unless condition mentioned therein are met.

194-I. Any person, not being an individual ....shall,......, deduct income-tax ......

S.194 I provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section :

Is this condition being satisfied ? If not then there should be no requirement to deduct tax at source.

Further as per your treatment, the rent will be claimed as an expense, but how can they claim deduction for anything prior to the date of partnership deed, except for S.35D ?

If wrong, kindly give a detailed explanation.

Rajagopalakrishnan R (PARTNER) (1417 Points)
Replied 03 August 2015

The test for TDS applicablility would be who is going to claim the rent as an expense. The Partner ( or prospective partner) pays rent which is going to be claimed by the firm. At the end ofthe year, if you see the PL of thefirm it wil contain an amount greter than 180000 rent paid to a single person. Then TDS liability will definitely kick in. The reason why I suggested the entry as above was to crystallize the date of payment in the hand of the firm. The date on which rent is debited and partners account is credited would be taken as the date of payment for TDS purpose.

ON the contrary if the firm does not want to claim this rent as its expenses, ( which I think is NOT the intention of the Querist) then no need for TDS. Other things like agreement etc can always be endorsed in favour of firm with the consent of the landlord. In fact this can be built into the agreement itself.

Z ( ) (2960 Points)
Replied 05 August 2015

Sir I have only one Question, how can the firm claim expense for the date prior to the date of deed? Kindly confirm on this

I agree with rest part like endorsement of the contract.

And as to TDS limit, that I quoted for the prospective partner, he being an individual would be liable to deduct tax if his turnover exceeds as mentioned u/s 44AB