TDS

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Student (Querist)
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13 August 2010 Expert,

Is TDS applicable on hotel accomodation
case 1) Co. has agreement with hotel where by few rooms are to be provided upon request.

Case 2) There is no such agreement.

Can Tds be deducted @ two rates for separate items of the same bill?

thnx
kirti.

CA SMR

CA SMR (Expert)
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13 August 2010 TDS is deductible under 194 C in both the cases.If the payment to the hotel is through reimbursement to an employee of the company,TDS is not to be recovered.

The above is as per my experience.More expert opinion may be awaited.

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Aditya Maheshwari

Aditya Maheshwari (Expert)
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13 August 2010 Payments to hotels under agreement for use of rooms on regular basis are to be treated as ‘rent’ - Where the assessee-hotel received payments from corporate customers under an agreement for use of the rooms in the hotel by such customers on regular basis, such payments would squarely fall within the term ‘rent’ as defined under the Explanation to section 194-I, and would hence attract deduction of tax at source. If such deduction results in any hardship or financial burden to the assessee, the proper remedy is to apply to the Assessing Officer under section 197 for the issue of certificate for deduction at lower rate or nil rate - Krishna Oberoi v. Union of India [2002] 257 ITR 105/123 Taxman 709 (AP.).

In this context, doubts have been raised as to what constitutes “hotel accommodation taken on regular basis” for the purpose.

The Board have considered the matter. First, it needs to be emphasised that the provisions of section 194-I do not normally cover any payment for rent made by an individual or HUF except in cases where the total sales, gross receipts or turnover from business and profession carried on by the individual or HUF exceed the monetary limits specified under clause (a) or clause (b) of section 44AB. Where an employee or an individual representing a company (like a consultant, auditor, etc.) makes a payment for hotel accommodation directly to the hotel as and when he stays there, the question of tax deduction at source would not normally arise (except where he is covered under section 44AB as mentioned above) since it is the employee or such individual who makes the payment and the company merely reimburses the expenditure.

Furthermore, for purposes of section 194-I, the meaning of ‘rent’ has also been considered. “‘Rent’ means any payment, by whatever name called, under any lease . . . or any other agreement or arrangement for the use of any land. . . .” [Emphasis supplied]. The meaning of ‘rent’ in section 194-I is wide in its ambit and scope. For this reason, payment made to hotels for hotel accommodation, whether in the nature of lease or licence agreements are covered, so long as such accommodation has been taken on ‘regular basis’. Where earmarked rooms are let out for a specified rate and specified period, they would be construed to be accommodation made available on ‘regular basis’. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement.

However, often, there are instances, where corporate employers, tour operators and travel agents enter into agreements with hotels with a view to merely fix the room tariffs of hotel rooms for their executives/guests/customers. Such agreements, usually entered into for lower tariff rates, are in the nature of rate-contract agreements. A rate-contract, therefore, may be said to be a contract for providing specified types of hotel rooms at pre-determined rates during an agreed period. Where an agreement is merely in the nature of a rate contract, it cannot be said to be accommodation ‘taken on regular basis’, as there is no obligation on the part of the hotel to provide a room or specified set of rooms. The occupancy in such cases would be occasional or casual. In other words, a rate-contract is different for this reason from other agreements, where rooms are taken on regular basis. Consequently, the provisions of section 194-I while applying to hotel accommodation taken on regular basis would not apply to rate contract agreements.—Circular : No. 5/2002, dated 30-7-2002.

1. 194I not 194C.

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CA SMR

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13 August 2010 Yes,its 194 I,my mistake.

Student

Student (Querist)
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13 August 2010 thanks Aditya!! I knew you would ans this query....for all my TDS qts. are mostly replied by you!!!!!!!

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