TDS : Need to deduct Tax on Hotel Accomodation

This query is : Resolved

Pradeep Kumar (Querist)
Follow

25 August 2009 Hi

Please refer the below circular & advise whether we should deduct TDS on Hotel taken for Accomodation for Employees on a regular basis or not????

ircular : No. 5/2002, dated 30-7-2002.
>
> 1. Circular No. 715 dated 8-8-1995 has been issued by the Central
> Board of Direct Taxes to clarify various provisions relating to tax
> deduction at source under various provisions of the Income-tax Act.
> Question No. 20 of the aforesaid Circular related to applicability of
> the provisions of section 194-I of the Income-tax Act in respect of
> payments made to a hotel for rooms. The relevant question and answer is reproduced below :
>
> . . . Q. No. 20 : Whether payments made to a hotel for rooms hired
> during the year would be of the nature of rent?
>
> Ans. : Payments made by persons other than individuals and HUF for
> hotel accommodation taken on regular basis will be in the nature of
> rent subject to TDS under section 194-I. [Emphasis supplied]
>
> In this context, doubts have been raised as to what constitutes hotel
> accommodation taken on regular basis for the purpose.
>
> 2-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.
>
> 3. 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.
>

Party is refusing on the ground that Hotel has not
> earmarked any particular Room for our company, neither there is any
> obligation on the part of Hotel to provide a room.
>
> This clearly means that TDS liability of company does not arise.
>

Thanks

Jitender

Jitender (Expert)
Follow

26 August 2009 generally travel agents & companies went into contract to have room in a year at a particular rate , below rack rate. If the contract of this nature, then tds is deductible becz in that case it is not necessary that a particulatr room is booked or not.