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Tds on land lease!!!!!

avinash annam (C.A-IPCC article student) (79 Points)

31 December 2011

hai friends!

i need to know about the tds on land leases.one of our client was taken agricultre land as lease for 300000 for 4 years.but payment was made once.tds has to be deducted or not on the lease payment!!!!!

i wish a happy new year!

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10 Replies

VIJAYKUMAR (CHARTERED ACCOUNTANT) (203 Points)
Replied 31 December 2011

As far as my opinion TDS is not applicable.

1 Like

CA SANDESH MAHIPAL (Practicing in GST and MSME ) (1985 Points)
Replied 31 December 2011

I Think

TDS is to be deducted because amount paid exceeds the minimum allowable limit.

Yogesh Bhandari (CA FINAL Student) (429 Points)
Replied 31 December 2011

According to section 194I of Income Tax Act:- Any person, other than an individual or a HUF not subject to tax audit under section 44AB in the immediately preceding year, who is responsible for paying to a resident any income by way of rent shall deduct income tax at the rate of: (i) 2% in respect of rent for plant, machinery or equipment; (ii) 10% in respect of other rental payments (i.e., rent for use of any land or building, including factory building, or land appurtenant to a building, including factory building, or furniture or fixtures). No deduction need be made where the amount of such income or the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of the payee does not exceed Rs.1,80,000 (w.e.f. 1.7.2010). For the purpose of this section:- “Rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any – (a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings, whether or not any or all of the above are owned by the payee. Now, you should check whether the assessee is not subject to tax audit under section 44AB in the immediately preceding year, then he would not be liable to deduct TDS, otherwise, the he should deduct TDS on the payment made.

avinash annam (C.A-IPCC article student) (79 Points)
Replied 31 December 2011

the lease was taken for four years so if that amount apportoned for the four years then tds is required or not (with the single payment).

Yogesh Bhandari (CA FINAL Student) (429 Points)
Replied 31 December 2011

payment or credit whichever is earlier, in this case, payment made at once so TDS liability arises irrespective of the fact it relates with how much period.

CA SANDESH MAHIPAL (Practicing in GST and MSME ) (1985 Points)
Replied 31 December 2011

Same reason as Mr. Yogesh has discussed.

CA SANDESH MAHIPAL (Practicing in GST and MSME ) (1985 Points)
Replied 31 December 2011

Agree with reason as Mr. Yogesh has discussed.

Z ( ) (2960 Points)
Replied 31 December 2011

TDS is not applicable in my knowledge

Nonetheless this is a land and provisions of sec explanation 1 to sec 194I states

“rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land................

Therefore prima facie provisions of TDS seems applicable

According to sec 2(1A) "Agricultural income" means - (a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes;

TDS provisions are contained in Chapter XVII. The income on which Tax deduction @ source is required and the person liable to pay are defined in sec 204

Sec 204 states

For the purposes of sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D, section 194E, section 194EE, section 194F, section 194G, section 194H, section 194-I, section 194J and section 194K, 194L sections 195 to 203 and section 285, the expression "person responsible for paying" means

(i) In the case of payment of income chargeable under the head "Salaries" other than payments by the Central Government or the Government of a State, the employer himself or, if the employer is a company, the company itself, including the principal officer thereof;

(ii) In the case of payments of income chargeable under the head "Interest on securities" (NOW MERGED IN INCOME FROM OTHER SOURCES) other than payments made by or on behalf of the Central Government or the Government of a State, the local authority, corporation or company, including the principal officer thereof;

(iia) In the case of any sum payable to a non-resident Indian, being any sum representing consideration for the transfer by him of any foreign exchange asset, which is not a short-term capital asset, the authorised dealer responsible for remitting such sum to the non-resident Indian or for crediting such sum to his Non-resident (External) Account maintained in accordance with the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder;

(iii) In the case of credit, or, as the case may be, payment of any other sum chargeable under the provisions of this Act, the payer himself, or, if the payer is a company, the company itself including the principal officer thereof.

So accordingly TDS provisions apply only on income coming under IT act , exempted income are not chargeable Hence provision of TDS are also not applicable

Further the income on which tax is to be charged comes u/s 5

Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived

CIT v. F. Y. Khambaty, (1986)

"The expression ‘subject to’ used in the opening portion of both Ss.(1) and Ss.(2) of S. 5 has to be read keeping in mind that S. 5 is intended to explain the scope of total income. Therefore, what the use of the said expression shows is that in considering what is total income u/s.5, one has to exclude such income as is excluded from the scope of total income by reason of any other pro-vision of the IT Act and not that the other provi-sions of the IT Act override the provisions of S. 5."

Furtrher sec 10 states " In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included - (1) Agricultural income;"

There are many court cases in which the SAME VIEW POINT is taken (of course facts of the case in most of them are different)

Transmission Corporation of A.P. Ltd. & Anr. v. CIT, (1999) 239 ITR 587 (SC) held that tax is to be deducted at source only on the sum on which income tax is leviable, and which income could be assessed to tax under the Act

CIT v. Williamson Financial Services & Ors., (2008) 297 ITR 17 (SC) "Agricultural income not being chargeable to tax does not fall under various computation provisions."

"There is a vital difference between income not chargeable to tax and not includible in the total income (agricultural income) and income which forms part of total income but which is made tax-free"

But still if deducted then u/s 197 certificate from the income tax officer can be obtained for no deduction of income tax

Sandeep Kumar (Audit Manager) (25 Points)
Replied 02 January 2012

TDS is to be deducted when the payment will be made since the Rs 4 lacs paid only once and the above amount is exceeded the exemption limit of Rs. 180000 for year. Taking the above view TDS is required from Rs 400000 @ 10 %

Wishing You a happy new year