As Section 10(26AAA) provides that income from any source in the state of sikkim or by way of dividend or interest on securities of sikkimese individual is not to be included in the total income. Hence, it is exempted for Income tax purposes.
Considering the above, whether TDS is to be deducted for payment of rent to sikkimese in sikkim by a private limited company? Please support your view with reference to section or case law, if any.
Dear Srinivas
There is no doubt that a Sikkimese Individual is not liable to tax on Income which accrues or arises to him from any source in the state of Sikkim or by way of dividend or Interest on Securities. Since the rent to be paid is for property in Sikkim, the source can definitely be said to be in Sikkim. Hence, even rent will qualify as income exempt under Section 10(26AAA).
However, considering that TDS is a machinery provision, you as a deductor do not have the privelege of determining whether the said individual is liable to tax or not. This is the prerogative of the Income Tax Authorities. The Sikkimese individual should therefore visit his jurisdictional officer and obtain a NIL deduction certificate for the income to be received by him. This would be the safest way out for you. I do not have a case law on the subject, but i am drawing a reference from CBDT Circular 4/2002 dated 16.07.2002 which was issued on the subject of "Whether self declaration u/s 197A can be submitted by entities whose income is exempt under Section 10" The said circular stated that such self declaration can only be provided by those institutions whose income is unconditionally exempt under Section 10 & who are statutorily not required to file return of income as per Section 139. The circular goes on to list such entities. While it may be argued that the said circular was not meant to address individuals, an over zealous officer may choose to refer to it.
If you wish to take an aggressive stand, you should ensure that you have a declaration in writing from the Sikkimese individual along with an indemnity from him to the effect that, in case your organisation is pulled up for default of non-deduction then the liability for the same will be on the same individual. The said declaration should be supported by documents issued by the appropriate local authority to prove that the persons name is recorded in the register maintained under the Sikkim Subjects Regulation or such other method as is specified in the Explanation to Section 10 (26AAA)
Hope this helps!
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