“NO TDS IN RESPECT OF JOINTLY OWNED PROPERTY EVEN IF THE COLLECTIVE RENT EXCEEDS RS. 1.80 LACS”

TAX TALK-27.08.2012-THE HITAVADA

TAX TALK

BY CA. NARESH JAKHOTIA (Chartered Accountant)

“NO TDS IN RESPECT OF JOINTLY OWNED PROPERTY EVEN IF THE COLLECTIVE RENT EXCEEDS RS. 1.80 LACS”

Query 1]

I am born on 15.09.1953. My 60^th birthday falls on 15.09.2012. Kindly tell whether I will be considered as senior citizen for the purpose of Income Tax for the financial year 2012-13? [B.S. Moroney, Himalaya Apartments, Canal Road, Ravinagar, Nagpur – 440033]

Opinion

You are born on 15.9.1953 & will be attaining the age of 60 years on 15.9.2013. Accordingly, for the F.Y. 2013-14, you’ll be considered a Senior Citizen for the purpose of Income Tax Act-1961. For the F.Y. 2012-13, you will not be entitled to the higher basic exemption limit as applicable to the senior citizen.

Query 2]

1.      There is a reference to Accounting Standards notified by the Central Government in Section 145(2) of Income Tax Act. Kindly enlighten me where I can locate these Accounting Standards on the internet. I find the Accounting Standards laid down by the Institute of Chartered Accountants of India in their website. But presumably these are not the same as those notified by the Central Government under Section 145(2) of I.T.Act-1961.

2.      In case a tax-free gift is received by an assessee, where is it to be shown in the income tax return which is submitted online? [k_kumar39@hotmail.com]

Opinion:

1.      The Accounting standards as mentioned in Section 145(2) of the Income Tax Act-1961 are same as those issued by the Institute of Chartered Accountants of India & the same are easily accessible at www.icai.org.

2.      The gift received has to be the part of the Capital A/c and same could be reflected by incorporating it in ITR-4 in case of return to be filed by an Individual/HUF. If, however, return is to be filed in ITR-1/2/3/4S, the same cannot & need not be disclosed in the return to be filed.

Query 3]

A jointly owned property (4 Co-owners are there) has been given on lease to a company for an annual rent of Rs. 6 Lacs i.e., Rent of each of the co-owners is of Rs. 1.50 Lacs each. The company paying rent after deducting the TDS. The lesessee is demanding the rent without TDS as the rental payment though collectively is exceeding Rs. 1.80 Lacs is less than the applicable ceiling of Rs. 1.80 Lacs in the hands of individual co-owners. Please guide as the legal position as applicable in such case? Whether TDS is applicable or not? Can the Rent be paid without TDS in such case? Please elaborate the legal position with case laws, sections & other material as may be available as we are getting contradictory legal opinion on the aspects?  [CA. Rajesh*******k@gmail.com]

Opinion:

1.      Section 194-I of the Income Tax Act provides for deduction of tax at sources from payment of rent. According to section 194-I, any person (other than individual/HUF with turnover less than the limit specified in section 44AB in immediately preceding financial year), who is responsible for paying to a resident any income by way of rent is required to deduct tax at sources at the prescribed rates. No tax is deductible on the rent payment if the amount of such rent credited or paid or likely to be credited or paid during the financial year to the payee landlord or lessee does not exceed RS. 180,000/- [w.e.f. 01-07-2010]. (Prior to 01.07.2010, the limit was Rs. 120,000/-)

2.      TDS on rental payments is prescribed at the rate of:

a)      @ 2% for payment towards the use of any machinery or plant or equipment.

b)     @ 10% for the use of any land or building or furniture or fittings for all persons.

c)     The rate of TDS will be @ 20% in all cases, if PAN is not quoted by the deductee with effect from 01-04-1010.

3.      Section 26 provides that where the property is owned by two or more person then the income from such property shall not be assessed as income of association of person (AOP). Instead, the share of each such person in the income from the property shall be included in his total income, if the following condition are satisfied:
a] The property consists of buildings or buildings and land appurtenant thereto, and
b] Respective shares of such persons are definite and ascertainable.

4.      The clarification issued by the Central Board of Direct Taxes vide Circular No. 715 dated 08-08-1995, particularly to the question No. 22 and its answer, is as under::

“Question 21 : Whether the limit of Rs, 120,000 per annum would apply separately for each co – owner of a property ?

Answers : Under section 194–I, the tax is deductible from payment by way of rent if such payment to the payee during the year is likely to be Rs. 120,000/- or more. If there are a number of payees, each having a definite and ascertainable  share in the property, the limit of Rs. 120,000/- (Now Rs. 180,000/- per annum) will apply to each of the payees/co – owners separately. The Payers and payee are however, advised not to enter into sham agreements to avoid TDS provisions.”
[The limit at the time of issue of this circular was Rs. 1.20 Lacs which is now enhanced to Rs. 1.80 Lacs]

5.      My Opinion:
Going through the provision of Section 26, section 194-I, CBDT clarification and decided cases, I am of the opinion that the limit of Rs 180,000//- specified in section 194-I will apply individually to each co-owner provided that their share in the property is definite and ascertainable.

6.      The few of the cases which can be relied upon in support of the above view are as under:
a] Gora Chand Sen v. CIT (1985) 154 ITR 435 (Cal).
b] Tulsidas Kilachand v. CIT (1987) 63 CTR (Bom) 324.
c] CIT v. Nauseer K. Kanga (1979) 120 ITR 404 (Bom).
d] Ashok Kumar Agrawal v. ITO (2007) 13 SOT 321) Luck Trib).
e] CIT v. Lally motors (2008) 19 (I) ITCL 43 (P&H – HC).
f] Oriental Bank of Commerce v. ITO (2006) 99 TTJ (Chd – Trib) 1235.
g] CIT v. Manager, State Bank of India (2009) 226 CTR (Raj) 310