COMMISSIONER OF INCOME TAX: DELHI-V vs. RESULT SERVICES PVT. LTD.
What did the High Court hold?
The Tribunal held that the payment was not rent as defined under Section 194I because the inter-company relationship was not that of landlord and tenant. The payment was an internal arrangement to share the rent burden.
What were the facts?
The assessee, a subsidiary, made payments to its holding company for sharing rent of premises leased by the holding company. The holding company deducted TDS on rent paid to the landlord. The revenue sought to disallow the assessee's payment under Section 40(a)(ia) treating it as rent.
What were the issues?
Whether payments made by a subsidiary to its holding company for sharing rent of premises leased by the holding company constitute 'rent' for the purpose of TDS under Section 194I and disallowance under Section 40(a)(ia).
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
IN THE HIGH COURT OF DELHI AT NEW DELHI . ITA 324/2013 . . . COMMISSIONER OF INCOME TAX: DELHI-V . ..... Appellant . Through: Mr.Abhishek Maratha, Adv. . . . versus . . . RESULT SERVICES PVT. LTD. ..... Respondent . Through: Mr.C.S.Chauhan, Advocate . . . CORAM: . HON'BLE MR. JUSTICE SANJIV KHANNA . HON'BLE MR. JUSTICE SANJEEV SACHDEVA . . . O R D E R . 02.08.2013 . 1. This appeal by the revenue which relates to the assessment year 2008- 09 challenges the finding recorded by the Tribunal in their order dated 28.6.2012. The Tribunal in the impugned order has held that Section 194I of the Income Tax Act was not applicable to the facts of the present case, as the payment was not rent. . 2. Learned counsel for the appellant submits that rent would mean and include any payment by whatever name called be it under a lease, sub- lease, tenancy or any other agreement or arrangement for the use of land, building etc. whether or not the land, building etc. owned by the payee. . 3. It is an undisputed and accepted position that the respondent-assessee is 100% subsidiary to M/s McCann?Erickson (India) Pvt. Ltd. The premises on rent were taken on lease by M/s McCann?Erickson (India) Pvt. Ltd. The Tribunal has referred to various clauses of the lease deed under which M/s McCann?Erickson (India) Pvt. Ltd. was barred from subletting, give on lease or licence, the premises or any portion thereof to any other party. No third party was allowed to use and occupy the said licenced premises except subsidiaries, affiliates, group entities, associates, etc. . Tribunal has recorded that M/s McCann?Erickson (India) Pvt. Ltd. was deducting tax at source on payment made to the landlord. This position is accepted and undisputed. . 4. Payment of money by the respondent-assessee to M/s McCann?Erickson (India) Pvt. Ltd. is an internal understanding between them to share the burden of rent. The amount once collected or reimbursed was for payment to the landlord by M/s. McCann-Erickson (India) Pvt. Ltd. M/s McCann?Erickson (India) Pvt. Ltd. had deducted tax at source when payment was made to the landlord. The inter se relationship between M/s McCann?Erickson (India) Pvt. Ltd. and the respondent-assessee is not that of a landlord and tenant and the payment received, adjusted or contributed inter se, despite the vide definition of the term rent cannot be treated as ?rent? as defined in the Explanation (1). The intent and purpose was to ensure that the money was collected or reimbursed and the tenant i.e. M/s McCann?Erickson (India) Pvt. Ltd. makes a payment of rent to the landlord but without being burdened and with the subsidiary bearing its share. Reimbursement or payment made by the respondent assessee was towards their share or proportion. This was to ensure that M/s McCann?Erickson (India) Pvt. Ltd. paid ?rent? to the landlord. Intention, nature and purpose of the ?transaction? between the respondent assessee and its holding company has to be understood and given due credence. We have to take a pragmatic and practical approach and not be pedantic. The purpose behind the wide definition of term ?rent? is to prevent ?subterfuge? to avoid deduction of tax at source. . 5. The assessing officer had invoked Section 40(a)(ia) of the Act and had disallowed the entire payment made by the respondent-assessee of Rs.56,23,456/- as expenditure. Such payments have been made since 1994, and no objection or question of deduction of tax was raised earlier at any point of time. . 6. We do not think, therefore, the order of the Tribunal requires any interference. The appeal is, accordingly, dismissed. There will be no orders as to costs. . . . . . SANJIV KHANNA, J. . . . . . . . SANJEEV SACHDEVA, J. . AUGUST 02, 2013 . sv . . . $ 2 .
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