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June 27, 2022

Under Section 194, a discount cannot be equated to rent in order to attract TDS

Under Section 194, a discount cannot be equated to rent in order to attract TDS

Facts and Issue of the case

The Income Tax Appellate Tribunal passed an order dated in ITA for the Assessment Year 2011-12. There were cross appeals being ITA. Against the order of the Tribunal passed in ITA, Tax Appeal has been preferred before this Court by the appellant original respondent.

The first question raised herein is identical, except for the amount of disallowance.So far as the second question is concerned, dealing with the disallowance of Rs.5,48,921/-, the Assessing Officer has added disallowance of Rs.5,48,921/-, whereas the CIT(Appeals) deleted the said addition made by the Assessing Officer for the additional discount given on account of the godown rent and tax not deducted thereon under section 194(i) of the Act.

The ITAT, the assessee gave additional discount  to parties on  account  of  godown rent paid by the said parties. According to the assessee, the customers did not take the delivery of the goods in their own godown after the purchase and the goods would continue to be at the godown of the assessee till the customer sells the goods to the other parties. However, five persons to whom the deduction had been given by the assessee had taken the delivery of the goods to their own godown and, therefore, they were given the discount for the godown rent paid By them, on the ground that these parties were located in Mumbai and they also owned the godown. The Assessing Officer had chosen not to allow the payment made to them as according to him, the discounts were for rent, which required deduction of tax under section 194(1) of the Act, and, therefore, this discount had been added to the total income of the assessee.

The CIT(Appeals) deleted the addition. The CIT(Appeals) had directed to verify the contention of the Revenue and modify the above and subject to verification, disallowance of the amount was deleted.When challenged before the Tribunal,  it held that the discount offered by the assessee to its parties had been disallowed on two counts. Firstly,  that they were owning their own godown in Mumbai and secondly, the assessee was paying the rent to those parties in the form of discounts extended to them and such discount is subject to the provisions of section 194(1) paying the rent in the garb of discounts.

Observation by the court

The Tribunal rightly held that the Assessing Officer had no authority to sit on the arm chair of the assessee and direct the assessee to carry out its business affairs in a particular  manner,  so  far  as the first reason was concerned. The second reason, according to the Tribunal, of protection of section 194(i) of the Act on the discount extended was not sustainable. Again, the assessee had claimed the assessment as deduction, which cannot be equated with the rent. The CIT (Appeals) adjudicated the issue raised before it by allowing the appeal of the assessee subject to the directions, which has been discussed above. Hence, it did not interfere.

The Tribunal is absolutely right in holding that every assessee is required to decide its own business affairs. The manner of conducting the business also gives it a fillip, which shall need to be essentially decided by the assessee and no one can comment and run his business usurping his position. Again, the rational  given  on  the  discount and having held it a non-protection of the provisions of section 194(i) of the Act, would not require any interference.

So far as the third issue is concerned, there was a disallowance of depreciation on expenses relating to car which was registered in the name of Director. The assessee claimed depreciation of three cars, out of which two cars were bought during the year under consideration. The cars were registered in the name of Directors, but they were used for the business purpose of the assessee company.

The Assessing Officer held that the car purchased and owned in the name of Directors, cannot be said to be the asset of the company, since the assessee company and the Directors are two different persons. It was held to be their asset in personal capacities. Again, according to the Assessing Officer, the Director may not be the Director of the assessee company and he may also hold Directorship with other company or can also hold stake in some other business concern.

The Assessing Officer also held and observed that the depreciation was denied in the year 2010-11, as the assessee failed to establish the same on producing the documentary evidence. He thus, disallowed the depreciation, RTO expenses and insurance charges of all the three cars. The  same was challenged by the assessee before the CIT(Appeals).

The Revenue challenged the same before the Tribunal .According to the ITAT, the material available on record, when looked at, the assessee though was not the legal owner of the vehicle, it has made the payment for acquisition of cars and thus, it is a beneficial owner. It is, therefore, held to be entitled for depreciation on the car.


The appeal of the assessee is dismissed by the court.


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