Reimbursement of rent not subject to TDS u/s 194-I – Delhi ITAT

ACIT v Result Services (P) Ltd [IT Appeal NO. 2846 (DELHI) OF 2011] (Delhi ITAT)


The assessee company is a 100% subsidiary of the holding company M/s McCann-Erickson (India) Pvt. Ltd. M/s McCann Erickson has taken on rent office premises in Delhi and Mumbai vide separate lease deeds with the landlords. M/s McCann has permitted common use of the above premises by the assessee company. The full rent for the premises have been paid directly by the holding company to the landlords after deducting tax at source u/s 194-I of the Act. During the year under consideration, the assessee paid Rs. 56,23,456/- to M/s McCann towards its portion of rent on account of the above use of office premises.

The AO has disallowed the above payment u/s 40(a)(ia) by holding that TDS should also have been deducted by the appellant company on the above amount u/s 194-I of the Act.

Tax authority’s contentions

  • For the purpose of section 194-I in Explanation (i) of that section, the rent has been defined as ‘rent’ means any payment whatever name called under any lease, sub lease, tenancy or any agreement or arrangement whether or not any or all of the land or building are owned by the payee.
  • The payment has been made by the subsidiary company to the holding company for the use of the factory building.
  • Therefore, as per the definition of the rent as provided in Explanation (i) of section 194-I of the Act, such arrangements for the use of factory premises was liable to deduct tax on the payment of the rent on the holding company


  • As per clause 5 at page 31 (further covenant with Lessor) of the Lease Deed, the premises were to be used by the subsidiary and associate companies as well.
  • The assessee is paying rent to the holding company as reimbursement since last many years. This position has been accepted by the department all through and it has been never disputed even when provisions for TDS were on statute since 1994.
  • The lease deed provides for use of the premises by the subsidiary companies.
  • The holding company has also not debited the whole of rent to its books of account. It has only debited the rent which pertains to the part of the premises occupied by it.
  • Therefore, in our considered view, there was no lessor and lessee relationship between the holding company and assessee where the provisions of section 194-I are attracted.
  • Keeping these facts in view, we find merits in the order of the CIT (A) in deleting the addition made u/s 40(a)(ia) of the Act.

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