In a significant ruling, the Income Tax Appellate Tribunal (ITAT), Delhi bench has held that the income tax department should allow credit of TDS paid by the society who collects rent on behalf of the Government since such rent its income and the amount of rent paid back to the Government is its expenses.
The assessee, Council of Handicrafts Development Corporation, assists grass-root level organizations, NGO’s, self-help group and small entrepreneur engaged in the handicrafts to enhance and adopt skill through design interventions, enhance productivity and income through technical up gradation, the society sustainable development, and responsible working conditions, assist in making through domestic and international channels and provide assistance and guidance for achieving better social environment.
The assessee was aggrieved by the order of the income tax department denying credit of TDS under section 194I of the Income Tax Act, 1961 on rental income collected by the assessee under an agreement on behalf of the Development Commissioner (Handicrafts), Ministry of Textile in respect of Rajiv Gandhi Handicrafts Bhawan, New Delhi.
Under the said provision, 10% TDS applicable on rent paid on furniture or fittings.
On the second appeal, the Tribunal noticed that the assessee was collecting rent on behalf of the Government of India from the tenants and then remits that rent as it is back to the Government.
Allowing the claim of the assessee, the Tribunal held that “the building is owned by the Government of India. The assessee is not the beneficial owner of the rent as the property was given by the Government to the assessee for its use. The assessee was merely collecting the rent. Thus, the rent collected by the assessee is definitively its income, and rent paid back to the Government is its expenses. It is a lease in & lease out agreement/understanding. Therefore, on the rent paid to the assessee by the tenants, tax is deductible under Section 194I of the Income Tax Act, 1961. As assessee pays the same to the Government, it does not need to deduct tax at source on its repayment to the Government. Thus, in all practical purposes rent collected by the assessee from its tenants and rent paid to the Government (actual transfer of rent to the Government) is its outgo. Therefore, tax deducted by the Tenant should be granted as a refund to the assessee as rent collected is its income in the hands of the assessee, and rent paid to the Government is its expenses.”
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