The following situations are most commonly occur in enterprises for Hotel Rent paid for Guests:
In situation 1, the specific room is hired irrespective of occupancy.
Thus the room is earmarked and different guests check in and check out
throughout the period. [hotel accommodation taken on regular basis]
In situation 2, room tariff is pre decided with hotel and the room is
made available as and when required subject to availability. The
contracts entered into for the said arrangement is a ‘rate contract
agreement’.[an arrangement under rate contract agreement]
The Central Board of Direct Taxes (CBDT) issued a Circular No. 715 on
8th August 1995 addressing TDS queries under various categories. The
said circular also contained the reply to question no. 20 relating to
applicability of TDS on payments made for hotel accommodation.
The relevant extract of the circular is:
Question 20: Whether payments made to the hotel for rooms hired during the year would be of the nature of rent?
Answer: Payments made by persons, other individuals
and HUFs for hotel accommodation taken on regular basis will be in
nature of rent subject to TDS under section 194-I The said circular
introduced a term ‘accommodation taken on regular basis’ which lead to
confusion. In light of the said circular assessees started deducting tax
at source on expenditure relating to hotel accommodation under section
194-I.
On 28th June 2002, High Court of Andhra Pradesh ruled in favour of
Revenue on the issue relating to applicability of TDS on hotel
accommodation. The crux of the judgement was that:
Word ‘rent’ has been defined in a wider sense to include not only
consideration paid under a lease or sub-lease or tenancy but also the
consideration paid under any other agreement or arrangement for the use
of the land or building etc. and therefore consideration paid by the
customers to the hotel on account of room charges has to be regarded as
‘rent’ within the meaning of that term for the purpose of TDS under
section 194-I.
Thus the issue got somewhat clear as to applicability of TDS on hotel
accommodation as the decision by Hon. High Court of Andhra Pradesh was
in line with the Circular No. 715 dt. 8th August 1995.
The position post this judgement was that TDS will be applicable to
both the situations considered above viz. Situation 1 and Situation 2.
Right after the judgement by Hon. High Court of Andhra Pradesh, CBDT
came up with a Circular No.5 on 30th July 2002. The said circular was
issued to clarify the confusion raised by Circular No.715 of 8th August
1995.
According to Circular No.5 of 30th July 2002:
2. The Board have considered the matter. First, it needs to be
emphasised that the provisions of section 194-I do not normally cover
any payment for rent made by an individual or HUF except in cases where
the total sales, gross receipts or turnover from business and profession
carried on by the individual or HUF exceed the monetary limits
specified under clause (a) or clause (b) of section 44AB. Where an
employee or an individual representing a company (like a consultant,
auditor, etc.) makes a payment for hotel accommodation directly to the
hotel as and when he stays there, the question of tax deduction at
source would not normally arise (except where he is covered under
section 44AB as mentioned above) since it is the employee or such
individual who makes the payment and the company merely reimburses the
expenditure.
Furthermore, for purposes of section 194-I, the meaning of ‘rent’ has
also been considered. “‘Rent’ means any payment, by whatever name
called, under any lease . . . or any other agreement or arrangement for
the use of any land. . . .” [Emphasis supplied]. The meaning of rent’ in
section 194-I is wide in its ambit and scope. For this reason, payment
made to hotels for hotel accommodation, whether in the nature of lease
or licence agreements are covered, so long as such accommodation has
been taken on ‘regular basis’. Where earmarked rooms are let out for a
specified rate and specified period, they would be construed to be
accommodation made available on ‘regular basis’. Similar would be the
case, where a room or set of rooms are not earmarked, but the hotel has a
legal obligation to provide such types of rooms during the currency of
the agreement.
3. However, often, there are instances, where corporate employers, tour
operators and travel agents enter into agreements with hotels with a
view to merely fix the room tariffs of hotel rooms for their
executives/guests/customers. Such agreements, usually entered into for
lower tariff rates, are in the nature of rate-contract agreements. A
rate-contract, therefore, may be said to be a contract for providing
specified types of hotel rooms at pre-determined rates during an agreed
period. Where an agreement is merely in the nature of a rate contract,
it cannot be said to be accommodation ‘taken on regular basis’, as there
is no obligation on the part of the hotel to provide a room or
specified set of rooms. The occupancy in such cases would be occasional
or casual. In other words, a rate-contract is different for this reason
from other agreements, where rooms are taken on regular basis.
Consequently, the provisions of section 194-I while applying to hotel
accommodation taken on regular basis would not apply to rate contract
agreements.
Thus:
Situation 1- TDS Applicable
Situation 2- TDS not Applicable
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