Section – 194H : Commission or brokerage
Introduction
Section 194H was originally introduced by
Finance (No. 2) Act, 1991, w.e.f. 1st October, 1991 and omitted
by the Finance Act, 1999 w.e.f. 1st April, 2000.
The section has been reintroduced by Finance
Act, 2001 w.e.f. 1st June, 2001.
The provisions of section 194H are applicable
to all assessees except individual and H.U.F. in respect of
commission or brokerage payments exceeding Rs. 2,500/- in a
financial year.
However, if an individual or HUF is engaged
in business or profession and the turnover or gross receipts, in
the financial year immediately preceeding the year in which
commission or brokerage is credited or paid exceeds the limits
specified in section 44AB, then such an individual or HUF is
liable to deduction tax at source from such payments as per the
provisions of section 194H.
The deduction of tax at source is to be made
@ 5%. This shall be further increased by surcharge and education
cess. The applicable rate of surcharge, in case of individual,
HUF, AOP and BOI is 10% of income tax, where the commission or
brokerage payable and subject to deduction of tax at source
exceeds
Rs. 8,50,000/-. In case of all other persons, the applicable
rate of surcharge is 2.5% of income tax. The amount of income
tax and surcharge shall be further increased by education cess
calculated @ 2% of income tax and surcharge.
The term "commission or brokerage" is defined
in Explanation (i) to the section, to include any payment
for –
– services, other than professional services
– services in the course of buying or selling
of goods
– services in relation to any transaction
relating to any asset, valuable article or thing, not being
securities.
As per Explanation (ii), the term
"professional services" means services rendered in the course of
carrying on any profession as mentioned in section 44AA.
As per Explanation (iii), the expression
"securities" shall have the meaning as defined in clause (h) of
section 2 of Contracts (Regulation) Act, 1956, which reads as
follows:
| (h)
|
"securities" include – |
| (i)
|
shares,
scrips, stocks, bonds, debentures, debenture stock or other
marketable securities of a like nature in or of any
incorporated company or other body corporate; |
| (ia)
|
derivative; |
| (ib)
|
units or
any other instrument issued by any collective investment
scheme to the investors in such schemes; |
| (ic)
|
security
receipt as defined in clause (zg) of section 2 of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002; |
| (ii)
|
Government
securities; |
| (iia)
|
such other
instruments as may be declared by the Central Government to
be securities; and |
| (ii)
|
rights or
interest in securities; |
Scope
Going by Explanation (i), any commission or
brokerage paid in respect of any of the transactions related to
the securities, as defined in Explanation (iii), will not be
covered under section 194H. Similarly, any payment made in
respect of professional services would be governed by section
194J and not section 194H. Insurance commission is covered u/s.
194D and not u/s. 194H.
It needs to be noted here that the definition
of term "commission or brokerage" in Explanation (i) is an
"inclusive" definition. When a word is defined so as to
"include" something, the definition is extensive. That means
over and above the natural meaning of word, the specifically
provided meaning of the word will also have to be attributed for
the purpose of interpretation of the words "commission or
brokerage". The scope of the definition is therefore wide.
The basic principle that emerges out of the
definition in Explanation (i) is that the element of agency is
essential in case of all the services or the transactions
contemplated by Explanation to section 194H. The transactions or
the services, which are on principal-to-principal basis would
not be governed by the provisions of section 194H. Reference is
invited to the Gujarat High Court decision in case of
Ahmedabad Stamp Vendors Association vs. Union of India [257 ITR
202] where, on the issue of discount availed by stamp
vendors, the High Court observed that the stamp vendors are
required to purchase the stamp papers on payment of price less
the discount on principal-to-principal basis and there is no
contract of agency at any point of time. The transaction amounts
to sale and the licensed stamp vendors are not mere agents of
the State Government. The court, accordingly, held that the
discount made available to the licensed stamp vendor does not
fall within the expression "commission or brokerage" u/s. 194H
of the Act.
Same principle has been followed by the
Calcutta Tribunal in Shree Baidyanath Ayurved Bhawan Ltd. vs.
Jt. CIT – [(2004) 83 TTJ (Cal) 409] where, on the issue of
turnover commission paid to the dealers, the Tribunal held that
such commission was in the nature of trade discount and the
transaction with the dealers being on principal to principal
basis, the expression "commission" will not extend to such trade
discount. Similarly, in the decision of Asstt. CIT vs. The
Samaj [(2001) 71 TTJ (Ctk) 783], on the issue of payment of
commission to the newspaper agents and advertising agencies, the
Tribunal held that since the arrangement between the assessee
and the agents was to be treated as a contract for sale and not
agency agreement, there was no liability to deduct tax at source
u/s. 194H.
For the meaning given to the term
"commission", reference is also invited to the decision of
Madras High Court in Around The World Trade & Tour (P) Ltd. &
Ors. vs. Union of India & Ors [(2004) 268 ITR 477 (Mad)]
where, on the issue of supplementary commission paid by airlines
to the agents, the High Court observed that irrespective of
whether such commission is passed on by the agent to the
customers or is retained by the agents, so long as such payment,
by whatever name called, is in the nature of commission, it is
obligatory to deduct tax at source u/s. 194 H from such payment.
Circular No. 6 / 2003, dated 3-9-2003
As per this Circular, the requirement of tax
deduction at source under section 194H is not applicable in
respect of Turnover Commission payable by the Reserve Bank of
India to the Agency Banks (Banks authorised for conducting
Government Business) for performing the general banking business
of the Central and State Governments on behalf of RBI.
Section 194-I : Rent
Introduction
Section 194–I was introduced by Finance Act,
1994, w.e.f. 1-6-1994.
The provisions of section 194–I are
applicable to all assessees except individual and H.U.F., in
respect of rent payments exceeding Rs. 1,20,000/- in a financial
year. However, if an individual or HUF is engaged in business or
profession and the turnover or gross receipts in the financial
year immediately preceding the year in which commission or
brokerage is credited or paid exceeds the limits specified in
section 44AB, then such an individual or HUF is liable to deduct
tax at source from rent payments as per the provisions of
section 194-I.
The applicable rate for deduction of tax at
source is 15%, if the payee is an individual or HUF, and 20% in
other cases. This shall be further increased by surcharge and
education cess. The applicable rate of surcharge, in case of
individual, HUF, AOP and BOI is 10% of income tax, where the
rent payable and subject to deduction of tax at source exceeds
Rs. 8,50,000/-. In case of all other persons, the applicable
rate of surcharge is 2.5% of income tax. The amount of income
tax and surcharge shall be further increased by education cess
calculated @ 2% of income tax and surcharge.
The term "rent", as defined in the
Explanation to section 194–I, means any payment by whatever name
called, under any —
– lease,
– sub-lease,
– tenancy
– any other agreement or arrangement for the
use of
– any land or
– building (includes factory building),
together with furniture, fitting and the land appurtenant
thereto,
whether or not such building is owned by the
payee.
Exemption limit
So far as the exemption limit of Rs.
1,20,000/- and the applicable rate is concerned, reference is
invited to the decision of Calcutta High Court in the case of
Smt. Bishaka Sarkar vs. Union of India & Another [(1996) 219 ITR
327]. In this case there was a tenancy–in–common standing in
the name of four landlords jointly. The total rent exceeded Rs.
1,20,000/-. The High Court held that where composite rent is
being paid to the co-owners it cannot be split up for purpose of
section 194-I. The court further held that for determining the
rate of tax deductible each individual co-owner will not treated
as separate "individual" but would be treated as congregation of
four persons taken together and would fall within the ambit of
expression "other case" in section 194-I. The applicable rate
accordingly was decided as 20%.
Reference is also invited to recent decision
of Calcutta High Court in the case of Amalendu Sahoo vs. ITO
[(2003) 264 ITR 16]. In this case, the petitioners, as
undivided joint owners of certain property, had let out a
property to a bank and later they entered into agreement with
the bank agreeing to individually let out specified portions of
the property to the bank. The High Court held that since the
petitioners had individually let out specified areas of the
property to the bank, the rent payable was required to be
apportioned individually and, accordingly, if upon such
apportionment the petitioners were not individually entitled to
receive a sum in excess of Rs. 1,20,000/- per annum, the bank
was not entitled to make any deduction of tax at source.
Also, in Circular No. 715, dt. 8th August,
1995, in reply to question No. 21 as to whether the limit of Rs.
1,20,000/- per annum applied separately for each co-owner of a
property, the CBDT has clarified that if there are a number of
payees, each having a definite and ascertainable share in the
property, the limit of Rs. 1,20,000/- will apply to each of the
co-owner separately.
Scope
Now, in the definition the word used is "rent
means .. ."…The definition is, therefore, exhaustive and
prima facie, restrictive. The term "rent" should,
therefore, retain its ordinary meaning. The scope of the
definition should not be widened.
The scope of the definition of the term
"rent" is explained by the Board, by issuing various
circulars/clarifications over a period.
To further understand the scope, in addition
to the circulars, reference is invited to the recent decision of
Rajkot Tribunal in Ganesh Alu Bhandar vs. ITO [(2003) 87 ITD
588]. In the matter of using the cold storage facility, the
Tribunal observed that cold storage building has specialized
planning and construction and is very much an integral part of
the air conditioning plant to enable the assessee to run its
business of a cold storage. Hence, it cannot be rated on same
footing as that of a warehouse. Though no manufacturing process
is carried out in a cold storage, it is still a plant. The
definition of ‘rent’ u/s. 194-I does not include any payment
made for use of a plant. The term ‘plant’ is specifically
excluded from the definition in Explanation (i). Therefore,
there is no question of applying the provisions of section 194-I
to the payments made for cold storage facility.
On the same principle, Mumbai Tribunal in
Gulf Oil India Ltd. vs. ITO in [(2000) 75 ITD 172] has held
that tanks for storing lubricating oils are neither land nor
building and, therefore, rent paid for hiring them does not
attract section 194–I.
Clarifications issued by CBDT in respect of
certain payments
-
Circular No. 699, dt. 30th January, 1995
Circular No. 735, dt. 30th January, 1996 (Sr. No. XIII)
In case of rent payments made to
| —
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Regimental Fund or Non-public Fund established by Armed Forces
of the Union whose income is exempt u/s. 10(23AA),
|
| —
|
Local authorities whose income is exempt u/s. 10(20),
|
there is no requirement to deduct tax at
source. A certificate regarding their tax exempt status has to
be produced by these authorities.
