1. Who is liable to deduct TDS U/s 194R ?

Any person being Individual/HUF/Company/Firm/LLP etc. providing any benefit or perquisite whether convertible into money or not, is liable w.e.f. 1-7-2022 to deduct TDS U/s 194R @ 10% on the value or aggregate value of such benefit or perquisite.

Any individual or HUF whose turnover or gross receipts in business in the immediately preceding previous year was not more than Rs. 1 crore or in case of professional whose gross receipts in profession were not exceeding Rs. 50 Lakh will not be liable to deduct tax U/s 194R.

2. From whom to deduct TDS U/s 194R ?

TDS U/s 194R is to be deducted from any resident on any benefit or perquisite arising in business or profession of such resident.

3. Whether any person providing any benefit or perquisite to an end user/ultimate consumer is liable to deduct TDS U/s 194R ?

No, if such benefit or perquisite has not arisen in the business or profession of such end user. Say for example any consumer purchases one Refrigerator for personal purposes, from an electronic shop for Rs. 2.90 Lakh and also given one refrigerator worth of Rs.21000 free of cost to the said end user /consumer, or provided one Goa tour worth of Rs. 21000/- as free of cost to such end user then such benefit or perquisite is not liable to TDS U/s 194R, because such benefit or perquisite has not arisen in business or profession of such end user.

4. Was TDS deductible prior to amendment of Finance Act 2022, if any benefit in kind is provided ?

Prior to introduction of Sec. 194R there was no provision to deduct TDS on benefit provided in kind. Because all other TDS provisions states the words, “any sum payable”, “any sum of money”, “responsible for paying”, “responsible for paying any sum”, i.e. TDS provision applies in most of the cases if any sum is payable, any money is payable and not for kind.

In a movie, “Billu Barber” produced by Shah Rukh Khan, there were special appearances of Heroines Kareena Kapoor, Priyanka Chopra and Deepika Padukone for songs, the Ld. AO during the course of assessment of Red Chiilies Entertainment observed that major item of gift amounting to ` 45 lakh was given to two actors for participating in some song sequences in the movie. Hence made disallowance U/s 40(a)(ia) for violation of 194J for not deducting TDS on providing gifts in kind. Subsequently in the appeal ITAT Mumbai in the said case of Red Chillies Entertainment P. Ltd. V. ACIT vide ITA No. 1577/Mum/2013 dt. 31-5-­2016 AY 09-10 allowed in favour of the assessee stating that, “The expression “any sum” used in section 194J, whether should mean payment made in money terms or also in kind requires to be examined. It is the contention of the assessee that “any sum” as referred to in section 194J, would only relate to payment made in money term. It is observed, in case of Shri H.H. Sri Rama Verma v/s CIT [1990] 187 ITR 308 (SC), the Hon’ble Supreme Court while referring to the expression “any sum paid” used in section 80G, held that “any sum” referred to in the provision would only mean cash amount of money”.

Therefore earlier any gifts in kind were not covered under TDS provisions therefore now Section 194R will attract, if any gifts in kind are given if other conditions of Section 194R are applicable.

5. If any manufacturing company sells its products to distributors and also provides free gifts to further pass on to end user/consumer then is it liable to TDS U/s 194R ?

Yes. Even if the distributor is acting like conduit in providing such benefit or perquisite to end user/consumer, but as per CBDT guideline vide circular No. 12/2022 dated 16-6-2022 issued in this regard it is not required to check whether benefit is taxable or not in the hands of recipient. Say for example a Car manufacturing company is selling 300 cars to distributor at a cost of Rs. 23 Lakh per car and also providing seat cover free of cost for each car (each seat cover having value of Rs. 22000), such seat cover are to be passed on free of cost to end user/consumer, the said manufacturer is required to deduct TDS U/s 194R on aggregate value of such seat covers.

However the said issue of circular seems not in accordance with act, because Section 4 states that TDS can be done only on income chargeable to tax.

Section 4(2) of the income tax act states that,

(2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act”.

Section 4(2) of the act as above states that the TDS is to be deducted on income chargeable U/s 4(1). Therefore any amount which is not an income in the hands of recipient, it may not be subject to TDS. But now until the circular 12/2022 is supplemented by suitable amendment, the TDS has to be done on this value deeming it as benefit.

If 3 cars would have been given free of cost on sale of 300 cars to the distributor then it will not be subjected to TDS U/s 194R because it is covered in the exact example given in Question No. 4 of the circular 12/2022.

6. In the above example whether the car distributor can claim value of these free seat covers as an allowable expenses, as and when passed on free of cost to the end users/consumers ?

Yes. To claim it as an expenditure the said distributor will have to maintain a detailed working with proof that such seat covers have been distributed/given to the end users/consumers and the distributor has not charged any money from any consumer for such free seat covers.

7. If a company gives New year diaries and calendar and pen set or gift items given to dealer for further distribution to retailers or end users etc. whether liable for TDS U/s 194R?

Yes, it will be subject to TDS by the company because the company has given benefits in kind even if these are not to be retained by the distributor or retailer because finally to be given to end consumer, due to the fact that the circular 12/2022 has specified that the person providing is not required to check whether person receiving the gift etc. is, his income or not, will be subject to TDS, until any further clarification comes from CBDT.

8. Is it necessary that the person providing benefit or perquisite needs to check if the amount is taxable under clause (iv) of section 28 of the Act, before deducting tax under section 194R of the Act?

In this regard circular 12/2022 states that, “No. The deductor is not required to check whether the amount of benefit or perquisite that he is providing would be taxable in the hands of the recipient under clause (iv) of section 28 of the Act. The amount could be taxable under any other section like section 41(1) etc. Section 194R of the Act casts an obligation on the person responsible for providing any benefit or perquisite to a resident, to deduct tax at source @10%. There is no further requirement to check whether the amount is taxable in the hands of the recipient or under which section it is taxable.”

As per the guideline the scope of TDS U/s 194R has also been extended to Section 41(1) etc.

However it seems from the memorandum explaining the provisions of the Finance Bill the intention was not so.

Which can be inferred from the fact that while presenting the budget,2022 Honorable Finance Minister in her budget speech stated that, “Rationalizing TDS Provisions:- It has been noticed that as a business promotion strategy, there is a tendency on businesses to pass on benefits to their agents. Such benefits are taxable in the hands of the agents. In order to track such transactions, I propose to provide for tax deduction by the person giving benefits, if the aggregate value of such benefits exceeds ` 20,000 during the financial year.

Honorable FM has stated that benefits are passed on to agents and it is taxable in hands of agents, to track these TDS is provided. It means such benefits are not through banking channel nor through book entries nor through credit notes, therefore there may remain chances of not recording in books of agents, therefore TDS is being provided. Further here in the above para the word used is, “aggregate value of such

benefit”, i.e. benefit is to be converted into value, if the scope was to cover cash benefits also then the word, “aggregate amount or aggregate value of such benefit”, would have been used here.

Further the same can be inferred from the memorandum to Finance Bill, 2022:-TDS on benefit or perquisite of a business or profession As per clause (iv) of section 28 of the Act, the value of any benefit or perquisite, whether convertible into money or not, arising from business or exercise of profession is to be charged as business income in the hands of the recipient of such benefit or perquisite.

However, in many cases, such recipient does not report the receipt of benefits in their return of income, leading to furnishing of incorrect particulars of income.

2. Accordingly, in order to widen and deepen the tax base, it is proposed to insert a new section 194R to the Act to provide that the person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from carrying out of a business or exercising of a profession by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite at the rate of ten per cent of the value or aggregate of value of such benefit or perquisite.

For the purpose of this section, the expression ‘person responsible for providing’ has been proposed to mean a person providing such benefit or perquisite or in case of a company, the company itself including the principal officer thereof.

2.1 Further, in a case where the benefit or perquisite, as the case may be, is wholly in kind or partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite, the person responsible for providing such benefit of perquisite shall, before releasing the benefit or perquisite, ensure that tax has been paid in respect of the benefit or perquisite. 2.2 No tax is to be deducted if the value or aggregate value of the benefit or perquisite paid or likely to be paid to a resident does not exceed twenty thousand rupees during the financial year.

2.3 Further, the provisions of the said section shall not apply to an individual or a Hindu undivided family, whose total sales, gross receipts or turnover does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which such benefit or perquisite, as the case may be, is provided.

3. This amendment will take effect from 1 st July, 2022.

[Clause 58].”

In the first para above reference has been made for Section 28(iv) only, nothing else. From the above paras of the memorandum the words used are, “value or aggregate value”, “person providing such benefit or perquisite”, “person responsible for providing such benefit or perquisite”, etc. from the phrases it is clear that nowhere in above phrases the word or words, “amount or aggregate of amounts”, or “person responsible for paying”, or “person paying such benefit or perquisite” have been used.

It seems that wrongly in the para 2.2 of the memorandum as above the word, “paid or likely to be paid” was used, because benefit or perquisite is not “paid”, it is “provided”, therefore it has been correctly removed in the Finance Bill and the Finance Act, under Second proviso to Sec. 194R(1).,

Section 194R(1) : Any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite at the rate of ten per cent of the value or aggregate of value of such benefit or perquisite:

As per second proviso to Section 194R(1) of the act, “Provided further that the provisions of this section shall not apply in case of a resident where the value or aggregate of value of the benefit or perquisite provided or likely to be provided to such resident during the financial year does not exceed twenty thousand rupees:”

9. If any cash discount or sales discount is given to customer whether it is liable to TDS U/s 194R ?

As per Q. 4 of guideline circular 12/2022, “Question 4: Whether sales discount, cash discount and rebates are benefit or perquisite? Answer: Sales discounts, cash discount or rebates allowed to customers from the listed retail price represent lesser realization of the sale price itself. To that extent purchase price of the customer is also reduced. Logically these are also benefits though related to sales/purchase. Since TDS under section 194R of the Act is applicable on all forms of benefit/perquisite, tax is required to be deducted. However, it is seen that subjecting these to tax deduction would put seller to difficulty. To remove such difficulty it is clarified that no tax is required to be deducted under section 194R of the Act on sales discount, cash discount and rebates allowed to customers.

Liability to deduct section 194R TDS on Benefit or Perquisite in Business or Profession

In the said answer CBDT has further stated that, “There could be another situation, where a seller is selling its items from its stock in trade to a buyer. The seller offers two items free with purchase of 10 items. In substance, the seller is actually selling 12 items at a price of 10 items. Let us assume that the price of each item is Rs 12. In this case, the selling price for the seller would be Rs 120 for 12 items. For buyer, he has purchased 12 items at a price of 10. Just like seller, the purchase price for the buyer is Rs 120 for 12 items and he is expected to record so in his books. In such a situation, again there could be difficulty in applying section 194R provision. Hence, to remove difficulty it is clarified that on the above facts no tax is required to be deducted under section 194R of the Act.

It is clarified that situation is different when free samples are given and the above relaxation would not apply to a situation of free samples. Similarly, this relaxation should not be extended to other benefits provided by the seller in connection with its sale.

To illustrate, the following are some of the examples of benefits/perquisites on which tax is required to be deducted under section 194R of the Act (the list is not exhaustive):

  • When a person gives incentives (other than discount, rebate) in the form of cash or kind such as car, TV, computers, gold coin, mobile phone etc.
  • When a person sponsors a trip for the recipient and his/her relatives upon achieving certain targets
  • When a person provides free ticket for an event
  • When a person gives medicine samples free to medical practitioners. The above examples are only illustrative. The relaxation provided from non-deduction of tax for sales discount and rebate is only on those items and should not be extended to others”.

From the above it can be inferred that any items given free out of the stock in trade alongwith item sold out of stock in trade, is not liable to TDS i.e. if any item has been in the nature of expenses and has been claimed as an expenditure in the profit and loss account by the person providing the benefit then it will be liable for TDS because it is not treated as purchases and not sold i.e. given without tax invoice and not out of and alongwith stock in trade.

10. CBDT guideline Question 7: Whether reimbursement of out of pocket expense incurred by service provider in the course of rendering service is benefit/ perquisite?

CBDT guideline Answer: Any expenditure which is the liability of a person carrying out business or profession, if met by the other person – “X”, is in effect benefit/perquisite provided by the second person-“X”, to the first person in the course of business/profession.

If the invoice is not in the name of “X” and the payment is made by “X” directly or reimbursed, it is the benefit/perquisite provided by “X” to the consultant for which deduction is required to be made under section 194R of the Act.

11. CBDT circular Q. No. 8 :- If there is a dealer conference to educate the dealers about the products of the company – Is it benefit/perquisite? CBDT guideline Answer: The expenditure pertaining to dealer/business conference would not be considered as benefit/perquisite for the purposes of section 194R of the Act in a case where dealer/business conference is held with the prime object to educate dealers/customers about any of the following or similar aspects: (i) new product being launched (ii) discussion as to how the product is better than others (iii) obtaining orders from dealers/customers (iv) teaching sales techniques to dealers/customers (v) addressing queries of the dealers/customers (vi) reconciliation of accounts with dealers/customers However, such conference must not be in the nature of incentives/benefits to select dealers/customers who have achieved particular targets.

Further, in the following cases the expenditure would be considered as benefit or perquisite for the purposes of section 194 R of the Act:- (i) Expense attributable to leisure trip or leisure component, even if it is incidental to the dealer business conference. (ii) Expenditure incurred for family members accompanying the person attending dealer business conference (iii) Expenditure on participants of dealer/business conference for days which are on account of prior stay or overstay beyond the dates of such conference

12. When to deposit the TDS deducted U/s 194R ?

Within 7 days from the end of the month in which the TDS deducted and within 30 days for any TDS done in the month of March. And furnish the said information in TDS statement to be filed quarterly in form 26Q.

13. Whether recipient can apply for lower rate U/s 197 ?

No, lower rate application cannot be applied for 194R.

14. What is the threshold of 194R TDS liability ?

If benefit or perquisite provided to a resident is not more than Rs. 20000 during the year then there is no need to deduct TDS U/s 194R.

15. Since when the liability to deduct TDS U/s 194R going to arise ?

TDS U/s 194R is applicable w.e.f. 1-7-2022. If any benefit or perquisite during the year exceeds Rs. 20000/- then liability to TDS will arise. Any benefit or perquisite provided between 1-4-2022 to 30-6-2022 will be considered to determine the aggregate benefit during the year, however any benefit or perquisite before 1-7-2022 (between 1-4-2022 to 30-6-2022) will not be liable to TDS U/s 194R, i.e. will only be considered for determining threshold – aggregate of benefit or perquisite during the year.

16. If any benefit or perquisite provided in the form of money only i.e. in cash or cheque or by way of credit note or journal entry then whether is it liable to TDS ?

Any benefit or perquisite if only in the form of money i.e. either by cash or cheque or by credit note or journal entry is not liable to TDS U/s 194R, because Section 28(iv) nowhere uses the word, “in the form of money” or “in cash” exclusively.

Also Section 194R(1) states that, “any benefit or perquisite whether convertible into money or not”, it means U/s 194R only those benefit or perquisite are covered which is not in the form of money, but which has to be convertible in money or not capable to convert into money”, therefore any benefit or perquisite which is directly in money is excluded U/s 194R.

However circular has stated that any incentive in cash is also liable for TDS.

However there is one controversy here, that as per Section 28(iv) benefit or perquisite directly in the form of money i.e in cash or cheque or banking channel or Credit note is not liable to be covered U/s 28(iv), because it is directly and clearly in the form of money, then any benefit in cash or cheque or RTGS should have been kept out of purview of 194R by the CBDT guideline, because cash/cheque/RTGS/journal entry/credit notes are already accounted for in the books of account. Therefore any benefit or perquisite in kind whether convertible into money or not, any cash benefit which is not through book entry can only to be treated as income U/s 28(iv).

Hon’ble Madras High Court in the case of Iskraemeco Regent Ltd. V. Commissioner of Income-tax-I [2011] 196 Taxman 103 (Mad.) held that the reserve and surplus is brought in financial terms having monetary value and not through any fixed assets. In fact, section 28(iv) has not application to any transactions which involves money.

Further, in the case of CIT v. Alchemic (P) Ltd. [1981] 130 ITR 168 (Guj), it has been held that under sec. 28(iv), the question of including the value of the benefit or perquisite would arise only if the benefit or the perquisite is not in cash or money.

Madras High Court in the case of Instalment Supply P. Ltd. vs Commissioner Of Income-Tax, on 14 May, 1984 in para 16. “In CIT v. Venkatraman [1978] 111 ITR 444, had occasion to consider a similar provision as contained in s. 2(6C)(iii) of the Indian I.T. Act, 1922, which defined income as including “the value of any benefit or perquisite, whether convertible into money or not obtained from the company”. It was held that “from this language it is clear that the benefit or perquisite” contemplated cannot be money itself. If it is money, the question of its value being taken into account or the benefit or perquisite being converted into money will not arise.”

In CIT v. Mysore Commercial Union Ltd. [1980] 126 ITR 340, the Karnataka High Court was of the view that the expression “whether convertible into money or not”, occurring in s. 40(a)(v), is something apart from money such as something in kind, which may be convertible into money or not and that this expression would not be appropriate when one considers a payment in cash. It, therefore, held that payment of bonus to its employees in cash was not a perquisite and could not be disallowed under s. 40(a)(v).

In the case of Yoshio Kubo vs Commissioner Of Income Tax on 31 July, 2013 before Honorable Delhi High Court vide ITA No. 441/2003 which was held in favour of assessee, it was quoted in the judgment, “Counsel submit that the term “provided for” means to keep something ready, in order to perform or do it. Under Section 10(10CC) the monetary payment should be provided for the employee. It should be employee who is provided for by way of monetary payment within the meaning of Clause (2) of Section 17. In other words, payment of actual money to the employee (and not the equivalent of that, or the money’s worth) is what the legislature contemplated by provision of by way of monetary payment. If some benefit is directly or indirectly received by the assessee which has money’s worth, it is not a ―monetary payment”.

Honorable Gujarat High Court in the case of Commissioner Of Income-Tax, … vs Alchemic Pvt. Ltd. on 19 August, 1980 (1981) 130 ITR 168 (Guj.) held that, “9. It is obvious that if what is received either by way of benefit or perquisite is money, there is no question of considering the value of such monetary benefit or perquisite under clause (iv) and including the value of such benefit or perquisite under the head “Profits and gains of business or profession.” It is only if the benefit or the perquisite is not cash or money but is non-monetary benefit or non-monetary perquisite that the question of including the value of such benefit or perquisite would ever arise. Under these circumstances, the Tribunal was right in rejecting the contention urged on behalf of the revenue that the amount of Rs. 15,964 should be brought to tax as value of any benefit or perquisite within the meaning of s. 28(iv). The tribunal doubted whether the amount of Rs. 15,964 was any benefit – “It may or may not be a benefit”. Another question is whether the phrase “whether convertible into money or not” would normally mean something else than money. In our opinion, the conclusion of the Tribunal that s. 28(iv) would not apply when the amount received is cash or is considered in terms of money, is correct, and the provisions of s. 28(iv) can never be made applicable to the facts of the present case, where excise refund was received by the assessee.

10. The three contentions urged on behalf of the revenue were on the basis of s. 28(iv), s. 41(1) and on general commercial principles and on each of these three grounds we are of the opinion that the contentions urged on behalf of the revenue must be rejected. The conclusions of the Tribunal, both regarding s. 28(iv) and regarding the decision not to go into the question of s. 41(1), was correct and in accordance with law. We, therefore, answer the question referred to us in the affirmative, that is, the favour of the assessee and against the revenue.”

In the case of N. K. Poddar Vs. ACIT vide TC(A) No. 812 of 2010 dated 23­11-2010 Honorable Madras High Court, held in favour of the assessee that waiver of loan by bank in one time settlement scheme in neither covered U/s 28(iv) nor U/s 41(1) of the act. In support of his contention, the learned senior counsel placed reliance upon the following judgments:-

COMMISSIONER OF INCOME TAX v. GANESA CHETTIAR (P.) [(1982) 133 ITR 103], COMMISSIONER OF INCOME TAX v. A.V.M. LTD. [(1984) 146 ITR 355], COMMISSIONER OF INCOME TAX v. ALCHEMIC PVT. LTD. [(1981) 130 ITR 168], COMMISSIONER OF INCOME TAX v. MAFATLAL GANGABHAI AND CO. (P.) LTD. [(1996) 219 ITR 644], and DEPUTY COMMISSIONER OF INCOME TAX (ASSESSMENT) v. GARDEN SILK MILLS LTD. [(2010) 320 ITR 720] and submitted that Section 28(iv) has no application to a money transaction and therefore, the orders passed by the authorities cannot be sustained”.

Therefore in view of above judgments CBDT guideline is not in accordance with judicial precedents. Until any further clarification through any circular present guideline is to be followed.

17. If any benefit in kind is provided and tax invoice is raised for it, not for the full amount or not of the fair value but for Rupee one only, say for example a dealer who deals in FMCG goods and on purchase of certain minimum quantity the buyer dealer has been given a refrigerator of Rs. 30000/- but in the tax invoice the amount charged for the refrigerator is shown of Rupee one only for the refrigerator then how and why the value is to be determined ?

Section 194R(1) of the act states that, “(1) Any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite at the rate of ten per cent of the value or aggregate of value of such benefit or perquisite”.

From the above it is clear that the section provides that TDS is to be deducted @ 10% of the value or aggregate of value of such benefit or perquisite.

As per Q. 5 of the circular 12/202, “Question 5. How is the valuation of benefit/perquisite required to be carried out? Answer: The valuation would be based on fair market value of the benefit or perquisite except in following cases:- (i) The benefit/perquisite provider has purchased the benefit/perquisite before providing it to the recipient. In that case the purchase price shall be the value for such benefit/perquisite. (ii) The benefit/perquisite provider manufactures such items given as benefit/perquisite, then the price that it charges to its customers for such items shall be the value for such benefit/perquisite. It is further clarified that GST will not be included for the purposes of valuation of benefit/perquisite for TDS under section 194R of the Act”.

18. Whether provisions of Sec. 206AB will be applicable to TDS U/s 194R ? As per Section 206AB, “(1) Notwithstanding anything contained in any other provisions of this Act, where tax is required to be deducted at source under the provisions of Chapter XVIIB, other than section 192, 192A, 194B, 194BB, [194-IA, 194-IB, 194LBC, 194M or 194N] on any sum or income or amount paid, or payable or credited, by a person to a  specified person, the tax shall be deducted at the higher of the following  rates, namely”.

From the above provisions of Sec. 206AB it is clear that higher TDS is to be deducted under section 206AB on any sum or income or amount paid, or payable or credited, by a person to a specified person.

Since any sum or amount or income is not being paid nor payable nor credited U/s 28(iv) nor covered under 194R, therefore nothing is liable U/s 206AB, if cash amount is going to be covered under section 194R in view of CBDT guideline, then only it can be treated to be covered under section 28(iv) and 194R, which will only be liable to be covered under 194R.

Since benefit or perquisite is only “provided”, not “paid or payable nor credited” hence it is not covered under section 206AB.

Other TDS provisions uses the word, “person responsible for paying any sum or any income”, whereas section 194R states the word, “providing benefit or perquisite”, therefore it is clear that in case of non-monetary transaction but convertible into money, Section 206AB will not be applicable to 194R because CBDT guideline is also silent on this issue.

19. Whether provisions of Section 40(a)(ia) of the act are applicable if benefit or perquisite provider has failed to deduct or deposit TDS U/s 194R ?

No, because Section 40(a)(ia) of the act states that, “thirty per cent of any sum payable to a resident, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139

Since under section 28(iv) and 194R word “sum payable” is nowhere used, the words used are only “benefit or perquisite provided”, therefore no disallowance can be there U/s 40(a)(ia), in case of default in deducting TDS or in case of default in depositing TDS after due date specified U/s 139(1) of the act. Other consequences of TDS default in case of delay deposit may have to face.

If any benefit is in the form of money/cash/any sum of money, then in that case if TDS is not deducted then it will attract disallowance U/s. 40(a)(ia) of the act.

20. As per CBDT circular 12/2022:- “Question 3. Is there any requirement to deduct tax under section 194R of the Act, when the benefit or perquisite is in the form of capital asset?

CBDT Answer: As has been stated in response to question no 1, there is no requirement to check whether the perquisite or benefit is taxable in the hands of the recipient and the section under which it is taxable. Further, courts have held many benefits or perquisites to be taxable even though one can argue that they are in the nature of capital asset. The following judgments illustrate this point:

  • Assessee entered into an agreement with ‘1’ for purchase of a plot of land and certain amount was paid as earnest money. However, possession of land was not given to assessee and seller entered into another agreement with a third party to develop the said plot. Assessee filed suit in which a consent decree was passed and in pursuance of same certain amount as paid to assessee. On appeal it was held that such sum received in pursuance of consent decree was liable to tax as business income under section 28(iv). Ramesh Babulal Shah v CIT (2015) 53 com 277 (Bom)
  • The amount representing principal loan waived by bank under one time settlement scheme would constitute income falling under section 28(iv) relating to value of any benefit or perquisite, arising from business or exercise of profession. CIT v Ramaniyam Homes (P) Ltd (2016) 68 taxmann.com 289 (Mad)
  • Value of rent free accommodation, furniture and fixtures given to director was held as taxable under section 28(iv). CIT v Subrata Roy (2016) 385ITR 547 (All) • Where a car was given to an assessee by his disciple, who had been benefited from his preaching, the value of car was held to be taxable in the hands of the assessee being a receipt from the exercise of the vocation carried on by him. CIT (Addl) v Ram Kripal Tripathi (1980) 125 ITR 408 (All)
  • The assessee was a director of a company. In terms of an agreement with the promoters, shares were allotted to the director. On these facts, it was held that the shares received by the director were benefit or perquisite received from a company by the director and it was a benefit assessable to tax. D. M. Neterwala v CIT (1986) 122 ITR 880 (Born)
  • Value of gift of land was held as a receipt by the assessee in carrying on of his vocation and was held as taxable. Amarendra Nath Chakraborty v CIT (1971) 79 ITR 342 (Cal) Thus, it can be seen that the asset given as benefit or perquisite may be capital asset in general sense of the term like car, land etc but in the hands of the recipient it is benefit or perquisite and has accordingly been held to be taxable.

In any case, as stated earlier, the deductor is not required to check if the benefit or perquisite is taxable in the hands of recipient. Thus, the deductor is required to deduct tax under section 194 R of the Act in all cases where benefit or perquisite (of whatever nature) is provided.” In the above answer CBDT has failed to have a look that the judgment of CIT v Ramaniyam Homes (P) Ltd (2016) 68 taxmann.com 289 (Mad) has already been reversed by Honorable Supreme Court vide [2018] 404 ITR 1 (SC) dated 24-4-2018 alongwith case of Mahindra & Mahindra, and in the case of Ramesh Babulal Shah the assessee had received sum of money therefore no capital asset was received by that assessee and that assessee had received money due to consent decree against and during the course of trading of land, except these two case laws in all other case laws cited above the assessees had received benefit in kind, any capital asset received is also in kind, therefore it can be inferred that any benefit in kind is only liable to TDS and not the monetary benefit. But as per the CBDT guideline monetary benefit/cash/any sum of money is also covered U/s 194R of the act.

21. How to deduct TDS if benefit is in kind only, whether and when to receive/collect TDS amount from beneficiary, if beneficiary has deposited tax how provider will report in 26Q ?

First proviso to section 194R(1) of the act states, “Provided that in a case where the benefit or perquisite, as the case may be, is wholly in kind or partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or perquisite, ensure that tax required to be deducted has been paid in respect of the benefit or perquisite”.

The interpretation of above proviso can be, that the person providing benefit or perquisite will collect deductible amount from the person who has been provided benefit or perquisite, then benefit provider will deposit the TDS, before releasing benefit or perquisite.

In case of benefit in kind provider shall ensure that recipient has deposited tax. Such recipient would pay tax in the form of advance tax.

The tax deductor may rely on a declaration along with a copy of the advance tax payment challan provided by the recipient confirming that the tax required to be deducted on the benefit/perquisite has been deposited. This would be then required to be reported in TDS return statement along with challan number. This year Form 26Q has included provisions for reporting such transactions.

As per section 2(24)(vd) any benefit or perquisite covered U/s 28(iv) is included in income.

22. Since this is non-financial transaction whether it will be entered in books of person who has been provided benefit ?

Even if this is non-financial transaction, it is advisable to enter value of benefit or perquisite to be entered in books as business income U/s 28(iv), rather than directly offering as income under the computation of income. It is advisable that the said entry need not be passed through party ledger but directly taken to income ledger.

23. 44AD/44ADA beneficiary will have to include this benefit or perquisite in his turnover or gross receipts ?

No, Section 44AD states that 6% or 8% percentage income is to be computed on total turnover or gross receipts and Sec. 44ADA states that 50% income is to be computed on total gross receipts. Benefit or perquisite is not a receipt nor turnover. As per Section 28(iv) or 41(1) this is income, but cannot be assumed to be part of turnover or gross receipts, therefore it can be advised not to include the benefit or perquisite in turnover or gross receipt for the purpose of Section 44AD/44ADA.

24. If any resident who has been provided benefit or perquisite does not offer income in the return of income due to the reason that he assumes that it is not taxable in his hands then how such resident will be able to claim credit of TDS thereon in his return ?

As per Sec. 199 of the act TDS credit can be claimed by the person in the year in which such income is offered in the return of income and in the hands of person who has offered such income.

It is advisable that to follow Section 199 of the act the value or aggregate value of benefit or perquisite is first offered in profit and loss account/relevant ledger account/return of income as income and then any expenditure or outgoing in that respect is claimed as an expense in profit and loss account/ledger account/return of income.

In case of 44AD/44ADA there is no need to separately add this amount as income or expenses, because this will be covered in deemed income and deemed expenses, if any.

25. Whether CBDT has power to issue guideline to remove difficulty ? As per Section 194R(2) & (3) :- “(2) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.

(3) Every guideline issued by the Board under sub-section (2) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person providing any such benefit or perquisite”.

26. Who is the, “person responsible for paying” or who will be the person responsible in case of any default U/s 194R ?

Section 194R has nowhere used the word, “person responsible for paying”, therefore Section 204 of the act has no application to Section 194R, therefore Section 194R itself has specified, “person responsible for providing”.

As per Explanation to Section 194R —”For the purposes of this section, the expression “person responsible for providing” means the person providing such benefit or perquisite, or in case of a company, the company itself including the principal officer thereof.”

27. Whether proviso can expand the scope of Main section ?

A proviso cannot expand the scope of Section, when the main content itself does not depict anything that cannot be construed to be there by a proviso appended to the main section.

“Section 194R. (1) Any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite at the rate of ten per cent of the value or aggregate of value of such benefit or perquisite:”

From the reading of above sub-section (1) it can be inferred that the section has nowhere used the word, “any sum payable”, or “any money”, or “any amount”, which clearly reflect that the amount or money or any sum was intended to be kept out of purview of TDS under this section, but proviso has expanded the scope of section by inserting the phrase, “wholly in kind or partly in cash and partly in kind”, which can be inferred from the following proviso :-

“Provided that in a case where the benefit or perquisite, as the case may be, is wholly in kind or partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or perquisite, ensure that tax required to be deducted has been paid in respect of the benefit or perquisite:”

From reading of above proviso it depicts and reflects that the sub­section 1 comprises payments wholly in cash, and the proviso talks about payments in kind or partly in cash and partly in kind, whereas the fact is that the sub-section 1 which is the main section itself does nowhere comprise the words, any sum of money or any amount, then how the proviso can be said to expand the scope of sub-section. Further the CBDT guideline has also expanded the scope of section, whereas the sub-section 2 empowers to issued guidelines only to remove the difficulty and not to expand the scope of section. Therefore the proviso and CBDT guideline needs to be further looked into at the appropriate time.

The second proviso and sub-section and explanation are also given here :-

Provided further that the provisions of this section shall not apply in case of a resident where the value or aggregate of value of the benefit or perquisite provided or likely to be provided to such resident during the financial year does not exceed twenty thousand rupees:

Provided also that the provisions of this section shall not apply to a person being an individual or a Hindu undivided family, whose total sales, gross receipts or turnover does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession, during the financial year immediately preceding the financial year in which such benefit or perquisite, as the case may be, is provided by such person.

(2) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.

(3) Every guideline issued by the Board under sub-section (2) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person providing any such benefit or perquisite.

Explanation.—For the purposes of this section, the expression “person responsible for providing” means the person providing such benefit or perquisite, or in case of a company, the company itself including the principal officer thereof.]”

28. For ready reference for above discussion the Section 2, Section 28(iv), Section 41 is mentioned here.

Section 28:- “The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,—

(iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession;”

Definition Section 2 Income includes:-

“2(24):- (vd) the value of any benefit or perquisite taxable under clause (iv) of section 28;”

Section 41(1) of the act :- Profits chargeable to tax.

41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,—

(a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or

(b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year.

Explanation 1.—For the purposes of this sub-section, the expression “loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof” shall include the remission or cessation of any liability by a unilateral act by the first-mentioned person under clause (a) or the successor in business under clause (b) of that sub­section by way of writing off such liability in his accounts.

Explanation 2.—For the purposes of this sub-section, “successor in business” means,—

(i) where there has been an amalgamation of a company with another company, the amalgamated company;

(ii) where the first-mentioned person is succeeded by any other person in that business or profession, the other person;

(iii) where a firm carrying on a business or profession is succeeded by another firm, the other firm;

(iv) where there has been a demerger, the resulting company.

29. How to reflect transactions covered under 194R in the TDS statement 26Q ?

In form 26Q these transactions shall be reflected as follows :-

(i) In the form 26Q format there is a column at S.No. 424 which requires the information, “Reason for non-deduction / lower deduction/ Higher Deduction/ Threshold/ Transporter etc. (See notes 1 to 16)”, If any benefit or perquisite provided is not more than Rs. 20000/- during the year then as per Note No. 6 to format of 26Q mention “Write “Y” if no deduction is on account of payment below threshold limit specified in the Income-tax Act, 1961”, this is same as applicable to other TDS sections. If benefit has been provided in kind and recipient has paid advance tax then it has to be reflected as advance tax paid by recipient in form 26Q as per First Proviso to sub-section (1) of section 194R – “Benefits or perquisites of business or profession where such benefit is provided in kind or where part in cash is not sufficient to meet tax liability and tax required to be deducted is paid before such benefit is released” showing the code 94R-P, details of Advance tax deposited, BSR code, date of deposit, Challan serial No. will have to be mentioned in 26Q.

FORM 26Q – new – w.e.f. 1-7-2022

FORM 26Q

Codes

194R is very wide

Conclusion :- The discussion on 194R is very wide and vast and unending, however in nutshell it is advisable to follow the provisions of the act and guideline until any suitable new circular comes from CBDT. The discussion made above in the form of questions and answers is very limited and indicative only and to be followed as per prevalent law.

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