Whether the TDS provisions are applicable on payment of electricity reimbursement to landlord in case of there is no mark-up?
The opinion is based on the following two questions:
The first question here is to ascertain whether the invoice as same from Electricity Department. As per section 194C of the Act, any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between the contractor and specified person shall be liable to deduct TDS as per section 194C.
For the payment of Electricity expenses, it’s simply a reimbursement of expenses to landlord if payment is made on the basis of bill of electricity department.
In the decision of the Hon’ble ITAT Bangalore, in the case of M/s Dhaanya Seeds (P) Limited V. Dep’t of I.T. wherein after detailed and exhaustive discussion of case law, the tribunal held that the that tax is to be deducted only when the element of the Income is part of the payment, since the reimbursement of expenses do not constitute trading receipts or have any element of income therein, TDS is not liable to be deducted on reimbursements.
On the basis of above decision, TDS is deductible at source in respect of payment of income comprising an element of income.
Thus, in case of no element of income, it should be treated as reimbursement of expenses and the provisions of TDS are not applicable.
The second question is whether the Invoice from landlord is composite supply.
As per section 194C of the Act, any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between the contractor and specified person shall be liable to deduct TDS as per section 194C.
For the payment of Electricity expenses, it’s simply a reimbursement of expenses to landlord on the cost basis without any addition of mark-up.
As per the circular issued by the Central Board of India (CBDT) [Circular No. 715, dated 08.08.1995], where in it was held that in question no. 30
“Whether the deduction of tax at source under section 194C and 194J has to be made out of the gross amount of the bill including reimbursements or excluding reimbursement for actual expenses?”
Answer: Sections 194C and 194J refer to any sum paid. Obviously, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source.
From the above Circular, TDS to be ducted on the gross amount including electricity expenses if invoices from landlord are with other services i.e. composite supply.
Thus, if there is no element of income but invoices with other services i.e. composite supply then the provisions of TDS are applicable as per above circular.
If back to back reimbursement of electricity bill on the basis of supporting of electricity bill from department in which there is no addition/profit element, in that case provisions of TDS would not be applicable.
If reimbursement on the basis of invoice/proportionate reimbursement as calculated by landlord, in that case provisions of TDS would be applicable.
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