Case Law Details
Mcnally Bharat Infrastructure Limited Vs DCIT (ITAT Kolkata)
In a recent decision, the Income Tax Appellate Tribunal (ITAT) in Kolkata ruled in favor of McNally Bharat Infrastructure Limited, stating that Tax Deducted at Source (TDS) on rent reimbursement is not deductible when there is no lessor and lessee relationship. The case revolved around the disallowance of expenses under Section 40(a)(ia) of the Income Tax Act for non-deduction of TDS on rent reimbursement.
Background: McNally Bharat Infrastructure Limited had filed its return of income for the assessment year 2014-15, declaring a total income of Rs. Nil. The return was processed under Section 143(1) of the Income Tax Act, followed by a scrutiny assessment. During the assessment, the Assessing Officer (AO) observed that the company had claimed expenses on rent amounting to Rs. 15,98,400, but had not deducted TDS as required under Section 40(a)(ia) of the Act. Consequently, the AO disallowed the entire rent expense.
ITAT’s Ruling: In its decision, the ITAT held that there was no lessor and lessee relationship between McNally Bharat Infrastructure Limited and its holding company, as the rent was being reimbursed by the former to the latter. The ITAT found that this reimbursement arrangement had been consistent over several years and had never been disputed by the tax authorities, even after the introduction of TDS provisions.
The ITAT also noted that the holding company did not debit the entire rent to its books of accounts; instead, it only accounted for the portion of rent corresponding to the premises occupied by McNally Bharat Infrastructure Limited. As a result, the ITAT concluded that the provisions of Section 194-I of the Income Tax Act, which pertain to TDS on rent, did not apply in this case.
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