Allahabad High Court holds in case of House Property rented out by Co-owners, threshold limit for TDS u/s.194-I would apply to each Co-owner separately

CIT  vs. Senior Manager, State Bank of India.

[2012] 20 taxmann.com 40 (Allahabad)

FACTS

The building in question was owned by various co-owners. They executed a registered lease deed in respect of said building in favour of assessee-bank. The bank was paying monthly rent including all taxes. Subsequently, a letter was written by one of the co-owner on behalf of co-owners that each co-owner was having a definite and ascertainable share in the property. After receipt of said letter, the bank started paying rent to all the co-owners as per their respective shares by separate cheques. Since the rent paid to each co-owner was less than Rs. 1.20 lakhs in the year, the assessee did not deduct tax at source under section 194-I on rent paid. The Income-tax Officer initiated proceedings under sections 201(1) and 201(1A) on the ground that the bank was paying rent to AOP, therefore, the bank was an assessee-in-default under section 201(1) for non-deduction of tax at source under section 194-I. A demand towards taxes, surcharge and interest was raised. On appeal, the Commissioner (Appeals) allowed the appeal and set aside the order passed by the Assessing Officer. On further appeal, the Tribunal held that the co-owners would not constitute an AOP merely on fact that income accrued jointly to more persons than one, and that limit of Rs. 1.20 lakhs would apply to each of the payees/co-owners separately.

On revenue’s appeal:

HELD

On a reading of section 194-I and the scope and effect elaborated by the Central Board of Direct Taxes vide Circular No. 684, dated 10-6-1994 it is clear that section 194-I was inserted to bring more persons in the tax net and it also helps in the reporting of correct income by way of rent. If the rent which being paid to any person is less than Rs. 1,20,000 per annum there is no necessity of deducting tax at source. 

It has come on record that each of the co-owners has a definite share in the building. It is not necessary that there should be a physical division of the property by metes and bounds in order to attract the provisions of section 26. It will come into play the moment the share of each co-owner in the property is determined and ascertainable. 

The decisions in CIT v. N.K. Patni [1998] 234 ITR 12 (All.) and Gora Chand Sen v. CIT [1985] 154 ITR 435/23 Taxman 410 (Cal.) lay down that where shares of each legal heir is well determined i.e. it is definite and ascertainable, the income from such property is to be assessed in the individual hands of such person and not in the hands of the Association of Persons, if any. The proposition laid down in the aforesaid decisions squarely apply to the facts of the present case also. 

It has come on record that after the letter written by one of the co-owners that the premises is owned by 15 co-owners and their shares are definite, the bank has been paying rent to each co-owner by a separate cheque, the total of which did not exceed Rs. 1,20,000 a year. Thus, the amount received by each co-owner is assessable in his hand separately. This fact also stands established as the rent received by each of the co-owners from the bank has been assessed separately in their hands in their respective assessments. The clarification issued by the Central Board of Direct Taxes in Circular No. 715, dated 8-8-1995 in reply to the Question No. 21 squarely covers the instant case as each of the co-owners has received less than Rs. 1,20,000 as rent in a year from the bank. 

In view of the foregoing discussion, it is held that the Tribunal had rightly upheld the order of the Commissioner (Appeals) setting aside the order passed by the Assessing Officer creating the demand of tax which was not deducted at source including surcharge and interest in respect of all these years. 


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