Taxation of benefit & Perquisite of business and Profession: Controversy and litigation ahead in section 194R


Taxation of benefit & Perquisite of business and Profession: Controversy and litigation ahead in section 194R



Every new law comes with a new set of controversies. The latest law with a lot of controversial issues ahead is section 194R which provides for taxation of benefit or perquisite of business.

 Mostly, insurance agents, Finance Agents, Mutual Funds agents who are getting a lot of benefits and perquisite by way of gold coin, tours, gifts etc are going to witness an increase in their tax liability.

Further, all the dealers of prominent companies will also get affected as they were also getting few prizes, awards & benefits in cash and kind which were getting unnoticed by the taxmen.

Some cases which could be hit by TDS U/S 194R- TDS on perquisite/benefit:

  1. A gift of a car by a producer of a film to the director
  1. Pharma company sponsoring trips of doctors abroad
  1. Reimbursement of travel for an auditor, if the bills are not in the name of the auditee.
  1. Dealer conferences for a new product launch, for the benefit of select dealers and not all the dealers.
  1. Social media influencer is given a product and he retains it after marketing the same.

Cases where litigation might take place due to a lack of clarity:

  1. Interest free deposit/loan
  1. OTS by bank
  2. Services rendered by CFO of a company to its subsidiary without any cross charge
  1. Extending the credit period on a sale of a product

Let us read the provision of section 194R as incorporated in the Income Tax Act-1961:

Deduction of tax on benefit or perquisite in respect of business or profession.29

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:

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:

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.]

Few Case study:
a) An insurance company decided to offer LED TV of Rs. 65000/- to an agent who makes insurance premium login of say Rs. 5 Lakh in one month. Now, this will be subject to the TDS provision.
b) An home appliances company decided to offer the tour to Bangkok for the dealer who makes the purchases Rs. 15 Lakh in one month. Now, this will be subject to the TDS provision and TDS will be done on the basis of market value of the Bangkok tour
c) An interesting case may be noted in this respect. : Assessee is the film director of the Film “Villain No.1” movie. He traveled  along with his family to the USA for shooting of the movie and the travel was paid for by the producer. Will the travelling expenses be regarded as perquisite?
In David Dhawan [2005] 2 SOT 311 (Mumbai)/[2005] 92 TTJ 161 (Mumbai), it was held that when the person is travelling for performing the work and his family joins him at that place of temporary relocation, it cannot be regarded as a perquisite.
Once facts clearly evidence that facilities involved are not part of consideration but only condition of the contract/ environment for performance of the contract, there cannot be said to be any benefit or perquisite flowing to the service provider which attracts TDS u/s 194R.
Let us now wait for the controversy and provision to settle.Keep reading