Question 4: Refer question No 8 of the Circular No 12 of 2022-If there is a dealer conference to educate the dealers about the products of the company –
Answer: Representations have been received from various stakeholders seeking clarity on these questions arising out of answer to question No 8. It is clarified that
(i) it is not necessary that all dealers are required to be invited in a dealer/business conference for the expenses to be not considered as benefit/perquisite for the purposes of tax deduction under section 194R of the Act.
(ii) Expenditure on participants of dealer/ business conference for days which are on account of over stay prior to the dates of conference or beyond the dates of such conference would be considered as benefit/perquisite for the purposes of section 194R of the Act. However, a day immediately prior to actual start date of conference and a day immediately following the actual end date of conference would not be considered as over stay.
(iii) It is brought to the notice that there may be expenses during such dealer/business conference which need to be classified as benefit/perquisite and tax is required to be deducted under section 194R of the Act. However, there may be practical difficulties in identifying such benefit/perquisite to actual recipient due to the fact that it is a group activity and reasonable allocation is not possible. Noncompliance of the provision of section 194R of the Act, in such a case, would not only result in disallowance under clause (ia) of section 40 of the Act but may also result in treating the benefit/perquisite provider as assessee in default under section 201 of the Act with all other consequences.
In order to remove these practical difficulties, it is clarified that if benefit/perquisite is provided in a group activity in a manner that it is difficult to match such benefit/perquisite to each participant using a reasonable allocation key, the benefit/perquisite provider may at his option not claim the expense, representing such benefit/perquisite, as deductible expenditure for calculating his total income. If he decides to opt so, he will not be required to deduct tax under section 194R on such benefit/perquisite and therefore he will not be treated as assessee in default under section 20 I of the Act. Thus, in such a case he must add back the expenditure, representing such benefit/perquisite, to calculate his total income if such expenditure is debited in the account. Answer to question No 8 in the Circular No 12 of2022 is modified to this extent.
Question 5: Refer question No 9 of the Circular No 12 of 2022-Company “A” gifts a car to its dealer “B” and deducted tax on this benefit under section 194R of the Act. Dealer “B” uses this car in his business. Will he get deduction for depreciation in calculating his income under the head “profits and gains of business or profession”?
Answer: Once Company “A” has deducted tax on gifting of car in accordance with section 194 R of the Act (or released the car after dealer “8” showed him payment of tax on such benefit) and dealer “8” has included this benefit as income in his income tax return, it would be deemed that the “actual cost” of the car for the purposes of section 32 of the Act shall be the amount of benefit included by dealer “8” as income in his income-tax return. Hence, dealer “8” can get depreciation on fulfillment of other conditions for claiming depreciation.
Question 6: Whether Embassy/High Commissions are required to deduct tax under section 194R of the Act?
Answer: For the removal of difficulty it is clarified that the provision of section 194R is not applicable on benefit/perquisite provided by, an organization in scope of The United Nations (Privileges and Immunity Act) 1947, an international organization whose income is exempt under specific Act of Parliament (such as the Asian Development Bank Act 1966), an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign state.
Question 7: Whether issuance of bonus share/right share is a benefit or perquisite if issued by a company in which the public are substantially interested as defined in clause (18) of section 2 of the Act and whether tax is required to be deducted under section 194R of the Act?
Answer: In case of bonus shares which are issued to all shareholders by a company in which the public are substantially interested as defined in clause (18) of section 2 of the Act, it has been represented that this does not result in any benefit to shareholders as the overall value and ownership of their holding does not change. Further cost of acquisition of bonus share is taken as nil for capital gains computation when this share is sold. Similar representations have been received seeking clarity on issuance of right shares.
It is clarified that the tax under section 194R of the Act is not required to be deducted on issuance of bonus or right shares by a company in which the public are substantially interested as defined in clause (18) of section 2 of the Act, where bonus shares are issued to all shareholders by such a company or right shares are offered to all shareholders by such a company, as the case may be.
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