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2007] 291 ITR 455 [2007] 163 TAXMAN 61 (DELHI) HIGH COURT OF DELHI Commissioner of Income-tax, Delhi-XVII v. Reebok India Co. MADAN B. LOKUR AND V.B. GUPTA, JJ. IT APPEAL NO. 914 OF 2006 MARCH 12, 2007 Section 194-I, read with section 201(1A), of the Income-tax Act, 1961 - Deduction of tax at source - Rent - Assessment year 1994-95 - Assessee-company entered into a lease agreement with one 'A' to take on lease premises of 'A' at a monthly rent - Under that agreement, assessee paid certain sum as security deposit which was to be reduced every six months by an amount of rent which became payable in accordance with agreement - Assessing Officer held that said deposit amount was nothing but advance rent and, accordingly, that assessee had failed to deduct tax at source therefrom under section 194-I - Whether since amount in question paid by assessee was not fully refundable at time of termination of lease, it could be said that said amount was in fact advance rent and as such, assessee was required to deduct tax at source from payment of such advance rent under section 194-I - Held, yes FACTS The assessee-company entered into a lease agreement with one 'A' to take on lease the premises of 'A' at a monthly rent. The said lease agreement provided for the payment of security deposit amounting to Rs. 1,50,24,000 which was to be reduced by the amount of rent which became payable every six months in accordance with the agreement. With the execution of the lease agreement, the assessee paid Rs. 1,50,24,000 as security deposit to the landlord. Thereafter, the assessee deducted tax at source under section 194-I on the actual payment of rent made by it. The Assessing Officer in his order held that the amount of security deposit was nothing but advance rent and, accordingly, the assessee should have deducted tax at source therefrom under section 194-I. Thereafter, the Assessing Officer raised a demand of tax under section 201(1A) from the assessee and, accordingly, levied interest upon the assessee. The Commissioner (Appeals) as well as the Tribunal held that the amount of security deposit paid by the assessee to its landlord under the agreement of lease was not rent as…

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