CBDT has issued further clarifications for removal of doubts on the implementation of provision of section 194R – Circular No. 18/2022

Facts of the Case:

The circular has been issued to provide additional clarifications and in continuance to the earlier issued circular no. 12/2022 dated 16.06.2022

• Loan settlement/waiver by a bank (refer ques.3 of circular no. 12/2022) Loan settlement under one time settlement or a loan waiver with specified financial institutions/banks will not be covered under ambit of 194R.
• Reimbursement of expenses by service recipient to service provider (refer ques.7 of circular no. 12/2022) CBDT has clarified that where services are provided as Pure Agent (as defined under the provisions of GST Valuation Rules 2017), then in case of such reimbursement of expenses no TDS u/s 194R shall be required to be deducted.
• Applicability of section 194R where the provisions of sec. 194J/194C already apply (refer ques.7 of circular no. 12/2022) It has been clarified that where taxes have already been deducted under the other provisions of the Act, the provision of sec.194R shall not apply.
• Applicability of sec. 194R in case of dealer conference (refer ques.8 of circular no. 12/2022) prior stay /overstay period expenses would not be considered as expenses subject to provisions of section 194R. In case of expenditure incurred is not possible to be allocated to specified dealers for 194R
  provisions, then such expenditure to disallowed suo-moto from computation of profits.

• Capital asset received as a gift which has already been subject to section 194R. Whether such recipient can claim depreciation on such asset (refer ques.9 of circular no. 12/2022) It has been clarified that the recipient of asset shall be eligible to claim depreciation once such asset has been offered to tax as his income on fulfillment of other conditions of claiming depreciation as provided under the Act.
• Whether Embassy/High Commissions are required to deduct tax under section 194R of the Act?Provisions of sec.194R shall not apply to 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.
• Whether provision of sec.194R shall apply on issuance of bonus share/right share?

Capital asset received as a gift which has already been subject to section 194R. Whether such
recipient can claim depreciation on such asset (refer ques.9 of circular no. 12/2022)
It has been clarified that the recipient of asset shall be eligible to claim depreciation once such asset
has been offered to tax as his income on fulfillment of other conditions of claiming depreciation as
provided under the Act.
• Whether Embassy/High Commissions are required to deduct tax under section 194R of the
Act?
Provisions of sec.194R shall not apply to 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.
• Whether provision of sec.194R shall apply on issuance of bonus share/right share?
Issuance of bonus/right shares by the company shall not be subject to 194R provisions.

Lakshay Prakash Jonwal, Direct Tax Associate, SW India