Can TDS Amount Be Increased or Reduced As Per Whims & Fancies Of Deductor?

Our client is an insurance company (PSU). The company had taken a premise on rent in New Delhi since 1996-97. The PSU had enhanced rent twice during the FY 2004-05 w.e.f. March 2003. The company had deducted TDS on such enhancement during the year 2004-05. Also it has been came into the knowledge of the company that earlier i.e. since 2001 the company was deducting the TDS @2% only. Hence, branch manager had decided to deduct the difference of prevailing rates of TDS and the amount deducted earlier with intt. Can PSU do it? please also note that the rent was paid to MCD, against the dues of landlord due to attachment. Landlord filed recovery suit agst the PSU. Advise. Vinod Gupta , New Delhi

The responsibility to deduct the tax in case of rent payment is on the payer. So, if the PSU has not deducted or short deducted during a year or applied a rate much below the rate prescribed under section 194I , fault squarely lies with the PSU and not the assessee. Now the issue is whether , PSU can deduct the difference of tax which it failed to deduct in past?

I feel the step taken by PSU is without any sanctity of law . In fact , unlike there is no provision under section 194I to increase or reduce the tax deducted during the year . Under section 192 (TDS on Salary ) , it is clearly provided under sub-section 3 that TDS during the year can be increased or reduced . Read the provision

(3) The person responsible for making the payment referred to in sub-section (1) or sub-section (1A) or sub-section (2) or sub-section (2A) or sub-section (2B) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year.

No such provision is there in section 194 I . So, PSU is not authorised to increase or decrease the TDS from the payment of rent .

For its own fault , it can not make the payee scapegoat.

As far as rent payment is concerned, if the attachment notice is correct, it is as per law.