The crux of the matter lies in the definition of the term "rent" under explanation to section 194-1 of the Income Tax Act. It is defined as any payment under any lease, sub-lease, tenancy or other agreement or arrangement for the use of any land or any building. The definition is, prima facie, very generic and appears to be intended to include any type of payment under any agreement or arrangement for the use of any land or building, etc.

One of the fundamental principles in interpreting tax laws is that no tax can be imposed on the subject without words in the act clearly showing an intention to lay a burden upon him (CIT v Vadilal 86 ITR 28(SC)). The subject cannot be taxed unless he comes within the letter of the law; the argument that he comes within the spirit of the law cannot be of any avail (CIT v provident Inv 32 ITR 190 (SC)). It is a well-established principle of interpretation that statutes imposing pecuniary burden are subject to the rule of strict construction. Another important rule of interpretation is ejusdem generis. The rule applies only to general words following words, which are less general. According to this principle, general terms following particular ones apply only to such persons or things as are ejusdem generis with those comprehended in the language of the legislature. In other words, the general expression is to be read as comprehending only things of the same kind as that designated by preceding particularexpressions.

Keeping these broad propositions in mind, if one were to interpret the definition of the term "rent" as per the explanation to section 194-I, it is clear that the words "or other agreement arrangement" appearing after the words "lease, sublease, tenancy" should be interpreted in light of the preceding words. So interpreted, the words "other agreement or arrangement" though appearing to be very wide cannot be given a wider meaning than warranted by the words immediately preceding them, for not doing so would be to render these words redundant. Also it is not without reason that the legislature has neither given an inclusive definition of the term "rent' nor suffixed the words "other agreement or arrangement" with any other expression like "of any nature whatsoever" to manifest a patently wide amplitude.

Now the words "lease", "sub-lease" and "tenancy" are not enough to include the letting of rooms by hotels. The letting of rooms by a hotel does not amount to creation of any lease, sub-lease or tenancy, it only amounts to the grant of a license. It was held by the apex court in Associated Hotels of India Ltd v RN Kapoor (AIR 1959 SC 1262). The words "lease", "sub-lease" and "tenancy" are of similar nature as in all these situations a legally protected right is created. The license does not confer any right at all. It is revocable at any time and cannot be inherited also. It is neither an interest nor a right in an immovable property. Thus, it cannot be said to have been intended to fall within the ambit of section 194-I. In any case, applying the well-recognized principles of interpretation, an arrangement of the nature of a licensee is not ejusdem generis to the expressions lease, sub lease or tenancy and, therefore, cannot fall within the intended import of the expressions "other agreement or arrangement"used in section 194-I.

It is, however, pertinent to refer to the CBDT circular number 715 dated 8.8.95, wherein it has been clarified that payments made by persons, other than individuals and HUFs for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS under section 194-I. The expression taken on regular basis is not very clear. In case, it is meant to include only such cases as would create a relationship of the nature of lease, sub lease or tenancy, then it is all right. Even hotel rooms can be hired and maintained as offices or shops on a regular basis. The mere fact that the room happens to be in a hotel in the physical sense of the word would not itself be enough to presume a grantor-licensee relationship. One would have to look at the substance of the arrangement rather than at its mere form. But the scope of section 194-I cannot be extended to cover a normal hotel stay as a guest or a visitor and if the aim of the circular is that, then it is submitted that it is erroneous to that extent.