2022 (5) TMI 1335 - AT - Income Tax

Short deduction of TDS - common area maintenance charges (CAM charges) - TDS @10% u/s. 194I OR 2% u/s. 194C - Default u/s 201(1) - HELD THAT - As decided in own case 2022 (4) TMI 1278 - ITAT BANGALORE CAM charges would be subjected to deduction of tax at source u/s. 194C of the Act at 2%. The assessee has applied the right rate of tax for deduction at source at 2% on CAM charges and therefore the assessee cannot be held to be an assessee in default u/s. 201(1) of the Act Since the appeal is allowed in favour of the assessee stating that the assessee could not be held to be an assessee in default u/s.201(1), the interest charged by the AO u/s.201(1A) which is consequential in nature is rendered infructuous - Decided in favour of assessee.

Summary

Issues:
1. Characterization of common area maintenance charges (CAM charges) as rent and application of TDS rates under sections 194I and 194C of the Income Tax Act.
2. Erroneous levy of interest under section 201(1A) of the Act.

Issue 1: Characterization of CAM Charges and TDS Rates:

The assessee challenged the order of the CIT(A) regarding the treatment of CAM charges as rent and the application of TDS rates under sections 194I and 194C of the Income Tax Act for the assessment year 2018-19. The AO observed that CAM charges were directly related to the rental activity and should be subjected to TDS at 10% under section 194I instead of 2% under section 194C. The CIT(A) upheld this view, considering CAM charges as an integral part of the lease agreement. However, the Tribunal referred to the lease agreement terms, distinguishing between rent and maintenance charges. It concluded that CAM charges were contractual payments for maintenance services, not for the use of premises, falling under section 194C. The Tribunal held that the correct rate of tax deduction should be applied based on the nature of payments. Relying on previous judicial precedents, the Tribunal allowed the appeal, stating that CAM charges should be subject to TDS at 2% under section 194C.

Issue 2: Erroneous Levy of Interest under Section 201(1A) of the Act:

The AO levied interest under section 201(1A) amounting to INR 868,207 due to the alleged short deduction of tax at source on CAM charges. However, since the Tribunal allowed the appeal regarding the characterization of CAM charges and the correct TDS rate application, the interest charged by the AO under section 201(1A) was deemed inconsequential and rendered infructuous. Therefore, the Tribunal dismissed the appeal on this count, as the assessee could not be held as an assessee in default under section 201(1).

In conclusion, the Tribunal ruled in favor of the assessee, holding that CAM charges should be treated as contractual payments for maintenance services, not rent, and subject to TDS at 2% under section 194C. Consequently, the interest levied under section 201(1A) was considered irrelevant following the decision on the primary issue.