2022 (12) TMI 690 - AT - Income Tax

TDS u/s 194C or 194I - Short-deduction of taxes - payments towards maintenance charges - Addition u/s 201(1) / 201(1 A) - assessee-in-default - HELD THAT - Payments received by Ambience group are split into two companies of same group on single contract one for rent and the other for maintenance charges. However, the AO noted that this arrangement has been made to avoid the higher deduction of TDS rate applicable to which we do not agree as when the receiver of rent and receiver of maintenance charges are different and distinct and the character of the payment is also different and distinct, then, the payments towards maintenance charges has to be made after TDS @ 2% u/s 194C of the Act and not @ 10% u/s 194I. From the material available on record, it is clearly discernible that the assessee company has paid rent to the owner after deduction u/s 194 of the Act @ 10% and the payment for operation/maintenance was made directly to the service provider company after deduction of tax u/s 194C - we are inclined to hold that in the present case the common area maintenance charges was not forming part of the actual rent paid to the owner by the assessee company. Payments of rent and common area maintenance charges have been made to distinct entities/companies, therefore, the authorities below were not right in creating the impugned liability payable by the assessee firm under the provisions of subsections (1) and (1A) of section 201 - respectfully following the case of Nijhawan Travel Service (P) Ltd. 2022 (7) TMI 176 - ITAT DELHI the grievance/grounds of the assessee are allowed and the AO is directed to delete the impugned liability u/s 201(1) and 201(1A) of the Act. Appeals filed by the assessee are allowed.

Issues Involved:
1. Assessee-in-default status for short-deduction of taxes under section 201(1) / 201(1A) of the Act.
2. Validity of the notice dated March 5, 2018, regarding its limitation period.
3. Correct tax deduction rate applicable for Common Area Maintenance (CAM) charges.
4. Imposition of interest under section 201(1A) of the Act.
5. Applicability of the first proviso to section 201(1) of the Act regarding the assessee-in-default status.
6. Consideration of taxes paid by deductees on CAM charges in relation to interest charged under section 201(1A).

Detailed Analysis:

1. Assessee-in-default Status for Short-deduction of Taxes:
The assessee was held as an "assessee-in-default" by the TDS Officer for the alleged short-deduction of taxes amounting to INR 886,587 for AY 2011-12 and INR 14,29,910 for AY 2012-13 under section 201(1) / 201(1A) of the Act. The CIT(A) upheld this action. The Tribunal, however, found that the CAM charges are completely independent and separate from rental payments and are fundamentally for availing common area maintenance services. Therefore, the CAM charges should be subjected to deduction of tax at source under section 194C of the Act at 2%, not under section 194-I at 10%.

2. Validity of Notice Dated March 5, 2018:
The assessee contended that the notice dated March 5, 2018, was barred by limitation and void ab-initio, and thus the order passed under section 201(1) / 201(1A) on March 29, 2018, should be quashed. However, the Tribunal did not specifically address the issue of limitation in its final judgment, focusing instead on the applicability of the correct TDS rate for CAM charges.

3. Correct Tax Deduction Rate for CAM Charges:
The Tribunal examined the nature of CAM charges and concluded that they are not part of the rent but are payments made for maintenance services. The Tribunal referred to various judgments, including the case of Kapoor Watch Company Pvt. Ltd. and Connaught Plaza Restaurants P. Ltd., to establish that CAM charges fall under the purview of section 194C of the Act, which mandates a 2% TDS rate. Consequently, the Tribunal ruled that the assessee correctly deducted TDS at 2% for CAM charges.

4. Imposition of Interest under Section 201(1A):
The CIT(A) affirmed the imposition of interest amounting to INR 417,380 for AY 2011-12 and INR 6,74,946 for AY 2012-13 under section 201(1A) of the Act. The Tribunal, however, set aside this imposition, holding that the assessee was not liable for higher TDS under section 194-I, and thus, the interest charged was unwarranted.

5. Applicability of First Proviso to Section 201(1):
The assessee argued that it should not be treated as an 'assessee-in-default' in view of the first proviso to section 201(1) of the Act. The Tribunal did not specifically address this argument, as it had already concluded that the assessee correctly deducted TDS under section 194C, thereby nullifying the 'assessee-in-default' status.

6. Taxes Paid by Deductees on CAM Charges:
The assessee contended that the deductees had paid taxes on the CAM charges received, and thus, the interest charged under section 201(1A) should be deleted. The Tribunal agreed, referencing the decision of the Apex Court in Hindustan Coca Cola Beverages vs CIT, which supports the view that if the deductees have paid taxes, the payer should not be treated as an 'assessee-in-default' for short-deduction of TDS.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, setting aside the orders of the CIT(A) and the AO. It directed the deletion of the impugned liability under sections 201(1) and 201(1A) of the Act, affirming that the CAM charges should be subjected to TDS under section 194C at 2%, not section 194-I at 10%. The judgment underscores the importance of correctly categorizing payments for TDS purposes and provides clarity on the treatment of CAM charges.

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