2023 (3) TMI 665 - AT - Income Tax

TDS u/s 194I - TDS on common area maintenance charges - payment made to the landlord, other than under the head rent - HELD THAT - As relying on M/s. Johnson Watch Company Pvt. Ltd. 2022 (11) TMI 1106 - ITAT DELHI Tax Authorities below have fallen in error in holding that the assessee was required to pay TDS @10% towards the common area maintenance charges. Consequently the grounds raised by the assessee are allowed.

Summary

Issues involved:
The appeal against the order u/s 201(1A) of the Income Tax Act, 1961 for treatment of Common Maintenance Charges as part of rent and charging interest u/s 201(1A).

Treatment of Common Maintenance Charges as part of rent:
The appellant argued that the Assessing Officer erred in treating Common Maintenance Charges as part of rent and deducting TDS at 10% instead of 2%. The Tribunal observed that the dispute centered around the applicability of section 194 and whether tax deduction was correctly done on rent and common maintenance charges. The Tax Authorities relied on the provision of explanation (i) of section 194 to conclude that any payment to the landlord, other than under the head rent, is considered as rent. However, in the absence of a separate agreement for common maintenance, the Tribunal distinguished between rent for exclusive use of property by the lessee and expenses for common area maintenance. The Tribunal referred to previous judgments to support the distinction between rent and common maintenance charges, emphasizing that the two are separate expenditures for the lessee under the Income Tax Act.

Judicial Member's Observations:
The Judicial Member highlighted that the common area maintenance charges are not for the exclusive use of the lessee, unlike rent which grants exclusive possession. The Tribunal emphasized that even though a single agreement may cover both rent and common maintenance charges, they serve different purposes under the Act. Referring to relevant case laws, the Tribunal reiterated that the term "rent" for tax deduction purposes must be understood in accordance with the explanation to Section 194-I of the Act, which distinguishes between rent and common area maintenance charges. The Tribunal also noted that the judgment in favor of the appellant was supported by previous decisions and the specific agreements in place between the parties.

Conclusion:
The Tribunal held that the Tax Authorities erred in requiring TDS at 10% on common area maintenance charges, as the charges were distinct from rent and fell under a different category of expenditure for the lessee. Consequently, the grounds raised by the appellant were allowed, and the appeal was allowed in favor of the assessee.