2024 (9) TMI 421 - AT - Income Tax

TDS u/s 194C OR 194I - payment of Common Area Maintenance ('CAM') -Applicability of correct TDS provision - assessee-in-default u/s 201(1) - short deduction of TDS - HELD THAT - We find that the issue involved in this case is covered by a series of decisions of Co-ordinate Benches of ITAT in the case of Connaught Plaza Restaurants P. Ltd 2022 (1) TMI 409 - ITAT DELHI CAM charges paid by it were liable for deduction of tax at source @2%, i.e., u/s. 194C of the Act as CAM charges paid by the assessee did not form part of the actual rent that was paid to the owner by the assessee company. In this case, the appellant has taken a shop in R City Mall. The payee has included the amount received as its business income in its return of income and paid the taxes accordingly. The CAM charges paid are for separate and distinguishable services and cannot be said to be for use of building. On similar facts, the Co-ordinate benches of ITAT had held that the CAM charges paid are not covered by Section 194I of the Act and only TDS provision that can be applied is Section 194C of the Act. Appeal of the assessee is allowed.

Summary

Issues:
1. Correct TDS provision on Common Area Maintenance charges.
2. Nature of CAM charges - Rent or payment for services.
3. Applicability of judicial precedents and CBDT Circulars.

Analysis:
1. The appeal was filed against the order of the ld. CIT(A) confirming TDS under Section 201(1)/201(1A) of the Act on Common Area Maintenance (CAM) charges under Section 194I instead of Section 194C as deducted by the assessee. The Tribunal referred to various decisions, including Connaught Plaza Restaurants P. Ltd and Kapoor Watch Company Pvt. Ltd, where it was held that CAM charges are contractual payments for services, not for premises use, thus subject to TDS under Section 194C.

2. The appellant, engaged in garment manufacturing, paid CAM charges along with rent and miscellaneous charges for a leased unit in a mall. The payments were separately quantified under different agreements and specific invoices. The Tribunal emphasized that CAM charges were for services like security, housekeeping, and maintenance, not for building use. The Co-ordinate Benches upheld TDS on CAM charges at 2% under Section 194C in cases with single rent and CAM agreements.

3. The Tribunal considered decisions like Aero Club vs. DCIT, Johnson Watch Company Pvt. Ltd. vs. ACIT, PVR Ltd. vs. ACIT, and Yum Restaurants India (P.) Ltd. vs. ACIT, where TDS on CAM charges was upheld under Section 194C. It also noted Mumbai ITAT's decision in Kamal Jafferali Wadhwania and Bangalore ITAT's ruling in Lifestyle International (P.) Ltd., emphasizing correct TDS rates based on payment nature. The Tribunal concluded that CAM charges were not covered under Section 194I, aligning with previous decisions.

4. The Tribunal allowed the appeal, considering the factual matrix and consistency with legal precedents. The appellant's CAM charges were deemed liable for TDS under Section 194C, not Section 194I. The order was pronounced in favor of the assessee on 28/08/2024.

Conclusion:
The Tribunal allowed the appeal, holding that Common Area Maintenance charges are subject to TDS under Section 194C, not Section 194I, based on the nature of payments for services, not building use. The decision aligned with previous judicial precedents and upheld the correct TDS provision for CAM charges.