2022 (11) TMI 315 - AT - Income Tax

Short deduction of TDS u/s 194I - Rent - inclusion of common area maintenance charges - Liability u/s 201(1) and 201(1A) - 10 percent TDS should have been deducted u/s 194I or 2 percent deducted by the assessee u/s 194C on payment to Ambience Developers and Infrastructure - HELD THAT - As 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, on the payments towards maintenance charges has to be made after TDS @ 2% u/s 194C of the Act and not @ 10% u/s 194I of the Act. 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 of the Act. Therefore, 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 sub-sections (1) and (1A) of section 201. As respectfully following the order of the coordinate Bench of the Tribunal in the case of Kapoor Watch Company Pvt. Ltd. . 2021 (1) TMI 209 - 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 - Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Dispute over TDS deduction rates under different sections of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Dispute over TDS deduction rates under different sections of the Income-tax Act, 1961

The appeal was filed against the order of the CIT(A)-38, Delhi, relating to Assessment Year 2011-12. The main issue for adjudication was whether the Assessing Officer (AO) and the CIT(A) were correct in holding that TDS should have been deducted at 10% under section 194I of the Income-tax Act instead of the 2% deducted by the assessee under section 194C on payments to Ambience Developers and Infrastructure, leading to demands under sections 201(1) and 201(1A) of the Act.

The Senior Departmental Representative (Sr. DR) supported the assessment and the first appellate order, asserting that the authorities were justified in imposing a net liability of Rs. 12,34,002 on the deductor assessee firm under sections 201(1) and 201(1A) of the Act. The Sr. DR argued that TDS should have been deducted at 10% under section 194I instead of 2% under section 194C by the assessee.

The ITAT Delhi referred to a similar case of Kapoor Watch Company Pvt. Ltd., where it was held that the TDS deduction was correct under the respective sections based on the nature of payments made. In the present case, the ITAT Delhi observed that the payments for rent and maintenance charges were made to distinct entities/companies, and the nature of these payments was different. Therefore, the authorities were not justified in creating the liability under sections 201(1) and 201(1A) of the Act. Consequently, following the precedent set in the Kapoor Watch Company Pvt. Ltd. case, the appeal of the assessee was allowed, and the AO was directed to delete the impugned liability under sections 201(1) and 201(1A) of the Act.

In conclusion, the ITAT Delhi allowed the appeal of the assessee, emphasizing the importance of correctly applying TDS deduction rates under the relevant sections of the Income-tax Act, 1961. The judgment highlighted the necessity of considering the distinct nature of payments and entities involved to determine the appropriate TDS rates, ensuring fair and lawful tax assessments.