2022 (11) TMI 1106 - AT - Income Tax

TDS u/s 194I - CAM charges paid by the appellant company considering the common area maintenance charges as part of the rental activity covered u/s 194I and treated the appellant company as assessee in default within the meaning of section 201(1) for short deduction of TDS on CAM Charges - HELD THAT - When the definition of rent as Explanation of section 194-I is seen it is the payment made for the use of certain immovable properties like land or building (including factory building) or land appurtenant to a building ( including factory building) or movable properties like machinery or plant or equipment or furniture or fittings, is considered to be rent. Thus, what is important is the use of these immovable properties or those things appurtenant or fittings with the building that is essential to make a payment fall in definition of rent for purpose of Explanation to Section 194-I. The common area maintenance for which the CAM charges are paid are not for the use of immovable or immovable properties included in the definition of rent above as the rent becomes payable for getting exclusive interest of user of aforesaid properties. The word use here would mean use exclusively by the lessee. The rent as such is consideration for contract of tenancy or lease, where lessee gets beneficial interest of user of demised property to the exclusion of others, including the Landlord/lessor. The common areas have access to and can be used not only by co-tenants but the landlord/lessor too or even other visitors without any right of exclusion by the assessee. Any payment for it s maintenance cannot be said to be consideration for any beneficial interest to exclusion of others. Merely because a single agreement is executed between lessor and lessee creating liability on lessee for both rent and CAM charges does not discard the distinguishing nature of the two payments. As for the Rent and Eviction Laws the two may have no difference but under the Act , they are different head of expenditures of the lessee. The rent is on account of use of the property given into a exclusive possession of the lessee for the running of business but the CAM charges are for maintenance of the common areas, used or not used by the lessee. There is no reason to distinguish between the nature of two payments made by the lessee to the lessor if lessor keeps rent to himself and the CAM charges are paid further by the lessor unless there is composite rent, inclusive of the CAM. Which is not the case, as admittedly they are paid under different clauses of the agreement and by separate invoices. In Sunil Kumar Gupta 2016 (9) TMI 1198 - PUNJAB AND HARYANA HIGH COURT the judgment of Hon ble Punjab and Haryana High Court, relied by Ld. AO, Hon ble High Court was considering the question about computing the annual value of the property and in those circumstances observed that the maintenance charges must be included as part of the rent for the purpose of computing the annual value of the property and the wide ambit of the term rent in Section 22 and 23 of the Act was discussed - In the case before us as for the purpose of deduction of tax at source the term rent has to be understood in terms of explanation to Section 194-I which as discussed above makes a distinction between rent for the use of the property by the lessee and expenses of CAM. The appeal of assessee is allowed.

Summary

Issues Involved:

1. Whether the common area maintenance (CAM) charges should be treated as part of rent and thus liable for TDS under Section 194-I at 10% or under Section 194C at 2%.
2. Whether the assessee is liable for interest on short deduction of TDS under Section 201(1A).

Detailed Analysis:

1. Treatment of Common Area Maintenance (CAM) Charges:

The primary issue revolves around the classification of CAM charges paid by the assessee. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] treated these charges as part of the rent, thereby subjecting them to TDS at 10% under Section 194-I of the Income Tax Act, 1961. The assessee, however, contended that CAM charges are for maintenance services and should be subjected to TDS at 2% under Section 194C.

The CIT(A) upheld the AO's decision, citing that the lease agreement included both rent and CAM charges, and there was no distinction between the two except for separate invoicing. The CIT(A) relied on the definition of "rent" under Explanation to Section 194-I, which includes any payment for the use of a building or land appurtenant to a building. Additionally, the CIT(A) referenced CBDT Circular No. 715 dated 08.08.1995 and the judgment in Sunil Kumar Gupta Vs ACIT (2016) 389 ITR 38 (P&H), which supported the inclusion of maintenance charges as part of the rent.

However, the Tribunal observed that CAM charges are not for the exclusive use of the property but for the maintenance of common areas accessible to all tenants and even the landlord. The Tribunal distinguished between payments for exclusive use (rent) and payments for maintenance of common areas (CAM charges), concluding that CAM charges should be subjected to TDS under Section 194C.

2. Liability for Interest on Short Deduction of TDS:

The AO raised a demand of Rs. 31,303/- for interest on the short deduction of TDS on CAM charges, which was sustained by the CIT(A). The assessee argued that CAM charges should not be treated as rent, and thus, there was no short deduction of TDS.

The Tribunal, relying on previous judgments in similar cases (Kapoor Watch Company Pvt. Ltd. vs. ACIT and Connaught Plaza Restaurants P. Ltd. vs. DCIT), held that CAM charges are separate from rent and should be subjected to TDS under Section 194C. Consequently, the Tribunal set aside the impugned demands under Section 201(1A) for interest on short deduction of TDS.

Conclusion:

The Tribunal concluded that CAM charges are distinct from rent and should be subjected to TDS under Section 194C at 2%, not under Section 194-I at 10%. The Tribunal allowed the appeal of the assessee and set aside the demands under Section 201(1A) for interest on short deduction of TDS. The judgment emphasizes the importance of distinguishing between payments for exclusive use of property and payments for maintenance of common areas in determining the applicable TDS provisions.