2023 (1) TMI 1071 - AT - Income Tax

TDS u/s 194C or 194I - payments towards maintenance charges - 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 - HELD THAT - 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 sub-sections (1) and (1A) of section 201 - As respectfully following the order 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. Appeal filed by the assessee is allowed.

Issues Involved:
1. Sustaining the addition of Rs. 197503, including TDS liability and interest.
2. Time-barred notice under section 201(1)/201(1A).
3. Lack of specific show-cause notice for TDS default.
4. Legality of the order under section 201(1) and 201(1A).
5. Verification from the deductee regarding inclusion of the amount in their income.
6. Legality of the TDS liability addition.
7. Legality of the interest liability addition.
8. Liability of the payee to pay tax.

Issue-wise Detailed Analysis:

1. Sustaining the Addition of Rs. 197503:
The assessee contended that the CIT(A) erred in sustaining the addition of Rs. 197503, which comprised TDS liability of Rs. 104244 and interest liability of Rs. 93299. The assessee argued that the payments for rent and common area maintenance (CAM) charges were distinct and should not attract TDS provisions at the same rate. The Tribunal agreed, noting that CAM charges are contractual payments for services, not rent, and thus subject to TDS under section 194C at 2%, not section 194I at 10%.

2. Time-barred Notice under Section 201(1)/201(1A):
The assessee argued that the notice issued under section 201(1)/201(1A) was time-barred, rendering any subsequent assessment illegal. The Tribunal did not explicitly address this issue but focused on the nature of the payments and the applicable TDS rates.

3. Lack of Specific Show-cause Notice for TDS Default:
The assessee claimed no specific show-cause notice was issued by the AO, which is a prerequisite for holding the assessee in default under section 201(1) and levying interest under section 201(1A). The Tribunal did not delve into this procedural aspect but resolved the matter based on the substantive issue of the correct TDS rate.

4. Legality of the Order under Section 201(1) and 201(1A):
The assessee challenged the legality of the order under section 201(1) and 201(1A) due to the lack of specific charges in the notice. The Tribunal, however, focused on the substantive issue of whether the CAM charges should be subjected to TDS under section 194C or 194I and found in favor of the assessee, thus rendering the order under section 201(1) and 201(1A) invalid.

5. Verification from the Deductee:
The assessee argued that the CIT(A) sustained the addition without verifying whether the deductee included the amount in their income. The Tribunal did not specifically address this verification issue but emphasized the correct application of TDS provisions.

6. Legality of the TDS Liability Addition:
The Tribunal found that the TDS liability addition was based on an incorrect application of the TDS rate. It held that CAM charges are subject to TDS under section 194C at 2%, not section 194I at 10%, thus the addition of Rs. 104244 was not justified.

7. Legality of the Interest Liability Addition:
The interest liability addition of Rs. 93299 was also challenged. The Tribunal, having concluded that the TDS was correctly deducted under section 194C, found that the interest liability based on a higher TDS rate was not justified.

8. Liability of the Payee to Pay Tax:
The assessee contended that it was not established whether the payee was liable to pay tax. The Tribunal did not explicitly address this issue but resolved the case based on the correct TDS rate applicable to CAM charges.

Conclusion:
The Tribunal allowed the assessee's appeal, setting aside the order of the AO and CIT(A) that treated the assessee as an assessee in default under section 201(1) and 201(1A). The Tribunal concluded that CAM charges are subject to TDS under section 194C at 2% and not under section 194I at 10%, thereby deleting the impugned liability.

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