2023 (2) TMI 503 - AT - Income Tax

TDS u/s 194C OR 194I - Default u/s 201(1) - CAM charges by licensee Assessee - short deduction of tax at source on Common Area Maintenance Charges paid - HELD THAT - The decision of in Kapoor Watch Co. Pvt. Ltd. vs. ACIT 2021 (1) TMI 209 - ITAT DELHI wherein the Tribunal examined the issue of short deduction of tax and held that the assessee cannot be regarded as the assessee in default u/s 201(1). The action of the assessee for deduction of TDS at 2% of CAM charges u/s 194C cannot be faulted per se. We thus reverse the action of the Revenue Authorities and restore the position taken by the assessee. The assessee thus cannot be regarded as assessee in default u/s 201(1)/201(1A) of the Act. - Decided in favour of assessee.

Summary

Issues:
Challenge to order under Section 201(1) for short deduction of tax on Common Area Maintenance charges.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) concerning the Assessment Year 2011-12 under Section 201(1)/201(1A) of the Income Tax Act, 1961. The grounds of appeal raised by the assessee primarily contested the action of holding the appellant as an assessee in default under Section 201(1) for short deduction of tax on Common Area Maintenance charges. The Assessing Officer passed an order raising a demand for short deduction of tax at source under Section 194I on the CAM charges paid by the assessee. The assessee argued that CAM charges were separate from rent and thus should be subject to a lower TDS rate of 2% under Section 194C instead of 10% under Section 194I. A TDS survey revealed discrepancies in TDS deduction rates on CAM charges by mall owners, leading to the demand raised on the assessee.

The CIT(A) upheld the findings of the Assessing Officer, considering CAM charges as part of rent payment and subject to higher TDS rates. The Tribunal reviewed the MOU between the lessor and the licensee assessee to determine the nature of CAM charges. The assessee contended that rent payment and CAM charges were distinct, paid to different entities, justifying the lower TDS rate under Section 194C. Reference was made to a previous decision by a Co-ordinate Bench supporting the assessee's position in a similar context. The Tribunal found in favor of the assessee, citing the agreement and the Co-ordinate Bench decision to conclude that the assessee cannot be deemed as an assessee in default under Section 201(1)/201(1A) for the short deduction of tax on CAM charges.

In light of the agreement and the precedent set by the Co-ordinate Bench, the Tribunal overturned the actions of the Revenue Authorities and ruled in favor of the assessee. The decision emphasized the distinction between rent and CAM charges, supporting the assessee's position on the applicable TDS rate. Consequently, the appeal of the assessee was allowed, and the assessee was not considered in default under Section 201(1)/201(1A) of the Income Tax Act.