2023 (4) TMI 24 - AT - Income Tax

Short deduction of TDS - demands u/s 201(1) and u/s 201(1A) - common area maintenance charges (CAM) paid by the lessee to the maintenance company - TDS u/s 194I @ 10% OR u/s 194C @ 2% - HELD THAT - As relying on NIJHAWAN TRAVEL SERVICE PVT. LTD. case 2022 (7) TMI 176 - ITAT DELHI we hold that the assessee was right in deducting tax @ 2% u/s 194C of the Act on payment of Common Area Maintenance charges and the provisions of section 194I of the Act is not applicable to this payment. Therefore, the assessee cannot be treated as an assessee in default and, thus, the assessee is not liable to pay any amount u/s 201(1) and u/s 201(1A) of the Act. Appeal filed by the assessee is allowed.

Issues:
1. Appeal against order of CIT(A) confirming demands u/s 201(1) and u/s 201(1A) of the Income Tax Act, 1961.
2. Treatment of common area maintenance charges (CAM) as part of rent for TDS purposes.
3. Dispute regarding short deduction of tax and interest on short deduction under different sections of the Act.

Analysis:
1. The appeal challenged the order of CIT(A) confirming demands u/s 201(1) and u/s 201(1A) of the Income Tax Act, 1961. The assessee disputed the demands related to short deduction of TDS and interest on short deduction. The grounds of appeal highlighted the specific amounts and sections under which the demands were made.

2. The primary issue revolved around the treatment of common area maintenance charges (CAM) as part of rent for TDS purposes. The assessee contended that CAM charges paid by the lessee to the maintenance company should not be considered as part of the rent, thus disputing the liability for TDS deduction u/s 194I @ 10% and advocating for deduction u/s 194C @ 2% instead. The assessee relied on previous decisions of the ITAT to support their claim.

3. The dispute regarding short deduction of tax and interest on short deduction under different sections of the Act was thoroughly examined. The assessee argued that the CAM charges were not covered under section 194I, and therefore, TDS deduction @ 2% u/s 194C was appropriate. The ITAT analyzed the provisions of section 194-1 of the Act and concluded that CAM charges, being contractual payments for services/facilities, fell under section 194C for TDS deduction at 2%, not under section 194I for 10% deduction as contended by the revenue.

4. The ITAT referenced previous judgments and upheld the assessee's position, emphasizing that CAM charges were distinct from rent payments and should be subject to TDS deduction u/s 194C. The decision highlighted the importance of distinguishing between payments for premises/equipment and contractual payments for services, ultimately ruling in favor of the assessee and setting aside the orders treating the assessee as an assessee in default.

5. The final decision allowed the appeal filed by the assessee, concluding that the TDS on CAM charges should be deducted at 2% u/s 194C of the Act, not u/s 194I. The judgment emphasized the consistent interpretation of the law across similar cases and set aside the orders of the AO and CIT(A) that treated the assessee as an assessee in default, thereby relieving the assessee from the liability to pay any amount u/s 201(1) and u/s 201(1A) of the Act.

6. In summary, the ITAT ruled in favor of the assessee, holding that the treatment of CAM charges as part of rent for TDS purposes was incorrect, and the correct deduction should be made under section 194C at 2%. The judgment provided a detailed analysis of the legal provisions and previous decisions to support the conclusion, ultimately allowing the appeal and relieving the assessee from the disputed demands.

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