TaxTMI 
TaxTMI 
TaxTMI 
Concept of Common area :
In buildings owned and / or used by several owners, there are certain areas which are used commonly or are meant for providing facilities and servicing entire building. Such area are generally called Common Area and facilities and may include, for example:
Pathways and galleries on all floors of building.
Open space in constructed area and outside constructed area.
Floor under such area, walls of such area, roof, terrace of building.
Water supply system, sewerage system, outside walls of building.
Lift, generator,
Staff for up-keep, cleaning,security,watch and ward and operation of lift, generator etc.
Consumables, spares, parts etc. for repair and maintenance.
Maintenance Contracts.
Expenses for these facilities are generally described as Common Area Expenses.
Facility provider:
In case of small buildings having few owners of apartment, flats, offices, shops etc. owners may take responsibilities in rotation and mutual interest and look after related work by engaging required personnel to carry out Common Area Maintenance (CAM).
In larger buildings where there are large number of owners, apartments etc. in practice we find that initially the promoter / builder arranges and carry out work under his supervision and control and thereafter 'Owners Association' is formed to take over such activities.
In already organised group of promoters / builders, from initial stage, ' owners association is formed to look after CAM.
Owners Association:
Owners Association is an organised for mutual benefits and advantages. These are no profit organisation and work on cost -reimbursement basis with reasonable estimates. Surpluses are accumulate for future use and not distributed.
Working arrangements:
Depending on size of buildings, complexes suitable organisational structure is formed. Work is carried out and management is under supervision of elected representatives of owners of apartments.
CAM expenses are generally in nature of reimbursement, which is made to concerned organisation of association.
Let out properties:
In case of let out properties depending on terms and conditions settled between landlord and tenant, CAM costs are borne by landlord and /or tenant. Recurring costs are usually borne by tenant and nonrecurring / periodical costs and replacement costs are borned by owner.
In small ownerships owner may arrange for CAM whereas in large ownership apartment owners association looks after CAM.
Even when landlord look after CAM charges are in nature of reimbursement. Therefore, it should not be subject to tax deduction at source (TDS).
Tax is deducted just to avoid possible litigation:
However, even on CAM, tax may be deducted just to avoid litigation.
CAM is not rent:
From discussion given above and considering nature of CAM it is clear that CAM is not in nature of rent of let out property. The Common area and facilities are not within control, lock and key of tenant. Tenant has no exclusive possession os such area. Therefore, such area is not let out property.
Therefore, whether CAM charges are paid to landlord, or owners Association or a property management outsider agency should not be considered as rent for deducting tax at source in terms of S.194I.
Single or few tenants occupied properties:
In case of single individual or members of a family or group of tenants who occupy entire property, such tenant (s) can himself / themselves undertake CAM. In that case landlord will receive only rent and tenant will incur CAM costs and bear himself / themselves.
In that case true nature of CAM expenses is clearly recognised and there is no demand for TDS on CAM expenses born by tenant himself.
TDS from payment to service providers for CAM services.
Whoever ( landlord, tenant, owners association etc.) pays to service providers like lift and electrical maintenance, security providers, etc. may be required to deduct tax at source, if there is applicable provisions to the person paying and person receiving. This is different aspect and is not concerned by CAM expenses reimbursed by owner, or tenant.
CAM charges can be considered as consideration for carrying out work:
At most CAM charges can be considered as consideration for carrying out common work and tax can be deducted on the basis of payment for 'work contract' u.s. 194C.
Un-necessary litigation by revenue:
It is unfortunate that many tax assessment officers are not recognising ground realities and demanding higher TDS by considering CAM charges also as 'RENT'.
In many cases ground realities is well taken note by AO and TDS is not demanded. There is no uniform practice followed by Income tax Officers of TDS section.
Case of Bose Corporation India Pvt. Ltd reached up to the Supreme Court.
In this case the tax department demanded TDS based on rent up to first appeal. In second appeal preferred by assessee, the ITA considered realities and held that tax at source was deductible based on 'works contract' and not based on rent. Tax Department further indulged in litigation and matter went up to the Supreme Court. The chain of cases decided are as follows:
2026 (3) TMI 240 - SC Order - Commissioner of Income Tax Versus Bose Corporation India Pvt. Ltd.
The honourable Supreme Court confirmed finding and judgment of Tribunal, as confirmed by High Court and thus settled legal position that CAM expenses are not rent but payment for carrying certain work and may be considered as payment for works contract.
From order of Tribunal we find that it was case of clearly found facts and no legal issue was involved, Furthermore, in many cases department has accepted TDS on the basis of contract for work, therefore, it was not proper for revenue to indulge into further litigation.
In the reports of judgment of Tribunal, High Court, and Supreme Court summary has been provided by editors that is good enough for understanding basic concepts about CAM costs. In this article detailed discussions have been made about different circumstance under which CAM expenses are incurred and reimbursed. That is basics of the issue, therefore, author is not making further analysis of judgments, as it will be repetition because articles related to judgments can better be read with judgment also.