2021 (1) TMI 209 - AT - Income Tax

Common Area Maintenance Charges Not Subject to TDS as Rent, Governed by Separate Agreements Says Tribunal.

Kapoor Watch Company Pvt. Ltd. Versus ACIT Circle-75 (1), New Delhi

The ITAT allowed the assessee's appeal, determining that common area maintenance charges were not subject to TDS under section 194-I but rather under ... TDS u/s 194C OR 194I - assessee-in-default - Common area maintenance charges paid - HELD THAT:- As per revenue that assessee company should deduct TDS on payment made directly to operation/maintenance services providers u/s 194-I of the Act instead of Section 194C of the Act by relying on the judgment of Sunil Kumar Gupta [2016 (9) TMI 1198 - PUNJAB AND HARYANA HIGH COURT] wherein held that maintenance charges must form a part of the rent while calculating the annual value of property u/s 23(1) of the Act for the purpose of Section 22 of the Act. However, in the present assessee company’s case, the common area maintenance charges was not forming the part of the actual rent paid to the owner by the assessee company. There is a separate agreement between the Owner, Tenant and service provider for common area maintenance which is distinguishing fact and thus, the decision of the Hon’ble Punjab and Harayana High Court will not be applicable in the present case. Therefore, the CIT(A) was not right in confirming the order of the Assessing Officer. Hence, appeal of the assessee is allowed. Issues:1. Timeliness of the order under section 201(1)/(1A) of the Income Tax Act for the financial year 2010-11.2. Determination of whether common area maintenance charges should be subject to TDS under section 194-I or section 194C of the Act.3. Interpretation of the judgment of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages Ltd. vs. CIT regarding liability under section 201(1) of the Act.Analysis:Issue 1: The appeal challenged the timeliness of the order under section 201(1)/(1A) of the Income Tax Act for the financial year 2010-11, contending that it was barred by limitation. The appellant argued that the order was beyond the six-year period specified in section 201(3) of the Act. However, the Tribunal did not adjudicate on this issue as it was considered general in nature.Issue 2: The main dispute revolved around whether common area maintenance charges should be subject to TDS under section 194-I or section 194C of the Act. The Assessing Officer treated the appellant as an assessee-in-default for not deducting TDS at the higher rate of 10% under section 194-I. The CIT(A) upheld this decision, citing a judgment of the Hon'ble High Court of Punjab & Haryana. However, the Tribunal found that the common area maintenance charges were not part of the actual rent paid to the owner, as there was a separate agreement between the parties. Therefore, the decision of the High Court was deemed inapplicable, and the CIT(A) was held to be incorrect in confirming the Assessing Officer's order. Consequently, the appeal of the assessee was allowed.Issue 3: The interpretation of the judgment of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages Ltd. vs. CIT was also a point of contention. The appellant argued that once the deductee has paid the taxes due, there is no justification for imposing liability under section 201(1) of the Act. However, the Tribunal did not delve into this issue as the decision was based on the specific facts and agreements in the present case.In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing that the common area maintenance charges were distinct from rent and therefore not subject to TDS under section 194-I. The judgment highlighted the importance of the specific agreements between the parties in determining the applicability of TDS provisions.