2023 (3) TMI 850 - AT - Income Tax

Tribunal clarifies CAM charges distinct from rent for tax purposes, directs re-computation under sec 194C

The Tribunal differentiated between rent and Common Area Maintenance (CAM) charges, ruling that CAM charges were not in the nature of rent and should be ... TDS u/s 194I/194C - TDS on rent and CAM charge [Common Area Maintenance] - HELD THAT:- As decided in Yum Restaurants India (P.) Ltd [2022 (10) TMI 256 - ITAT DELHI] while the lease rentals are paid based on a fixed percentage on the net revenue, the CAM charges are based on the per sq. ft. area. The observation of CIT(A) is that the rent by any name, lease, sub-lease, tenancy or the reliance on the judgment wherein the services are intrapolated into the rent stand on a different pedestal. In the instant case, the determination of the rent or CAM are separate and the CAM arrangements are not essential and an integral part for use of the premises. While there are no expenses incurred against the rent except for general building maintenance and municipal charges, the CAM involves employment of separate staff and separate operations involved on day to day basis - Provisions for rent are governed by Section 194I and CAM charges by Section 194C - AO is directed to re-compute the CAM charges, taking into consideration the two sections mentioned above. Appeals of the assessee are allowed for statistical purpose. Issues Involved:Determination of whether Common Area Maintenance charges are in the nature of rent and liable to TDS under section 194I or 194C of the Income Tax Act. Interpretation of relevant judicial precedents and CBDT circulars in relation to the treatment of CAM charges. Examination of the applicability of the judgment in the case of Japan Airlines Co. Ltd. v. CIT (2015) 377 ITR 372. Analysis of the order passed under sections 201(1) and 201(1A) of the Act by the Assessing Officer. Consideration of the judgment of the Hon'ble Punjab and Haryana High Court in the case of Sunil Kumar Gupta v. ACIT (2016) 389 ITR 38. Comparison of the treatment of CAM charges paid to independent service providers versus the developer/owner of the property. Detailed Analysis:1. The appeals filed by the assessee challenged the order of the ld. CIT(A) regarding the treatment of Common Area Maintenance (CAM) charges as rent liable to TDS under section 194I of the Act. The assessee argued that the CAM charges were for services related to common areas not in their possession, such as cleaning, maintenance, security, etc., and thus should be treated under section 194C instead. The assessee also contended that the judgment in Japan Airlines Co. Ltd. v. CIT (2015) 377 ITR 372 should apply, and the CBDT circulars were relevant to their case.2. The Tribunal referred to a similar issue in the case of Yum Restaurants India (P.) Ltd. and analyzed the nature of the payments made for rent and CAM charges. The Tribunal observed that the lease agreement included separate payments for rent based on revenue share and CAM charges based on the area maintained. The ld. CIT(A) held that CAM charges were part of rent under section 194I, considering the common area services provided to the assessee, and relied on CBDT circulars and judicial precedents to support this view.3. The Tribunal differentiated between rent and CAM charges, noting that the payments were based on different criteria and involved distinct services. While rent was for the use of the premises, CAM charges were for specific maintenance services unrelated to the leased area. Therefore, the Tribunal directed the AO to re-compute the CAM charges under section 194C and upheld the appeals of the assessee for statistical purposes.4. The judgment highlighted the importance of distinguishing between rent and CAM charges based on the nature of services provided and the criteria for payment. The decision emphasized the separate treatment of these charges under different sections of the Income Tax Act to ensure accurate tax deductions and compliance. The Tribunal's analysis clarified the applicability of TDS provisions to CAM charges and upheld the assessee's contentions regarding the distinct nature of these payments.