2025 (4) TMI 266 - AT - Income Tax

CAM Charges Qualify as Service Payments Under Section 194C, Not Rental Income, Clarifying TDS Applicability for Maintenance Expenses

AT ruled that CAM charges constitute contractual payments subject to 2% TDS under Section 194C, not rental payments under Section 194I. The tribunal ... TDS u/s 194I or 194I - common area maintenance charges - assessee in default for not deducting tds - HELD THAT:- We note that this tribunal in Connaught Plaza Restaurants P. ltd [2022 (1) TMI 409 - ITAT DELHI] and Kapoor Watch Company Pvt. Ltd. [2021 (1) TMI 209 - ITAT DELHI] has already settled the very issue in assessee’s favour and against the department, regarding TDS deduction of such common area maintenance charges held CAM charges paid by it were liable for deduction of tax at source @2%, i.e., u/s. 194C of the Act. We, thus, in terms of our aforesaid observations set-aside the order of the Id. CIT(A) who had approved the order passed by the AO treating the assessee company as an assessee-in-default u/s 201(1) - Decided in favour of assessee. 1. ISSUES PRESENTED and CONSIDEREDThe primary legal issue considered by the Appellate Tribunal in this judgment was whether the assessee was correctly treated as 'assessee in default' for not deducting Tax Deducted at Source (TDS) at the rate of 10% under Section 194I of the Income Tax Act, 1961, on common area maintenance (CAM) charges. The Tribunal needed to determine if these charges should instead be subject to TDS under Section 194C, which prescribes a lower rate of 2% for contractual payments.2. ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents:The legal framework revolves around Section 194I and Section 194C of the Income Tax Act, 1961. Section 194I mandates a 10% TDS on rental payments, while Section 194C prescribes a 2% TDS for payments related to contracts for work or services. The Tribunal referenced precedents such as the case of Connaught Plaza Restaurants P. Ltd. Vs. DCIT and Kapoor Watch Company Pvt. Ltd. Vs. ACIT, where similar issues were adjudicated.Court's interpretation and reasoning:The Tribunal interpreted the CAM charges as payments for contractual services rather than rent. The reasoning was based on the nature of CAM charges, which are for availing certain services and facilities, not for the use of any premises or equipment. This interpretation aligns with the Tribunal's previous decisions in similar cases, where CAM charges were distinguished from rent.Key evidence and findings:The Tribunal found that the CAM charges were not part of the actual rent paid to the property owner. This finding was consistent with the facts of the case and the evidence presented, which showed that CAM charges were collected separately from the rent.Application of law to facts:Applying the law to the facts, the Tribunal concluded that the CAM charges should be subject to TDS under Section 194C at the rate of 2%, rather than under Section 194I. This application was based on the contractual nature of the payments for services rather than rental payments.Treatment of competing arguments:The Revenue argued that there was a composite agreement for rent and CAM charges, warranting a higher TDS rate under Section 194I. However, the Tribunal rejected this argument, relying on its consistent interpretation in previous cases that separated CAM charges from rent.Conclusions:The Tribunal concluded that the assessee was not in default for deducting TDS at 2% on CAM charges under Section 194C. The orders of the lower authorities treating the assessee as in default under Section 201(1) were reversed.3. SIGNIFICANT HOLDINGSThe Tribunal's significant holding was that CAM charges are contractual payments subject to TDS under Section 194C and not rental payments under Section 194I. This holding was supported by the Tribunal's previous decisions and the nature of the CAM charges.Preserve verbatim quotes of crucial legal reasoning:'As the payments towards CAM charges are in the nature of contractual payments that are made for availing certain services/facilities, and not for use of any premises/equipment, therefore, the same would be subjected to deduction of tax at source u/s 194C of the Act.'Core principles established:The core principle established is that CAM charges should be treated as payments for services and thus fall under Section 194C for TDS purposes. This principle clarifies the distinction between rental payments and payments for services in the context of TDS.Final determinations on each issue:The Tribunal determined that the assessee's appeals were allowed, and the orders of the lower authorities were set aside. The CAM charges were correctly subjected to TDS at 2% under Section 194C, and the assessee was not in default under Section 201(1).