2025 (8) TMI 773 - HC - Income Tax

TDS under Section 194C applies to Common Area Maintenance charges, not treated as rent under Section 194I

The HC held that TDS under section 194C applies to payments made towards Common Area Maintenance (CAM) charges. These charges are not to be treated as ... TDS u/s 194I or u/s 194C - payments towards Common Area Maintenance (CAM) charges - HELD THAT:- CAM charges can be covered under provisions of 194C of the Act of 1961, the said charges cannot be construed as payment of rent for occupying the premises in question. 1. ISSUES PRESENTED and CONSIDERED Whether Common Area Maintenance (CAM) charges paid by tenants to mall owners constitute 'rent' under Section 194I of the Income Tax Act, 1961, thereby attracting TDS at the rate prescribed under that section. Whether CAM charges are payments for services/work and thus liable for TDS deduction under Section 194C of the Income Tax Act, 1961. Whether the Assessing Officer's treatment of CAM charges as rent leading to short deduction of TDS and consequent declaration of the assessee as an assessee-in-default under Section 201(1) of the Act is justified. Whether the Tribunal's and High Court's precedents on the classification of CAM charges for TDS purposes are applicable and binding on the present cases. Whether any substantial question of law arises from the classification of CAM charges for TDS deduction under the Income Tax Act. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Classification of CAM Charges for TDS Deduction under Sections 194I or 194C Relevant legal framework and precedents: Section 194I of the Income Tax Act mandates TDS on rent payments for land, building, or machinery. Section 194C of the Income Tax Act mandates TDS on payments to contractors for carrying out any work, including supply of labor for carrying out work. Precedents from ITAT Delhi Bench and Delhi High Court have consistently held that CAM charges are payments for services related to maintenance and not rent for use of premises. Notably, decisions in Kapoor Watch Company Pvt. Ltd. vs. ACIT and Liberty Retail Revolutions Limited have clarified this distinction. Court's interpretation and reasoning: The Court examined the factual nature of CAM charges, emphasizing that these are payments made by tenants for maintenance services of common areas such as cleanliness, utilities, and upkeep, which are shared expenses and not payments for occupying or using premises. The Court noted that CAM charges are fundamentally contractual payments for services rendered, distinct and separate from rent payments for the use of leased premises. The Court concurred with the reasoning of the ITAT and coordinate Bench decisions that only payments for use of premises or equipment fall under Section 194I, while payments like CAM charges for maintenance services fall under Section 194C. Key evidence and findings: Factual record confirming that CAM charges are not part of rent but separate payments for maintenance services. Prior departmental proceedings and ITAT decisions confirming that mall owners collect CAM charges separately from rent and deduct TDS under Section 194C at 2%. Orders of CIT(A) and AO treating CAM charges as rent and declaring assessee as assessee-in-default were found contrary to the established legal position. Application of law to facts: Applying the legal framework and precedents, the Court held that CAM charges do not constitute rent and thus do not attract TDS under Section 194I. Since CAM charges are payments for maintenance work, they are liable for TDS deduction under Section 194C at the prescribed rate of 2%. The AO's and CIT(A)'s orders treating CAM charges as rent and holding the assessee in default were set aside. Treatment of competing arguments: The Revenue argued that CAM charges are composite payments including rent and should attract TDS under Section 194I, relying on certain earlier decisions. The Court rejected this view, relying on consistent ITAT and High Court decisions distinguishing CAM charges from rent. The Revenue's reliance on the composite agreement was found unpersuasive in light of factual and legal clarity on the nature of CAM charges. Conclusions: CAM charges are not rent for use of premises and thus do not attract TDS under Section 194I. CAM charges are contractual payments for maintenance services and attract TDS under Section 194C at 2%. Orders treating CAM charges as rent and holding the assessee in default under Section 201(1) are erroneous and liable to be set aside. Issue 3: Validity of Declaration of Assessee as Assessee-in-Default under Section 201(1) Relevant legal framework and precedents: Section 201(1) of the Income Tax Act provides for deeming a person an assessee-in-default for failure to deduct or pay TDS as required under the Act. Precedents establish that incorrect classification of payments for TDS purposes can lead to such declarations but must be based on correct legal interpretation of the nature of payments. Court's interpretation and reasoning: The Court found that the AO and CIT(A) erred in treating CAM charges as rent and thus short deducting TDS under Section 194I. Since CAM charges are liable to TDS under Section 194C and were deducted accordingly, the declaration of the assessee as an assessee-in-default was unjustified. Application of law to facts: The Tribunal and High Court set aside the orders declaring the assessee in default, holding that proper TDS deduction was made under the correct provision. Conclusions: The assessee cannot be held in default for short deduction of TDS where the deduction was made under the correct provision applicable to CAM charges. Issue 4: Applicability and Binding Nature of Precedents on CAM Charges Classification Relevant legal framework and precedents: Decisions of coordinate Benches of ITAT and the Delhi High Court on identical issues form binding precedents. Recent Delhi High Court decisions have consistently held CAM charges to be liable for TDS under Section 194C, not Section 194I. Court's interpretation and reasoning: The Court expressly followed the decision of the coordinate Bench in Liberty Retail Revolutions Limited and other ITAT decisions such as Kapoor Watch Company Pvt. Ltd. The Court noted that these precedents have settled the issue conclusively and are directly applicable to the present appeals. Application of law to facts: The Court applied these precedents to the facts of the present appeals, finding no reason to deviate from the established legal position. Conclusions: The precedents are binding and support the conclusion that CAM charges attract TDS under Section 194C, not Section 194I. Issue 5: Existence of Substantial Question of Law Relevant legal framework and precedents: Substantial question of law arises where there is a significant legal issue requiring interpretation or where there is conflict in law. Court's interpretation and reasoning: Given the clear and consistent precedents on the classification of CAM charges for TDS purposes, the Court found no substantial question of law arises in these appeals. Conclusions: No substantial question of law arises from the issue of TDS deduction on CAM charges as the legal position is settled.