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January 14, 2023

TDS on rent paid to various businesses and maintenance fees for common areas.

by CA Shivam Jaiswal in Income Tax

TDS on rent paid to various businesses and maintenance fees for common areas.

fact and issue of the case

“1. The action of lower authorities in passing order section 201 (1) and creating the demand of Rs 6,46,732 under section 201 (1) and charging interest at Rs 5,87,277 under section 201(1 A) without giving adequate opportunity to the assessee to present its case is unjust, illegal, arbitrary, illusory and the order deserves to be quashed.

2. The action of learned CIT(A) in holding 10 percent TDS should have been deducted under section 194I instead of 2 percent deducted by the assessee under section 194C on payment of Rs 4,43,046 to Ambience Developers and Infrastructure and thus creating a demand of Rs 35,887 under section 201(1) and Rs 32,298 under section 201(1A) is unjust, illegal, arbitrary, illusory and the demand deserves to be quashed.

3. The action of the learned CIT(A) in holding 10 percent TDS should have been deducted under section 194I instead of 2 percent deducted by the assessee under section 194C on payment of Rs.4,25,324 to Ambience Developers and Infrastructure and thus creating a demand of Rs 32,688 under section 201(1) and Rs 28,275 under section 201(1A) is unjust, illegal, arbitrary, illusory and the demand deserves to be quashed.

4. The action of the learned CIT(A) in holding that 10 percent TDS should have been deducted under section 1941 on payment of Rs.51,48,628 which assessee has not done and thus creating a demand of Rs 5,14,863 under section 201(1) and Rs 4,65,951 under section 201(1A) is unjust, illegal, arbitrary, illusory and the demand deserves to be quashed.

5. The action of the learned CIT(A) in holding that 10 percent TDS should have been deducted under section 194A on payment of Rs.3,10,840 which assessee has not done and thus creating a demand of Rs 31,084 under section 201 (1) and Rs 29,840 under section 201(1A) is unjust, illegal, arbitrary, illusory and the demand deserves to be quashed.

6. The action of the learned CIT(A) in holding that 2 percent TDS should have been deducted on various payments amounting to Rs 16,10,096 and thus creating a demand of Rs 32,201 under section 201(1) and Rs 30,913 under section 201(1A) is unjust, illegal, arbitrary, illusory and the demand deserves to be quashed.

7. Appellant craves leave to add, alter, modify or delete any ground of appeal either before or at the time of hearing of the appeal.”

observation of the court

1. On careful consideration of the rival contentions emerged from the record, we are of the considered view that identical issue was placed before the ITAT Delhi ‘D’ Bench in the case of Kapoor Watch Company Pvt. Ltd. and the coordinate Bench of the Tribunal by order dated 05.01.2021 in ITA No.889/Del/2020, for AY 2011-12

2. We have heard both the parties and perused the material available on record. Ground Nos. 1 and 1.1 are general in nature hence not adjudicated upon. As regards to Ground Nos. 2, 2.1, 2.2 and 3, it is pertinent to note that the assessee company has paid the rent to owner after deduction of TDS u/s 194-I of the Act and the payment for operation/maintenance was made directly to the services providers after deduction of TDS u/s 194C of the Act. There is a Tri-party Agreement which was on record before the Assessing Officer as well as before the CIT(A). These facts were never disputed by the Assessing Officer as well as the CIT(A). The only dispute that arises by 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 the Hon’ble High Court of Punjab & Haryana in case of Sunil Kumar Gupta vs. ACIT 389 ITR 38 wherein the Hon’ble Court 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.”

3. In the present case also the AO in para 4.2 of the assessment order observed that the payments received by Ambience group are split into two companies of same group on single contract one for rent and the other for maintenance charges. However, the AO noted that this arrangement has been made to avoid the higher deduction of TDS rate applicable to which we do not agree as when the receiver of rent and receiver of maintenance charges are different and distinct and the character of the payment is also different and distinct, then, on the payments towards maintenance charges has to be made after TDS @ 2% u/s 194C of the Act and not @ 10% u/s 194I of the Act. From the material available on record, it is clearly discernible that the assessee company has paid rent to the owner after deduction u/s 194 of the Act @ 10% and the payment for operation/maintenance was made directly to the service provider company after deduction of tax u/s 194C of the Act. Therefore, we are inclined to hold that in the present case the common area maintenance charges was not forming part of the actual rent paid to the owner by the assessee company. Payments of rent and common area maintenance charges have been made to distinct entities/companies, therefore, the authorities below were not right in creating the impugned liability payable by the assessee firm under the provisions of sub-sections (1) and (1A) of section 201 of the Act. Therefore, respectfully following the order of the coordinate Bench of the Tribunal in the case of Kapoor Watch Company Pvt. Ltd. (supra), the grievance/grounds of the assessee are allowed and the AO is directed to delete the impugned liability u/s 201(1) and 201(1A) of the Act.

4. In the result, the appeal filed by the assessee is allowed.

Conclusion

The tribunal has ruled in favour of the assessee and dismiss the appeal

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