Rent is liable to TDS at 10% under Section 194-I, whereas CAM is only subject to TDS at 2% under Section 194C

Fact and issue of the case

The present appeal has been filed by the assessee against the order of ld. CIT(A)-38, Delhi dated 20.08.2020.

Following grounds have been raised by the assessee:

That on the facts and circumstances of the case, the ld. CIT(A) has grossly erred in treating the CAM charges as rent charges and confirming a total demand of Rs.29,28,215/- u/s 201(1)/201(1A) of the Income Tax Act, 1961.

That on the facts and circumstances of the case, the ld. CIT(A) has grossly erred in confirming demand thereon u/s 201(1) of Rs.15,43,276/- towards short deduction of TDS on CAM charges by confirming CAM charges as rent charges and enforcing to deduct TDS u/s 194I on whole amount instead of TDS u/s 194C.

That on the facts and circumstances of the case, the ld. CIT(A) has grossly erred in confirming of demand u/s 201(1A) of Rs.13,84,939/- towards interest on short deduction of TDS on CAM charges.”

Brief facts of the case are that a survey u/s 133A(2A) of the Income Tax Act, 1961 was carried out in the case of Ambience group by the ACIT(TDS)-73(1), New Delhi on 12.02.2018 for the purposes of verification of compliance of TDS provisions. A survey action was carried out at two malls namely Ambience Gurgaon and Vasant Kunj revealed that, the Mall owners have collected/recovered expenses in the form of Common Area Maintenance Charges (CAM) on which TDS was made at 2% u/s 194-C by the payers. On the basis of findings of survey, notice was issued, in response to which requisite details were furnished regarding CAM Charges. As per AO, tax should have been deducted at 10% on CAM charges u/s 194-I instead of 2% u/s 194C and accordingly a show cause notice was issued.

The assessee submitted that the separate invoices for lease expenses and CAM charges have been raised and the area for which CAM charges are paid has not been in sole or exclusive use or possession of the assessee. However, the AO rejected the explanation of the assessee on the ground that in the agreement, super area is also specified which includes common area of the complex. Then the AO has referred to the various circumstances where CAM is paid and as per the assessee, TDS u/s 194-I is applicable only in the cases where CAM is paid to the same party or group concern on the basis of same lease agreement. The AO observed that, in the case of assessee CAM charges are variable and linked with the lease agreement.

Thereafter, the AO has referred to the provisions of section 1941 including Explanation below it, wherein rent has been defined as “Rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any (b) building or (c) land appurtenant to a building (including factory building) or (h) fittings, whether or not any or all of the above are owned by the payee. On the basis of this provision, the AO was of the view that the definition of rent is very broad. To support his case, the AO relied upon various decisions.

Observation of the court

The assessee relied upon the judgments of Hon’ble Supreme Court in Japan Airlines Company Ltd. Vs. CIT, (377 ITR 372), CIT Vs. Singapore Airlines Ltd. and Associated Hotels of India Ltd. Vs. R.N. Kapoor, AIR 1959 SC 1262.

After having considered the submissions of the assessee, the ld. CIT(A) held that undisputedly there is single lease agreement for payment of rent as well as CAM charges. The ld. AR has submitted that payment of CAM charges is nothing but reimbursement of common area maintenance expenses incurred by the lessor on general maintenance, electric, water and security services etc. Further, it has been claimed that, the common area is outside the area which is leased out to the assessee. These arguments are not acceptable because the common area and other services provided by the lessor are also enjoyed by the appellant along with the specified area. As per the same agreement, the appellant is required to pay lease rent as well as CAM charges. It is also noticed that there is no distinction between CAM charges and lease rent payments except, for raising separate invoices. The Explanation below section 194-I which defines “Rent” takes into its ambit any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any (b) building or (c) land appurtenant, to a building (including factory building) or (h) fittings, whether or not any or all of the above are owned by the payee and hence it is clear that any payment even for use of any building and land appurtenant, there to including furniture/fittings is part of rent. CBDT vide circular No. 715 dated 08.08.1995 (Question No. 24) has also clarified that there is composite arrangement for use of premises and provision of manpower, such agreement in essence is for taking premises on rent and hence provisions of section 1941 are-applicable. This view also gets support from the decision of Hon’ble High Court in the case of Sunil Kumar Gupta Vs ACIT (2016) 389 ITR 38 (P & H), in which it is held that where the agreement provides that the owner of the premises shall pay for common facilities, then it is reasonable to presume that the same is factored into the rent payable by the lessee. However, if maintenance charges etc. are stipulated to be payable by the lessor, it must form part of rent for the purposes of computing income from house property. In the case before hand, the CAM charges are paid by the lessor and the appellant has no control on actual expenditure to be incurred by the lessor. In view of above mentioned factual and legal position, thus it is clear that the CAM charges paid by the appellant are part of rent liable for TDS u/s 194-I.

Thus, we hold that rent is subjected to TDS @ 10% u/s 194-I and CAM charges u/s 194-C @ 2%. Hence, the appeal of the assessee is hereby allowed.

In the result, the appeal of the assessee is allowed.

Order Pronounced in the Open Court on 28/02/2023.