CAM charges are not lease rentals or license charges: Delhi HC Upholds ITAT Order [Read Order]

In a recent case, the Delhi High Court upheld the Income Tax Appellate Tribunal Order (ITAT), which ruled that common area maintenance (CAM) charges are not lease rentals or license charges.

The Revenue has filed the present appeal impugning an order dated 22.11.2023 [impugned order] passed by the Income Tax Appellate Tribunal [ITAT] in ITA No.1016/Del/2020 in respect of Assessment Year [AY] 2011-12. Liberty Retail Revolutions Ltd, the Assessee had preferred the said appeal [ITA No.1016/Del/2020] impugning an order dated 16.01.2020 passed by the Commissioner of Income Tax (Appeals)-38 [CIT(A)], whereby the assessment order passed by the Assessing Officer [AO] under Section 201(1)/ 201(1A) of the Income Tax Act, 1961 [the Act], was confirmed.

The Assessee is a company engaged in the business of fashion products, including leather accessories, watches and artificial jewellery at Ambience Mall, Vasant Kunj, New Delhi. The said premises belong to Ambience Group, which operates Ambience Mall, Vasant Kunj and Ambience Mall, Gurgaon. Various outlets at the said malls have either been sold or have been licensed.

The AO found that Ambience Group received Common Area Maintenance [CAM] charges from various persons in connection with occupation and license of units in the said malls. The persons paying CAM charges had deducted tax at source [TDS] at the rate of 2% on such charges and deposited the same. The TDS was deducted on the basis that the payments were covered under the provisions of Section 194-C of the Act. The Assessee had also paid CAM charges after deducting TDS at the rate of 2% of the said charges, and had deposited the same.

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However, according to the AO, CAM charges paid by the mall owners were essentially a part of rental activities and, therefore, TDS was required to be deducted on such payments under Section 194-I of the Act. On the aforesaid basis, it was concluded that the TDS was required to be deducted at the rate of 10% on such payments. The AO passed an order dated 30.03.2018 determining the TDS amount payable at ₹4,41,121/- under Section 201(1) of the Act and also computed the interest on the said amount at ₹4,23,477/- under Section 201(1A) of the Act. Aggrieved by the aforesaid decision, the Assessee preferred an appeal before the CIT(A). However, the same was dismissed.

A division bench of Justice Vibhu Bakhru and Justice Tejas Karia concur with the claim of the AR that 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 under section 194C of the Act.

Observing, that payment of CAM charges were essentially a part of the rent, the AO treated the assessee as an assessee-in-default for short deduction of tax at source under section . 201(1)/201(1A) of the Act. On appeal, it was observed by the Tribunal that the CAM charges paid by the assessee did not form part of the actual rent that was paid to the owner by the assessee company.

The bench held that “CAM charges are essentially maintenance charges paid by a unit for proper maintenance of the common area. The said charges are contributed towards expenditure ON cleanliness, utilities and maintenance. These charges are shared expenses for common works and utilities. The said charges cannot, by any stretch, be construed as payment of rent for occupying the premises in question. The fundamental premise that CAM charges are, by their nature, lease rentals or license charges is erroneous. Thus, the orders passed by the CIT(A) and the AO have rightly been set aside by the learned ITAT.”

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