The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that liability under section 201 of the Income Tax Act,1961 will not arise when payment of rent and common area maintenance charges have been made to distinct companies.
Ace DatamaticsPvt. Ltd, the assessee challenged the order dated 11.11.2019 of the CIT(A). The sole issue for our adjudication is as to whether the AO, as well as the CIT(A), were correct and justified in holding that the TDS @ 10% should have been deducted u/s 194I of the Income Tax Act, 1961 (‘the Act’) instead of 2% deducted by the assessee u/s 194C of the Act on the payment to Ambience Developers and Infrastructure and creating demands u/s 201(1) and section 201(1A) of the Act.
The AO observed that payments received by the Ambience group are split into two companies of the same group on a single contract one for rent and the other for maintenance charges. The AO noted that this arrangement has been made to avoid the higher deduction of the TDS rate applicable.
A Coram consisting of Shri C M Garg, Judicial Member and Shri Pradip Kumar Kedia, Accountant Member observed that when the receiver of rent and receiver of maintenance charges are different and distinct and the character of the payment is also different and 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.
It was 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.
While allowing the appeal, the Tribunal held that “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.” In light of the decision by the coordinate Bench of the Tribunal in the case of Kapoor Watch Company Pvt. Ltd. (supra), the Tribunal directed the AO to delete the impugned liability u/s 201(1) and 201(1A) of the Act.
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