TDS on CAM Charges Treated as Payment for Services, Not for Use of Property: ITAT Rules 2% Deduction u/s 194C Valid
Referring to the earlier ruling in Connaught Plaza Restaurants (P) Ltd. v. DCIT, the Bench held that CAM charges constituted contractual payments for upkeep of common areas and not rent under Section 194-I.
The Delhi Bench Income Tax Appellate Tribunal ( ITAT) ruled that Tax Deducted at Source ( TDS ) at 2% under Section 194C of Income Tax Act,1961, on Common Area Maintenance (CAM) charges was valid, as such payments represented consideration for maintenance services and not for the use of property.
Glued Entertainment Pvt. Ltd.,appellant-assessee, through counsel, stated that it was engaged in the business of gaming and entertainment and had taken space on lease in Logix City Centre Mall, Noida, from M/s Logix Buildtech Pvt. Ltd. under an agreement dated 03.08.2015. Along with the monthly rent, it paid CAM charges for maintaining shared facilities like parking, lifts, toilets, and landscaping.
During the year, the appellant deducted TDS at 10% on rent under Section 194-I and at 2% on CAM charges under Section 194C, deposited the same, and filed TDS returns. The Assessing Officer (AO) held that CAM charges were part of rent and should also be subject to 10% TDS under Section 194-I.
The assessee was treated as in default, and interest of Rs. 95,660 was charged under Section 201(1A). The appeal before the Commissioner of Income Tax (Appeals)[CIT(A)] was dismissed.
The counsel argued that CAM charges were separately billed for common services and not for exclusive use of any premises. Hence, TDS at 2% under Section 194C was appropriate. It was further submitted that in later years (AYs 2018-19 and 2019-20), similar additions were deleted by the CIT(A) following the ITAT decision in Connaught Plaza Restaurant (P) Ltd. and that the deductee had already offered the income to tax.
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The department counsel supported the order and requested that the appeal be dismissed. He stated that the lease agreement included both rent and CAM charges as part of one arrangement, making the payments liable for TDS under Section 194-I of the Act.
A single member bench comprising Vikas Awasthy (Judicial Member) considered the submissions of both parties and reviewed the orders of the lower authorities. It observed that the issue involved was whether CAM charges paid to the lessor were subject to TDS at 2% under Section 194C or at 10% under Section 194-I.
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Referring to earlier tribunal decisions, including Connaught Plaza Restaurants (P) Ltd. v. DCIT, it was noted that CAM charges represented payments for maintenance services and not for the use of land or building.
Relying on this settled view, the appellate tribunal held that CAM charges could not be treated as rent under Section 194-I and that TDS at 2% under Section 194C had been correctly deducted. The order of the CIT(A) was therefore set aside, and the appeal was allowed.
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