CAM Charges paid as part of Rent subject to TDS u/s 194I of Income Tax Act: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has recently in an appeal filed before it, held that CAM charges paid as part of rent, is subject to TDS u/s 194I of Income Tax Act.

The aforesaid observation was made by the Delhi ITAT, when an appeal was filed before it by the assessee, as against the order of the CIT(A), Delhi, dated 20.08.2020.

The grounds of the assessee’s appeal being that on the facts and circumstances of the case, the 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 CIT(A) has grossly erred in confirming the demand thereon u/s 201(1) of Rs.15,43,276/- towards short deduction of TDS on CAM charges by confirming the CAM charges as rent charges and enforcing to deduct TDS u/s 194I on whole amount instead of TDS u/s 194C, and further that on the facts and circumstances of the case , the  CIT(A) has grossly erred in confirming  the demand u/s 201(1A) of Rs .13,84,939/- towards interest on short deduction of TDS on CAM charges, the brief facts of the case  were 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.

The survey action carried out at two malls namely Ambience Gurgaon and Vasant Kunj,revealed thatthe 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. And, on the basis of the findings of the survey, a notice was issued, in response to which requisite details were furnished regarding CAM Charges.

As per the opinion of theAO,the 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. And following the same, it was submitted by the assesseethat the separate invoices for lease expenses and CAM charges have been raised, and that the area for which CAM charges were 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 was also specified, which included common area of the complex. And thereby referring to the various circumstances where CAM waspaid, he observed that, in the case ofassessee CAM charges are variable and linked with the lease agreement.

Thereafter, the AO referred to the provisions of section 1941, including Explanation below it, on the basis of which, the he was of the view that the definition of rent is very broad. And, to support his case, the AO relied upon various decisions.

The assessee, on the other hand, relied upon the judgments of the Supreme Court in the case of Japan Airlines Company Ltd. Vs.  CIT, CIT Vs. Singapore Airlines Ltd. and Associated Hotels of India Ltd. Vs. R.N. Kapoor,and thereby preferred an appeal before the CIT(A), wherein the CIT(A), after having considered the submissions of the assessee, held that undisputedly there is single lease agreement for payment of rent as well as CAM charges. And, it is being aggrieved by the same that the assessee has preferred the instant appeal before the Delhi ITAT.

With Sh. Pradeep Dinodia, CA & Sh. Harsh Jain, CA, the AR on behalf of the assessee having 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., it was claimed that the common area is outside the area which is leased out to the assessee, while on the other hand, Sh. Kanav Bali, the Sr. DR, strongly supported the contentions of the Revenue.

Hearing the opposing contentions of either sides and thereby perusing the materials available on record, the ITAT Panel comprising of Yogesh Kumar US, the Judicial Member, along with Dr. B. R. R. Kumar, the Accountant Member observed:

“Heard the arguments of both the parties and perused the material available on record. At the outset, we find that the issue of deductibility of tax on rent and CAM was examined by the Tribunal in the case of Connaught Plaza Restaurants P. Ltd. Vs. DCIT in ITA No. 993 & 1984/Del/2020 order ,dated 31 .12.2021, Lifestyle International Pvt. Ltd. [TS-352-ITAT-2022 (Bang)] and Lifestyle International Pvt. Ltd. Vs. ACIT in ITA No. 400-405/Bang/2021 order dated 26.04.2022 and also by the order of this bench in the case of Yum Restaurants India (P) Ltd. Vs ACIT in ITA No. 1115/Del/2020 order dated 03 .10.2022.”

“Thus, we hold that the 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.”, the Delhi ITAT finally held.

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