S H Donut Empire India Private Limited Vs ADDL/JCIT (ITAT Mumbai)
Mumbai ITAT: CAM, Electricity and Water Charges Form Part of ‘Rent’; Separate Invoices Do Not Alter TDS Liability Under Section 194-I
The Mumbai ITAT dismissed the assessee’s appeal and held that Common Area Maintenance (CAM), electricity, water and allied charges paid under a composite conducting agreement are part of “rent” under Section 194-I, attracting TDS at the prescribed rate. The Tribunal upheld the orders treating the assessee as an assessee-in-default under Sections 201(1) and 201(1A) for short deduction of tax.
The dispute arose from a TDS survey in the Runwal Group, where it was found that occupants of the mall, including the assessee, had deducted tax at 2% under Section 194C on CAM charges instead of 10% under Section 194-I. The assessee contended that the CAM, electricity and water charges were merely reimbursements of actual expenses, supported by separate invoices, and therefore did not constitute “rent”.
The CIT(A), whose findings were affirmed by the Tribunal, held that the CAM and utility charges were mandatory, recurring and inseparably linked to the occupation and use of the commercial premises. The conducting agreement did not provide any independent cost-to-cost reimbursement mechanism or separate contractual framework for these charges. Consequently, the payments formed part of the commercial consideration for the use of the premises and fell squarely within the inclusive definition of “rent” under the Explanation to Section 194-I.
The Tribunal further held that raising separate invoices or maintaining separate ledger accounts does not determine the character of the payment. Since the conducting fees as well as CAM and utility charges were paid to the same payee under the same composite arrangement and arose solely because the assessee was permitted to occupy the mall premises, the bifurcation of invoices was of no legal consequence in determining the TDS obligation.
Finding no new material to rebut the detailed findings of the CIT(A), the Tribunal upheld the demand for short deduction of TDS and consequential interest under Sections 201(1) and 201(1A) and dismissed the assessee’s appeal.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is filed by the Assessee against the order of Ld. ADDL-JCIT (A)-1 vide DIN: ITBA/APL/S/250/2025-26/1084095546(1) dated 19-Feb-2026 for the Assessment Year 2012-13. The Assessee has raised the following grounds of appeal:
1. Reimbursement of Expenses outside the Definition of Rent u/s 1941 of the Income Tax Act Liability of actual expenses is upon Petitioner specifically mentioned in Agreement Para 7 and Para 11. Supported by Separate Bills. Company itself neither generate and supply electricity nor water nor maintain the lift. Expenses are of Indivisible Nature.
2. Separate Invoice being issued by the Conductor for Conducting Fees and Reimbursement of Expenses
Separate bills have been issued by the Conductor with respect to the Reimbursement of Expenses, hence no TDS is not deductible on such Expenses. ITO has erred by invoking the provision of section 1941 in the context of Reimbursement of Expenses.
3. No separate Agreement is made by the Conductor for the Common Area Maintenance (CAM) Charges, water charges and electricity charges.
ITO has failed to take cognizance of the Agreement being only one for the Rent and the Reimbursement of Expenses of Common Area Maintenance (CAM) Charges, water charges and electricity charges.
4. Order passed on the basis of Predecessors assumptions
ITO has failed to take cognizance of the submissions and has passed the Order on the basis of the Predecessors assumptions and also on basis of Assessment Order of AY 2011-12. It is not based on Merits.
2. None appeared on behalf of the assessee when the case was called out repeatedly.
3. On the other hand, the learned DR present in the Court was ready with the arguments; therefore, I have decided to proceed with the hearing of the appeal ex parte.
4. All the grounds raised by the assessee are interrelated and relates to challenging the order of the learned CIT(A) in upholding the order of the AO by invoking the provisions of section 194I of the Act in the context of reimbursement of expenses, thereby making the addition. Thus, I have decided to adjudicate these grounds through the present consolidated order.
5. I have heard the learned DR and perused the material placed on record. From the records, I notice that the learned CIT(A) has dealt with this ground in paragraphs 7 and 8 of his order and the same is reproduced herein below:
7.0 ANALYSIS OF THE FACTS & ADJUDICATION OF THE GROUNDS:
The grounds of appeal, statement of facts, written submissions, paper book, and the documentary material placed on record have been carefully examined. The appellant has challenged the order passed under sections 201(1) and 201(1A) primarily on the plea that payments made towards Common Area Maintenance (CAM), electricity and water charges constitute mere reimbursements and therefore fall outside the ambit of “rent” under section 194-1. The said contentions are not acceptable for the reasons discussed hereunder.
The proceedings originated from a TDS survey conducted in the case of Runwal Group, during which it was noticed that various mall occupants, including the appellant, had been making payments towards Common Area Maintenance (CAM) charges while deducting tax at 2% under section 194C, instead of 10% under section 194-1. Based on this information, statutory proceedings under sections 201(1)/201(1A) were initiated and culminated in the order dated 11.03.2019, raising a demand of 47,553, comprising short deduction of TDS of 25,096 and interest of 22,457as per Order dt. 11.03.2019
On examination of the Conducting Agreement, it is evident that:
The appellant was granted the right to use commercial premises in a mall owned by Runwal Group
The CAM charges were mandatorily payable on a per-square-foot basis, inseparably linked to the occupation and use of the premises.
The agreement does not demonstrate that CAM charges are independent, optional, or severable from the arrangement of use of immovable property.
Further, scrutiny of sample invoices, ledger accounts, and payment schedules reveals that:
CAM charges were billed and recovered along with other occupancy-related payments.
or No separate contractual framework, cost-sharing mechanism, reimbursement model was produced to establish CAM as a standalone works. or service contract.
The appellant failed to furnish any documentary evidence to rebut the statutory definition of “rent” as provided in Explanation to section 194-1, which expressly covers any payment, by whatever name called, under any arrangement for the use of land or building, whether or not owned by the payee.
The argument that CAM charges represent mere reimbursement or are liable under section 194C is therefore untenable, as the dominant character of the payment flows from the use of immovable property and not from execution of any independent work contract. This position stands conclusively supported by the plain language of section 194-1 and the factual matrix on record.
Ground No. 1 Reimbursement of expenses outside the definition of rent u/s 194-1
The appellant’s primary contention that CAM, electricity and water charges are “reimbursements of actual expenses” and therefore not liable for deduction of tax at source under section 194-1 is factually and legally untenable. A perusal of the Conducting Agreement dated 22.04.2010 clearly shows that the appellant was granted the right to occupy and operate a food court counter in a commercial mall, and the obligation to pay CAM, electricity, water, lift, staircase, pathways and washroom charges arises solely because of such occupation and use of the premises. These charges are mandatory, recurring and inseparably linked to the enjoyment of the leased premises, and are not optional or independent services. availed at the discretion of the appellant.
The agreement does not provide for any pure cost-to-cost reimbursement mechanism, nor does it establish any one-to-one correlation between the actual expenditure incurred by the mall owner and the amounts recovered from the appellant. On the contrary, the CAM charges are levied on a pre-determined and periodic basis, which clearly indicates that they form part of the commercial consideration for use of the premises and common facilities. Merely stating that the mall owner does not itself generate electricity or water does not alter the character of the payment, as the liability to pay such charges flows from the occupation of the premises and not from any independent supply contract between the appellant and third-party utility providers.
In terms of the Explanation to section 194-1, “rent” means any payment, by whatever name called, under any lease, tenancy or arrangement for the use of land or building. The CAM and allied charges paid by the appellant squarely fall within this statutory definition. Accordingly, this ground is rejected.
Ground No. 2-Separate invoices for conducting fees and reimbursements
The appellant has argued that since separate invoices are raised for conducting fees and CAM / utility charges, the latter cannot be treated as rent. This contention is misconceived. It is a settled principle that tax deduction at source provisions operates on the substance of the transaction and not on nomenclature or billing mechanics.
The mere issuance of separate invoices or maintenance of separate ledger accounts in the appellant’s books does not sever the intrinsic nexus between the CAM charges and the right to use the immovable property.
All payments – conducting fees as well as CAM and utility charges-are made to the same payee, under the same composite conducting arrangement, and arise only because the appellant is permitted to occupy and operate from the mall premises. In the absence of any separate, standalone agreement demonstrating that CAM charges are independent of the lease/ conducting arrangement, the bifurcation of invoices is of no legal consequence. The Assessing Officer has therefore rightly invoked the provisions of section 194-1, and this ground is rejected.
Ground No. 3 Order based on predecessor’s assumptions / earlier year
The plea that the order has been passed mechanically on the basis of predecessor’s assumptions or earlier years’ orders is contrary to the record. The Assessing Officer has examined the Conducting Agreement, sample invoices, ledger accounts, and the appellant’s submissions dated 09.01.2019, 20.02.2019 and 26.02.2019. The findings recorded in the order are based on the terms of the agreement and the nature of payments, and not merely on past assessments. The appellant has not demonstrated any change in facts or contractual terms that would warrant a different conclusion for the year under appeal. This ground is therefore without merit and is rejected.
8.0 In view of the findings recorded above, it is held that the appellant has failed to deduct tax at source at the prescribed rate of 10% under section 194-1 on CAM charges aggregating to 2,50,956, resulting in short deduction of tax of 25,096. The consequent levy of interest of 22,457 under section 201(1A) is mandatory and compensatory in nature. The action of the Assessing Officer in treating the appellant as an assessee in default under section 201(1) is therefore fully justified. The appeal of the appellant is dismissed.
6. After considering the facts of the present case, I find that the learned CIT(A), after evaluating the facts and examining the Explanation to section 194I, has rightly held that rent means any payment, by whatever name called, under any lease, tenancy, or arrangement for the use of land or building. Accordingly, the CAM and allied charges paid by the assessee squarely fall within the definition of rent, and the claim of the assessee was rightly rejected.
7. It was also held that all payments, such as conducting fees as well as CAM charges/utility charges, were made to the same payee under the same composite conducting arrangement and arose only because the assessee was permitted to occupy and operate from the mall premises. Thus, in the absence of any separate standalone agreement under which the CAM charges were independent of the lease/conducting arrangement, the bifurcation of invoices is of no legal consequence. It was, therefore, held that the assessee had failed to deduct tax at source at the prescribed rate of 10% under section 194I on the CAM charges, resulting in short deduction of tax.
8. No new facts, circumstances, or documents have been placed on record by the assessee in order to controvert or rebut the lawful findings so recorded by the learned CIT(A). Therefore, I see no reason to interfere with or deviate from the findings so recorded by the learned CIT(A). Accordingly, I dismiss the grounds raised by the assessee and uphold the order of the learned CIT(A).
9. In the result, the appeal filed by the assessee stands dismissed.
Order pronounced in the open court on 06.08.2026.
