Lifestyle International Pvt. Ltd. Vs ACIT TDS (ITAT Bangalore)
Facts- The assessee is a private limited company and is engaged primarily in retailing in ready-made garments, leather products, furniture, toys, baby basics, footwear and other household accessories. The survey u/s. 133A(2A) of the Act was conducted on the registered address of the assessee on 08.03.2018 for the purpose of verifying whether appropriate taxes have been deducted at source on the expenses incurred/payments made by the assessee. During the survey the AO observed that the assessee has taken many properties on lease and the assessee has been deducting TDS on rent payments u/s. 194I of the Act. The AO also noticed that the common area maintenance charges (CAM charges) paid on these leased properties is treated as contractual payments and tax is deducted u/s. 194C at the rate of 2%. The AO stated that the CAM charges are directly relatable to and are part of the rental activity hence prime facie these payments fall under the purview of 194I and not of 194C calling for a deduction at 10% instead of 2%. The AO therefore treated the assessee as an assessee in-default and passed an order u/s. 201(1) of the Act on 18.02.2020 stating that there is short deduction of tax at source on the CAM charges. The AO also computed interest u/s. 201(1A) on the tax short deducted.
Aggrieved by the order of the AO the assessee preferred an appeal before the CIT(A). The CIT(A) observed that there was a single lease agreement for the premise’s rent and the CAM charges and concluded that CAM charges are integral part of the agreement between the assessee and the lessor. The CIT(A) therefore dismissed the appeal of the assessee by confirming that TDS on CAM charges should be done at 10% u/s. 194I of the Act by relying on the earlier year order passed by the CIT(A) in assessee’s own case. The CIT(A) also dismissed the claim of the assessee that the assessment order passed by AO was barred by limitation u/s. 201(3) of the Act.
The assessee is in appeal before the Tribunal against the order of the CIT appeals.
Conclusion- The CAM charges are in the nature of contractual payments towards electricity, water supply, security, lift maintenance etc., falling within the meaning of section 194C whereby these charges are paid for carrying out the work for maintenance of the common area that are available along with the lease premises. The fact that these two payments are agreed and paid under the same agreement does not change the character / nature of such payments warranting single rate of tax deduction at source. The law has provided for different rates of tax deduction at source based on the nature of payment and it is imperative that the correct rate of tax is applied depending on the nature of payments.
We are of the considered view that the payments made towards CAM charges are in the nature of contractual is payments that are made for availing maintenance services and they are not paid for use of any premises/equipment. Therefore the cam charges would be subjected to deduction of tax at source u/s. 194C of the Act at 2%. The assessee has applied the right rate of tax for deduction at source at 2% on CAM charges and therefore the assessee cannot be held to be an assessee in default u/s. 201(1) of the Act.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
The assessee has filed these appeals challenging the order of the CIT(A) NFAC dated 30.06.2021 for the asst. year 2013-14 to 2017-18. As common issues are involved in these appeals they were heard together and are being disposed off by way of a common order.
2. The common issue for all the assessment years under appeal (2013-14 to 2017-18) is the treatment of common area maintenance charges (CAM charges) as rent and applying TDS rates at 10% u/s. 194I of the Act instead of 2% u/s. 194C of the Act. For the assessment year 2013-14 and 2014-15 the assessee is also contending that the order passed by the assessing officer (AO) is time barred u/s. 201(3) of the income tax Act 1961 (the Act). The grounds raised by the assessee for the assessment year 2013-14 are reproduced below.
“I. The order passed by the Learned assessing officer [“AO”] is barred u/s. 201(3) of the Income-tax Act, 1961 [“the Act”]
1. The order passed by the learned assessing officer [“AO”] u/s. 201 of the Income tax Act, 1961 [“the Act”] dated 18 February 2020 (as upheld by the Learned Commissioner of Income-tax (Appeals) [“CIT(A)”]) was barred by time as per the erstwhile provisions of section 201(3) of the Act as it stood prior to Finance Act 2014.
2. The Learned CIT(A) and Learned AO failed to appreciate that the amendment vide Finance Act 2014, which extended the time limit to pass order u/s. 201 of the Act, is effective from 1 October 2014.
3. The Learned CIT(A) and Learned AD have erred in not relying on various judicial pronouncements which have held that the amendment brought vide Finance Act 2014 has to be applied prospectively.
4. The Learned CIT(A) and the Learned AD have erred in not taking into consideration the favourable order passed by the Hon’ble Income tax Appellate Tribunal [“ITAT”] in Appellant’s own case for AY 2011-12.
II. Characterisation of common area maintenance charges [“CAM charges”] as rent and applying TDS rate at 10% u/s. 1941 of the Act instead of 2% u/s. 194C of the Act
5. The Learned CIT(A) and Learned AD have grossly erred in stating that CAM charges are subject to withholding tax at 10% u/s. 1941 of the Act as against 2% u/s. 194C of the Act.
6. The Learned CIT(A) grossly erred in upholding the view of Learned AO that CAM charges are in the nature of rent.
7. The Learned CIT(A) and the Learned AD failed to appreciate that the payments made by the Appellant towards CAM charges is in the nature of contractual payments and has erroneously considered the same as rent.
8. The Learned CIT(A) and Learned AD ought to have appreciated that CAM charges constitutes payments for various services rendered to the Appellant which cannot be equated with rental payments.
9. The Learned CIT(A) and Learned AD grossly erred in treating CAM charges as rent merely because of the fact that there was a common agreement for both rental payments and CAM charges.
10. The Learned CIT(A) and Learned AO failed to consider various judicial precedents relied upon by the Appellant in its submissions, wherein it was inter-alia observed that actual nature of the transaction and the terms of the contract have to be looked upon before concluding the payment as rent.
11. The Learned CIT(A) and Learned AO erred in not complying with the circular issued by the Central Board of Direct Taxes, which clarifies that any routine maintenance charges, which is not technical in nature, will be covered u/s. 194C of the Act.
12. The Learned CIT(A) and Learned AO ought to have appreciated various judicial pronouncements which held that maintenance charges fall under preview of section 194C of the Act.
13. The Learned CIT(A) and Learned AO erred in relying on certain judicial precedents which are distinguishable from the facts of the Appellant’s case.
14. The Learned CIT(A) has grossly erred in relying on the CIT(A)’s order in Appellant’s own case for AY 2011- 12 without appreciating that the said order has been quashed by the Hon’ble ITAT.
III. Erroneous levy of interest u/s. 201(1A) of the Act
15. The Learned CIT(A) and Learned AO have erred in levying interest u/s. 201(1A) of the Act amounting to INR 868,207/-which is consequential in nature.”
3. The assessee is a private limited company and is engaged primarily in retailing in ready-made garments, leather products, furniture, toys, baby basics, footwear and other household accessories. The survey u/s. 133A(2A) of the Act was conducted on the registered address of the assessee on 08.03.2018 for the purpose of verifying whether appropriate taxes have been deducted at source on the expenses incurred/payments made by the assessee. During the survey the AO observed that the assessee has taken many properties on lease and the assessee has been deducting TDS on rent payments u/s. 194I of the Act. The AO also noticed that the common area maintenance charges (CAM charges) paid on these leased properties is treated as contractual payments and tax is deducted u/s. 194C at the rate of 2%. The AO stated that the CAM charges are directly relatable to and are part of the rental activity hence prime facie these payments fall under the purview of 194I and not of 194C calling for a deduction at 10% instead of 2%. The AO therefore treated the assessee as an assessee in-default and passed an order u/s. 201(1) of the Act on 18.02.2020 stating that there is short deduction of tax at source on the CAM charges. The AO also computed interest u/s. 201(1A) on the tax short deducted.
4. Aggrieved by the order of the AO the assessee preferred an appeal before the CIT(A). The CIT(A) observed that there was a single lease agreement for the premise’s rent and the CAM charges and concluded that CAM charges are integral part of the agreement between the assessee and the lessor. The CIT(A) therefore dismissed the appeal of the assessee by confirming that TDS on CAM charges should be done at 10% u/s. 194I of the Act by relying on the earlier year order passed by the CIT(A) in assessee’s own case. The CIT(A) also dismissed the claim of the assessee that the assessment order passed by AO was barred by limitation u/s. 201(3) of the Act.
5. The assessee is in appeal before the Tribunal against the order of the CIT appeals. We will first consider the issue of AO’s order u/s. 201(1) being time barred u/s. 201(3) of the Act which is raised as an issue for the assessment year 2013-14 and 2014-15
6. The learned AR submitted that as per the provisions of section 201(3) as it existed prior to amendment made by Finance (no.2) Act 2014 an order u/s. 201(1) cannot be made after the expiry of two years from the end of the financial year in which the statements u/s. 200 is filed. The learned AR submitted that the assessee has filed the statements as required to be filed u/s. 200 and the same fact has been verified and confirmed by the AO in his order (Page 8 para 13 of AO’s order). Therefore the learned AR contented that the assessee’s case would fall within the provisions of clause (i) of section 201(3) of the Act and assessment order passed by the AO on 18.02.2020 is way beyond the time limit described u/s. 201(3) rendering the same bad in law
7. The learned DR on the other hand submitted that amendment to section 201(3) that was made in the statute vide Finance Act 2012 w.r.e.f. 01.04.2010 enlarging the time limit for passing of an order u/s. 201(1) to Six years from the end of the financial year in which payment is made or credit is given is clarificatory in nature, therefore it would be applicable retrospectively and as a consequence the time limit available to the AO for passing the order u/s. 201(1) is six years from the end of the financial year in which the payment is made or credit is given and hence the order passed by the AO u/s. 201(1) is not time barred.
8. We heard the rival submissions and perused the materials on record. Sub-section (3) to Section 201 of the Act, as was made available on the statute vide the Finance Act, 2009 w.e.f. 01.04.2010, reads as under:
“(3) No order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India, at any time after the expiry of –
(i) two years from the end of the financial year in which the statement is filed in a case where the statement referred to in section 200 has been filed;
(ii) four years from the end of the financial year in which payment is made or credit is given, in any other case” (emphasis supplied)”
9. In so far the time limit for passing of an order u/s. 201(1) of the Act in a case where statement of tax deducted at source u/s. 200 of the Act was not filed by the deductor, the same was thereafter extended vide the Finance Act, 2012 from 4 years as was earlier provided in clause (ii) to Section 201 (3) of the Act to a period of 6 years with retrospective effect from 01.04.2010, i.e., from AY 2010-11 onwards. However, the time limit for deeming a person to be an assessee-in-default for failure to deduct the whole or any part of the tax from a person resident in India, in a case where a statement of tax deducted at source u/s. 200 of the Act was filed by the deductor remained unchanged i.e. 2 years as was earlier provided on the statute vide the Finance Act, 2009 w.e.f. 01.04.2010. We find that the aforesaid time limit for deeming a person to be an assessee-in- default within the meaning of Section 201(1) of the Act, had thereafter further been extended vide the Finance Act, 2014 w.e.f. 01.10.2014 to a period of 7 years from the end of the financial year in which payment is made or credit is given.
10. Before proceeding further it would be important to examine based on facts whether the time limit for deeming the assessee as an assessee-in-default u/s. 201(1) of the Act is regulated by the time period as mentioned in clause (i) of section 201(1) as claimed by the assessee, or the extended time period of 6 years as per clause (ii) of section 201(1) as was prevalent prior to the Finance Act, 2014, i.e. prior to 01.10.2014, as claimed by the revenue. For this purpose it would be relevant to cull out the respective dates on which the statements referred to in Section 200 of the Act had been filed by the assessee company, as under:-
Assessment year 2013-14 Assessment year 2014-15
