CAM charges cannot partake the character of rent – Section 194C TDS applicable

Devyani International Limited Vs ACIT (ITAT Delhi)

The short controversy hinges around the applicability of Section 194C or Section 194I on payment of CAM charges by licensee Assessee. To address the issue, a reference was made to the MOU between the lessor/owner and the licensee assessee. It is the case of the assessee that the rent payment to the licensor is independent of the CAM charges payable and thus the CAM charges cannot partake the character of rent. The assessee thus contends that the deduction rate applicable on CAM charges @2% under Section 194C has been rightly deducted. The assessee also contends that while the rent has been paid to Ambience Infra Pvt. Ltd. as per the MOU dated 28^th November, 2006, the CAM charges have been paid to a separate entity namely, Ambience Facilities Management Pvt. Ltd. A reference was further made to the decision of the Co-ordinate Bench in ITA No.889/Del/2020, Kapoor Watch Co. Pvt. Ltd. vs. ACIT, order dated 05.01.2021 wherein the Tribunal examined the issue of short deduction of tax and held that the assessee cannot be regarded as the assessee in default under Section 201(1) of the Act in the similar circumstances. The relevant operative paragraph of the Co­ordinate Bench is reproduced hereunder:

“7. We have heard both the parties and perused the material available on record. Ground Nos. 1 and 1.1 are general in nature hence not adjudicated upon. As regards as Ground Nos. 2, 2.1, 2.2 and 3, it is pertinent to note that the assessee company has paid the rent to owner after deduction of TDS u/s.194-I of the Act and the payment for operation/maintenance was made directly to the services providers after deduction of TDS u/s 194C of the Act. There is a Tri-party Agreement which was on record before the Assessing Officer as well as before the CIT(A). These facts were never disputed by the Assessing Officer as well as the CIT(A). The only dispute that arises by revenue that assessee company should deduct TDS on payment made directly to operation/maintenance services providers u/s 194-I of the Act instead of Section 194C of the Act by relying on the judgment of the Hon’ble High Court of Punjab & Haryana in case of Sunil Kumar Gupta vs. ACIT 389 ITR 38 wherein the Hon’ble Court held that maintenance charges must form a part of the rent while calculating the, annual value of property u/s 23(1) of the Act for the purpose of Section 22 of the Act. However, in the present assessee company’s case, the common area maintenance charges was not forming the part of the actual rent paid to the owner by the assessee company. There is a separate agreement between the Owner, Tenant and service provider for common area maintenance which is distinguishing fact and thus, the decision of the Hon’ble Punjab and Harayana High Court will not be applicable in the present case. Therefore, the CIT(A) was not right in confirming the order of the Assessing Officer. Hence, appeal of the assessee is allowed.”

In the light of the text and tenor of the agreement entered into by the licensee-assessee read with the decision of the Co­ordinate Bench, the action of the assessee for deduction of TDS at 2% of CAM charges under Section 194C cannot be faulted per se.

FULL TEXT OF THE ORDER OF ITAT DELHI

Please become a Premium member. If you are already a Premium member, login here to access the full content.