Case Law Details
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 28th 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
The captioned appeal has been filed by the Assessee against the order of the Commissioner of Income Tax (Appeals)-XXXVIII, Delhi [‘CIT(A)’ in short] dated 20.08.2020 arising from the order dated 28.03.2018 passed under Section 201(1)/201(1A) of the Income Tax Act, 1961 (the Act) concerning AY 2011-12.
2. The grounds of appeal raised by the assessee read as under:
“That on the facts and in the circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) (hereinafter referred as “Ld. CIT(A)”) in confirming the action of AO of holding the appellant as assessee in default u/s 201(1) in a arbitrary and mechanical manner is bad, both in the eyes of law and on facts.
2. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the action of AO of raising demand of Rs 2,78,645/- by holding the appellant as assessee in default u/s 201(1) on account of short deduction of tax at source on Common Area Maintenance Charges paid amounting to Rs 18,67,250/- on the basis that said charges was part of rent paid on which tax liable to deducted at source u/s 1941 @ 10% instead of 2% u/s 194C without appreciating the fact that common maintenance charges paid were exclusive of rent as per Memorandum of Understanding to lease of license.
3. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the action of AO of raising demand of Rs 2,78,645/- by holding the appellant as assessee in default u/s 201(1) on account of short deduction of tax at source on Common Area Maintenance Charges paid amounting to Rs 18,67,250/- on the basis that said charges was part of rent paid on which tax liable to deducted at source u/s 194I @ 10% instead of 2% u/s. 194C appreciating the fact that Common Area Maintenance charges were paid separately to Maintenance company i.e. third party other than lessor, who does not own the alleged space / premises taken on lease by the appellant.
4. Without prejudice to the Grounds of Appeal 1 to 3, That on the facts and in the circumstances of the case, the appellant is having immunity under the first proviso to Section 201(1) of the Income tax Act, 1961 and should not be treated as assessee in default for short deduction of tax at source on Common Area Maintenance Charges being deductee has already considered the said charges as income in its return of income.”
3. As per the grounds of appeal, the assessee essentially seeks to challenge the allegation of the Revenue that the assessee is in default under Section 201(1) on account of short deduction of tax at source on Common Area Maintenance [CAM] charges paid by the assessee.
4. Briefly stated, a TDS survey under Section 133A(2A) was carried out in the case of Ambience Group on 12.02.2018. A survey action carried out on two malls namely, Abmience, Gurgaon and Ambience Mall, Vasant Kunj revealed that mall owners have collected/recovered expenses in the form of common area maintenance charges on which TDS deduction has been carried out at 2% by the payers under Section 194C of the Act as against 10% deductible under Section 194I of the Act. Consequently, the Assessing Officer passed an order under Section 201(1)/201(1A) of the Act dated 28.03.2018 concerning Assessment Year 2011-12 wherein a demand of Rs.2,78,645/-towards short deduction of tax at source under Section 194I was raised on the CAM charges of Rs.18,67,250/- on the deductor assessee.
5. Aggrieved, the assessee preferred appeal before the CIT(A). However, the CIT(A) also reiterated the findings of the Assessing Officer that the CAM charges payable by the assessee are essentially part of rent payment and consequently susceptible to higher TDS rates of 10% as attributable to Section 194I of the Act
6. Further aggrieved, the assessee preferred appeal before the Tribunal.
7. We have carefully considered the rival submission and the perused the respective orders of the Assessing Officer as well as First Appellate Authority. 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 28th 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.”
7.1 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. We thus reverse the action of the Revenue Authorities and restore the position taken by the assessee. The assessee thus cannot be regarded as assessee in default under Section 201(1)/201(1A) of the Act.
7. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 15/12/2022.
