Case Law Details
Aero Club Vs DCIT (ITAT Delhi)
ITAT Delhi held that rent is subjected to TDS @ 10% under section 194-I of the Income Tax Act, whereas, Common Area Maintenance (CAM) charges are subjected to TDS @ 2% under section 194C of the Income Tax Act.
Facts- 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. A survey action was carried out at two malls namely Ambience Gurgaon and Vasant Kunj revealed that, the 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. On the basis of findings of survey, notice was issued, in response to which requisite details were furnished regarding CAM Charges. As per AO, 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.
Conclusion- This bench in the case of Yum Restaurants India (P) Ltd vs. ACIT has held that the determination of the rent or CAM are separate and the CAM arrangements are not essential and an integral part for use of the premises. While there are no expenses incurred against the rent except for general building maintenance and municipal charges, the CAM involves employment of separate staff and separate operations involved on day to day basis. Hence, we hold that the provisions for rent are governed by Section 194I and CAM charges by Section 194C of the Act.
Held that 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.
In the result, the appeal of the assessee is allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal has been filed by the assessee against the order of ld. CIT(A)-38, Delhi dated 20.08.2020.
2. Following grounds have been raised by the assessee:
“1. That on the facts and circumstances of the case, the ld. 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.
2. That on the facts and circumstances of the case, the ld. CIT(A) has grossly erred in confirming demand thereon u/s 201(1) of Rs.15,43,276/- towards short deduction of TDS on CAM charges by confirming CAM charges as rent charges and enforcing to deduct TDS u/s 194I on whole amount instead of TDS u/s 194C.
3. That on the facts and circumstances of the case, the ld. CIT(A) has grossly erred in confirming of demand u/s 201(1A) of Rs.13,84,939/- towards interest on short deduction of TDS on CAM charges.”
3. Brief facts of the case are 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. A survey action was carried out at two malls namely Ambience Gurgaon and Vasant Kunj revealed that, the 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. On the basis of findings of survey, notice was issued, in response to which requisite details were furnished regarding CAM Charges. As per AO, 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.
4. The assessee submitted that the separate invoices for lease expenses and CAM charges have been raised and the area for which CAM charges are 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 is also specified which includes common area of the complex. Then the AO has referred to the various circumstances where CAM is paid and as per the assessee, TDS u/s 194-I is applicable only in the cases where CAM is paid to the same party or group concern on the basis of same lease agreement. The AO observed that, in the case of assessee CAM charges are variable and linked with the lease agreement.
5. Thereafter, the AO has referred to the provisions of section 1941 including Explanation below it, wherein rent has been defined as “Rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any (b) building or (c) land appurtenant to a building (including factory building) or (h) fittings, whether or not any or all of the above are owned by the payee. On the basis of this provision, the AO was of the view that the definition of rent is very broad. To support his case, the AO relied upon various decisions.
6. Submissions of the assessee before the revenue authorities are as under:
“During the Financial Year 2011-2012 the assessee firm has paid the rent and cam charges to various parties. It is clear from the reading of the agreements with these parties that both the agreements are separate in nature, one is in the nature of rent and other is in the nature of maintenance charges. The assessee firm has properly deducted the TDS on Rent under section 1941 and TDS on CAM charges under section 194C “Payment to contractors” of the Income Tax Act, 1961 as per the obligations mentioned in the above mentioned sections and there is no default in deducting the TDS. Both section 1941 and 194C of the Income Tax Act, 1961 are separate in nature and would not be correlated for the deduction of TDS of Rent charges and CAM charges. The above was assessed by the DCIT Circle-73(1),Delhi and an addition for short deduction of TDS for Rs. 15,43,276/- and Interest U/S 201(1 A) amounting to Rs. 13,84,939/- was made vide its order dated 25.03.2019.
Our submissions with respect to the addition made by the Learned Assessing Officer while passing the assessment order:
Addition of Rs. 15,43,276 as Short Deduction of TDS
The assessee firm has taken various properties on rent and has entered into agreement with the owners on different basis as follows:
i) Rent and CAM charges is being paid to same party itself.
ii) Rent and CAM charges is being paid to different vendors by the assessee i.e. one to whom the property belongs and other an entirely independent agency who carries out the maintenance services.
The AO has failed to considered our reply dated 25.03.2019 and passed the order in a hurry without providing the adequate opportunity of being heard to the assessee on the same date i.e. on 25.03.2019.
The AO has taken a different view for the both types of agreement for deciding the same nature of expense, and has ended up by making an addition for short deduction of TDS for the type of agreement where Rent and CAM charges are paid to same parties.
As per section 194-I of the Income Tax Act, 1961 reads as under:
“194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or a draft or by any other mode, whichever is earlier, deduct income tax thereon at the rate of:
1. Two percent for the use of any machinery or plant of equipment; and
2. Ten percent for the use of land or building (including factory building) or land appurtenant to a building(including factory building) or furniture or fittings.
3. Rent’ means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any:
4. Land or
5. Building (including factory building) or
6. Land appurtenant to a building (including factory building) or
7. Machinery or
8. Plant or
9. Equipment or
10. Furniture or
h) Fittings
CAM charges are paid relating to the maintenance of Common Area of Mall and for supply of electricity(main and stand by),water and for providing Security, Housekeeping, Repair and Maintenance, Engineering, Horticulture, Insurance Cover, Marketing and/or any other services.
It is clearly evident that the CAM charges are paid for various need based services and not for the use of land, building, land appurtenant to building, Machinery, Plant, Equipment or Furniture or Fittings. Therefore the CAM charges does not fall within the ambit of section 194-1 of the Income Tax Act, 1961.”
7. The assessee relied upon the judgments of Hon’ble Supreme Court in Japan Airlines Company Ltd. Vs. CIT, (377 ITR 372), CIT Vs. Singapore Airlines Ltd. and Associated Hotels of India Ltd. Vs. R.N. Kapoor, AIR 1959 SC 1262.
8. After having considered the submissions of the assessee, the ld. CIT(A) held that undisputedly there is single lease agreement for payment of rent as well as CAM charges. The ld. AR has 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. Further, it has been claimed that, the common area is outside the area which is leased out to the assessee. These arguments are not acceptable because the common area and other services provided by the lessor are also enjoyed by the appellant along with the specified area. As per the same agreement, the appellant is required to pay lease rent as well as CAM charges. It is also noticed that there is no distinction between CAM charges and lease rent payments except, for raising separate invoices. The Explanation below section 194-I which defines “Rent” takes into its ambit any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any (b) building or (c) land appurtenant, to a building (including factory building) or (h) fittings, whether or not any or all of the above are owned by the payee and hence it is clear that any payment even for use of any building and land appurtenant, there to including furniture/fittings is part of rent. CBDT vide circular No. 715 dated 08.08.1995 (Question No. 24) has also clarified that there is composite arrangement for use of premises and provision of manpower, such agreement in essence is for taking premises on rent and hence provisions of section 1941 are-applicable. This view also gets support from the decision of Hon’ble High Court in the case of Sunil Kumar Gupta Vs ACIT (2016) 389 ITR 38 (P & H), in which it is held that where the agreement provides that the owner of the premises shall pay for common facilities, then it is reasonable to presume that the same is factored into the rent payable by the lessee. However, if maintenance charges etc. are stipulated to be payable by the lessor, it must form part of rent for the purposes of computing income from house property. In the case before hand, the CAM charges are paid by the lessor and the appellant has no control on actual expenditure to be incurred by the lessor. In view of above mentioned factual and legal position, thus it is clear that the CAM charges paid by the appellant are part of rent liable for TDS u/s 194-I.
9. Heard the arguments of both the parties and perused the material available on record.
10. 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. The operative part of the said order is as under:
“6. The undisputable fact in this case is that while the lease rentals are paid based on a fixed percentage on the net revenue, the CAM charges are based on the per sq. ft. area. The observation of the ld. CIT(A) is that the rent by any name, lease, sub-lease, tenancy or the reliance on the judgment wherein the services are intrapolated into the rent stand on a different pedestal. In the instant case, the determination of the rent or CAM are separate and the CAM arrangements are not essential and an integral part for use of the premises. While there are no expenses incurred against the rent except for general building maintenance and municipal charges, the CAM involves employment of separate staff and separate operations involved on day to day basis. Hence, we hold that the provisions for rent are governed by Section 194I and CAM charges by Section 194C of the Act.”
11. Thus, we hold that 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.
12. In the result, the appeal of the assessee is allowed.
Order Pronounced in the Open Court on 28/02/2023.
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