The undisputable fact in this case is that while the lease rentals are paid based on a fixed percentage on the net revenue, the Common Area Maintenance (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. The AO is directed to re-compute the CAM charges, taking into consideration the two sections mentioned above.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal has been filed by the Assessee against the order of the ld. CIT(A)-38, New Delhi dated 22.01.2020.
2. Following grounds have been raised by the assessee:
“1. That the Ld. AO had erred in law and also on the facts of the case by passing the impugned order u/s 201(1)/201(1A) of I.T. Act by creating a total demand of Rs.27,24,901/-, which was barred by the limitation period and the Ld. CIT(A) was not at all justified in confirming the action of the Ld. AO because the provisions of Chapter XVIIB of the I.T. Act were not applicable.
2. That without prejudice to Ground No. 1 above, section 1941 of the I.T. Act were not applicable to the facts of Appellant’s case and the Appellant had correctly deducted the tax at source as per section 194C of the I.T. Act.
3. That the short deduction of TDS worked out by the Ld. AO and confirmed by the Ld. CIT(A) is contrary to the provisions of the Act and therefore, the orders passed by the authorities below deserve to be annulled/cancelled.
4. That the authorities below had also erred in law and also on the facts of the case by ignoring the documents filed by the Appellant showing that deductee had already filed the returns and paid tax on their respective income thereby ignoring CBDT Circular and Hon’ble Supreme Court judgment in the case of Hindustan Coco Cola Beverages (P) Ltd. which were binding on the authorities below and therefore the orders passed by the authorities below are liable to be cancelled.
5. That without prejudice to the above, the authorities below had erred in law as well as on facts in holding that payments made for Common Area Maintenance (“CAM”) were ‘Rental’ in the nature and will attract provisions of section 1941 of the Act and not section 194C for tax deduction at source, thereby ignoring the fact that the Appellant had paid only AMC charges and the same did not fall within the ambit of section 1941 and consequently, the alleged short deduction/non deduction of Rs. 14,37,871/- u/s 201(1) of the Act deserves to be deleted.
6. That without prejudice to the above grounds, the authorities below had erred in law as well as on facts in levying /charging interest on the alleged short deduction of tax considering the payments/credits made for Common Area Maintenance (“CAM”) charges to be liable for deduction u/s 1941 of I.T. Act as against section 194C and charges to be liable for deduction u/s 1941 of I.T. Act as against section 194C and consequently, such interest of Rs. 12,87,030/- u/s 201(1A) of the Act on the alleged short deduction is liable to be cancelled.
7. That the authorities below have ignored the fact that various vendors had been issued lower deduction certificate under section 197 for payments to be made by the Appellant to those vendors under section 194C and revenue has accepted such certificate for payments by the Appellant liable to tax deduction under section 194C.
8. That without prejudice to above, the authorities below has ignored the essence of amendment in section 201 (1)/201 (1A) of the Act wherein it was brought into the Act that if the payee has discharged its tax liability, payer cannot be held Assessee in default for non/short deduction of tax. Accordingly, no interest could be charged on these alleged short deduction/non deduction and therefore, interest worked out u/s 201(1A) on short deduction deserves to be cancelled.
9. That the Ld. CIT(A) had ignored the fact that these kind of contract fall in the definition of work and attract section 194C and are not liable to tax deduction u/s 1941.”
3. The provisions of TDS on rent are governed by Section 194I and maintenance contract are governed by Section 194C of the Income Tax Act, 1961. In this backdrop of the provisions of the Act, the affairs of the assessee are examined. As per the lease deed entered by the assessee with M/s Gopalan Enterprises, Bangalore, the assessee obtained piece and parcel of the shop on lease of unit no. 121 on 1st Floor with a carpet area of 1920 sq. ft. and shop no. 226 on 2nd Floor with a carpet area of 1722 sq. ft. The assessee shall pay 7% of revenue share on net sales as monthly rent and also pay @Rs.12/- per sq. ft. for maintenance services.
4. The assessee has also submitted sample invoice for payment of CAM charges as entered into an agreement for common area maintenance with GVK Properties & Management Company Pvt. Ltd. for maintenance of the area at Rs.22/- per sq. ft. for a combined area of 4427 sq. ft. for which monthly maintenance of Rs.97,390/- has been paid.
5. Thus, the issue before us narrows down to deductibility of the tax on the entire payment as rent or to be segregated into rent and CAM. On the this, the observation of the ld. CIT(A) is as under:
“4.3 Grounds of appeal Nos. 2(a), 2(b) and 2(c), the Appellant has challenged the action of AO in treating CAM charges as part of rent liable for TDS u/s 1941. Undisputedly there is single lease agreement for payment of rent as well as CAM charges. The 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 1941 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 1941 and accordingly other decisions relied upon by the AR are distinguishable on facts.
The appellant has also stated that, the AO has incorrectly held that the decision in the case of Japan Airlines Company Ltd. Vs CIT (2015) 377 ITR 372 (SC) is not applicable.
I find that this decision is related to payment of lease charges to AAI for landing and takeoff facilities including for parking of the aircrafts. As is clear from the facts of this case, the lease charges were paid for utilizing the serves of airport and not of the premises in essence. Accordingly, I hold that the AO has rightly distinguished the same from the facts of appellant. Hence, the grounds of appeal are dismissed.”
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. The AO is directed to re-compute the CAM charges, taking into consideration the two sections mentioned above.
7. With regard to barring by limitation, we rely on the order of the Co-ordinate Bench of Tribunal in the case of ITO Vs. Sh. Rang Infrastructure (P.) Ltd. (112 com 344) dated 04.09.2019 and dismiss the ground no. 1 of the assessee.
8. In the result, the appeal of the assessee is allowed for statistical purpose.
Order Pronounced in the Open Court on 03/10/2022.