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Facts
The assessee, Bose Corporation India Pvt. Ltd., paid Common Area Maintenance (CAM) charges along with rent for its leased premises. The assessee deducted TDS on CAM charges at 2% under Section 194C of the Income Tax Act, 1961, treating them as payment for services. However, the Assessing Officer (AO) and CIT(A) held that CAM charges were in the nature of rent and thus liable for TDS at 10% under Section 194-I, deeming the assessee as 'assessee in default' for short deduction and levying interest.
Held
The Income Tax Appellate Tribunal (ITAT) held that CAM charges are distinct from rent, as they are payments for common area maintenance services and not for the 'use of land or building'. Therefore, TDS on CAM charges is correctly deductible at 2% under Section 194C and not at 10% under Section 194-I. The Tribunal set aside the orders of the lower authorities and directed the deletion of the entire addition made against the assessee, allowing both appeals.
Key Issues
Whether Common Area Maintenance (CAM) charges are to be treated as rent for TDS purposes under Section 194-I (10%) or as payment for contractual services under Section 194C (2%), and consequently, whether the assessee can be deemed 'in default' for short deduction of TDS.
Sections Cited
201(1A), 201(1), 194-I, 194C, 133A(2A), 139, 192(1A)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘A’, NEW DELHI
Before: Sh. Satbeer Singh Godara & Sh. M. Balaganesh
Asstt. Year : 2013-14 : Asstt. Year : 2016-17 Bose Corporation India Pvt. Ltd., Vs ACIT, 1st Floor, Tower-A, Building No. 10, Circle-73(1), DLF Cyber City, DLF Phase-II, New Delhi-110092 Gurugram, Haryana-122002 (APPELLANT) (RESPONDENT) PAN No. AAACB3260A Assessee by : Dr. Sashwat Bajpai, Adv. Revenue by : Sh. Poojan Rana, Sr. DR Date of Hearing: 19.11.2024 Date of Pronouncement: 05.12.2024 ORDER Per Satbeer Singh Godara, Judicial Member: These assessee’s instant two appeals & 2004/Del/2024, for Assessment Years 2013-14 & 2016-17, arise against the CIT(A)/NFAC, Bengaluru’s common orders dated 29.02.2024 in DIN & Order No. ITBA/APL/S/250/2023- 24/1061748591(1) and in DIN & Order No. ITBA/APL/S/250/2023-24/1061768679(1), in proceedings u/s 201(1A) and 201 of the Income Tax Act, 1961 (in short “The Act”).
Heard both the parties at length. Case file perused.
& 2004/Del/2024 2 Bose Corporation India Pvt. Ltd. Common Area Maintenance (CAM) Charges “1. That on the facts and circumstances of the case and in law, the Ld. CIT (A)/AO has erred in holding that Common Area Maintenance ('CAM') charges paid by the Appellant are in the nature of rent and are liable to TDS u/s 1941 of the Act.
That on the facts and circumstances of the case and in law, the Ld. CIT (A)/AO has failed to appreciate that the CAM charges paid are towards services in relation to common area which is not in the possession of the Appellant and comprise services like cleaning, maintenance, upkeep, security, air conditioning, landscaping, signages, water, electricity, consumables, lighting, sinking fund etc. Charges for the said services are not in the nature of rent and are thus liable to TDS u/s 194C of the Act.
That on the facts and circumstances of the case and in law, the Ld. CIT (A)/AO has erred in holding that in the case of a single composite agreement for Rent and CAM charges, the charges for Common Area Maintenance shall fall under the category of rent.
That on the facts and circumstances of the case and in law, the Ld. CIT(A) /AO erred in ignoring the ratio of the judgments which have consistently held charges which are for common services used by other lessees as well, and cannot be termed as 'use of land" and does not fit in the definition of 'rent' as given u/s 194-1 of the Act.
That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the observations of this Jurisdictional ITAT Delhi decision in the case of Yum Restaurants India (P) Ltd. v. ACIT (TDS), wherein it was observed that,”6….. that the provisions for rent are governed by Section 1941 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."
That on the facts and circumstances of the case, the Ld. CIT (A) has erred in ignoring the decision of this Hon'ble Jurisdictional Tribunal in M/s. Johnson Watch Company Pvt. Ltd. v. ACIT Circle 75(1), New Delhi, and Paramount Restaurants Pvt. Ltd CIT/A), Circle-19(1), Delhi, ITA No. 1730/Del/2021 wherein it was held that the 'rent' is on account of 'use' of the property given into a exclusive possession of the lessee for the running of business at the CAM charges ITA Nos. 2003 & 2004/Del/2024 3 Bose Corporation India Pvt. Ltd. are for maintenance of the common areas, used or not used by the lessee and they are paid under different clauses of the agreement and by separate invoices.
Without prejudice to the above, that on the facts and circumstances of the case, the Ld. CIT (A) has ignored the principle that the Common Area Maintenance Charges shall not fall under the category of rent u/s 194-1 where CAM charges and rent charges are being paid to different vendors/companies, even though under the single composite lease agreement.
That on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not appreciating that the Common Area Maintenance Charges are subject to deduction of tax at source u/s 194C of the Income Tax Act at 2% and not at 10% u/s section 1941.
That on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in upholding the findings of Ld. AO in treating the Appellant as "Assessee in Default" under section 201(1)/(1A) of the Act for short deduction of tax of INR 15,16,427/- (along with interest of INR 16,22, 103/- therefore total TDS liability of INR 31,38,530/-).
That on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in ignoring several decisions of the Co-ordinate Bench of this Tribunal wherein it was observed that the primary liability to pay the tax is on the recipient of income and therefore, such tax cannot be recovered from the Appellant.
That on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has vehemently ignored the law laid down by the Hon'ble Supreme Court in CIT Vs Eily Lilly & Co Pvt. Ltd. (2007) 312 ITR 225 (SC) and reiterated by Hon'ble Mumbai ITAT in ICICI Securities Limited, that "the liability of deducting tax at source is in the nature of a vicarious liability, which pre-supposes existence of primary liability. The said liability is a vicarious liability and the principal liability is of the person who is taxable..........”
That on facts and in circumstances of the case, the Ld. CIT (A) has evidently ignored the decision of the Co- ordinate Bench of this Tribunal in Ramkrishna Vedanta Math vs. ITO. (2012) 24 taxmann.com 29 (ITAT Kolkata) wherein it was observed that the question of making good the loss of revenue arises only when there is indeed a loss of revenue and the loss of revenue can be & 2004/Del/2024 4 Bose Corporation India Pvt. Ltd. there only when recipient of income has not paid tax, which the Ld. AO and/or CIT(A) failed to enquire and confirm.
That on facts and in circumstances of the case, the Ld. CIT (A) has ignored the fact that in the absence of the statutory powers to requisition any information from the recipient of income, the assessee is indeed not able to obtain the same, and thus the onus was on the Ld. AO/ CIT(A) to enquire as to the payment by the person on whom the principal liability to pay the tax rested upon.
That on facts and in circumstances of the case, the Ld. CIT (A) erred in not appreciating the submissions, replies and responses filed before the Ld. AO/Ld. CIT (A) and wrongly treated the Appellant-Assessee as 'Assessee in default' within the meaning of Section 201(1) of the Act despite the settled principles of law in favour of the Appellant - Assessee.”
Both the learned representatives next invite our attention to the Addl./JCIT’s impugned lower appellate discussion affirming the Assessing Officer’s findings holding that as the assessee in default; for not having deducted TDS on common area maintenance charges, as under:
The brief of the case is that Bose India is a company incorporated on June 21, 1995. The Appellant is mainly engaged in the business of trading/sale of audio equipment & accessories for personal and professional use. The Appellant has entered into lease agreements with certain Lessors. In this regard, the Appellant has paid property rental and Common Area Maintenance ('CAM') charges which are separately defined in the agreements. The property along with the common area is owned by the Lessor for which a specified amount of rental was charged from the Appellant on the basis of area taken on lease. Whereas, the CAM charges were towards the expenses incurred to maintenance of the common area. Given the same, the Appellant has deducted tax at the rate of 10% under the provisions of section 1941 of the Act for payment made towards use of land / area (i.e. rent) to the Lessor and deducted tax at the rate of 2%/1%, as the case may be, under the provisions of section 194C of the Act for the CAM charges.
& 2004/Del/2024 5 Bose Corporation India Pvt. Ltd. A Survey action u/s. 133A(2A) of the Act was conducted in the case of Ambience Group by ACIT (TDS)73(1), Delhi on 12.02.2018 with the purpose to verify compliance to the provisions of Chapter XVII B of the Act. As a result to Survey action, the Ld. AO found that both the rent and common area maintenance (CAM) charges are paid to group companies of single vendor. The assessee made TDS at 10% for Yent and TDS at 1% for CAM charges. The Ld. AO passed the order that the rate of TDS for CAM charges should be at 10% instead of 1% since, CAM charges take part of the rent which is liable to TDS at the rate of 10% u/s. 1941 thus, levying TDS on CAM charges amounting to Rs.15,16,427/- as short deduction and interest on the above short deduction amounting Rs. 16,22,103/-u/s.201(1A), The appellant aggrieved by the order of the AO, preferred the instant appeal.
It is observed that the appellant filed 3 grounds of appeal
. 4.1 Ground no.1: That on the facts and circumstances of the case and in law, the Learned Assistant Commissioner of Income Tax (TDS) Circle 73(1), New Delhi (Ld. AO) has erred in treating the appellant as Assessee in Default under section 201(1)(1A) of the Act for short deduction of tax of INR 15,16,427/- by holding that the payment for common area maintenance (CAM) charges is in the nature of rent and thereby subject to under section 1941 of the Act. Consequently the Ld. AO, has also erred in levying interest of INR 16,22,103 under section 201(1A) of the Act on such short deduction of tax. It is observed that rent and common area maintenance charges are paid towards the same company (or companies pertaining to a particular vendor), but different rates of TDS has been applied by the appellant. Common area maintenance charges and rent though the nomenclature appears different common area maintenance charges comes within the ambit of rent hence the assessing officer is right in holding that the appellant was required to deduct TDS on common area maintenance charges at the rate of 10% and the payments made for common area maintenance falls under the purview of 1941 and not 194C. Reliance is placed on the decision of Hon'ble High Court in the case of Sunil Kumar Gupta R. Asst. CIT [2016] 73 taxmann.com 374/243 Taxman 65/389 ITR 38/[2017] 298 CTR 106 (Punj, & Har.), wherein I is held that the & 2004/Del/2024
6. Bose Corporation India Pvt. Ltd. ambit of the term "rent" is wide and it includes any amount which is paid in consideration of the property being let. The maintenance charges must form a part of the rent. Common area and other services provided by the lessor are also enjoyed by the appellant along with the specified area, hence 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. Therefore common area maintenance partakes the character of rent only. Further explanation under section 194 I states that "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 8-8-1995 (Question No. 24) has also clarified that there is is for taking prem INCOME TAX composite arrangement for use of premises and provision of manpower, such agreement in essence taking premises on rent and hence provisions of section 1941 are-applicable. 4.2 Grounds no 2 and 3. That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in holding the Appellant as an 'Assessee in Default' for short deduction of tax on payment of CAM charges by ignoring the fact that the primary liability to pay the tax is on the recipient of income and therefore, such tax cannot be received from the Appellant. Without prejudice to the above grounds, on the facts and in the circumstances of the case and in law, the Ld. AO has not considered the fact that there is no loss of revenue to the Government if the recipients have filed their return of income and paid taxes thereon and therefore, any further recovery of tax from the Appellant would lead to unjust enrichment which is against the basic principle of natural justice. Appellant's submission is that the recipient of the income should be taxed, and not the appellant and that & 2004/Del/2024
7. Bose Corporation India Pvt. Ltd. the appellant should not held as assessee in default However proviso to section 201 reads as follows 201. Consequences of failure to deduct or pay. (1) Where any person, including the principal officer of a company, (a) who is required to deduct any sum in accordance with the provisions of this Act, or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee) or on the sum credited to the account of a [payee] shall not be deemed to be an assessee in default in respect of such tax if such payee)- (i) has furnished his return of income under section 139, (ii) has taken into account such sum for computing income in such return of income: and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed in rule
31. ACB and form 26A In Rule-31ACB, Income-tax Rules, 1962 [Form for furnishing certificate of accountant under the first proviso to sub-section (1) of section 201. 31ACB. (1) The certificate from an accountant under the first proviso to sub-section (1) of section 201 shall be furnished in Form 26A to the Director General of Income-tax (Systems) or the person authorized by the Director General of Income-tax (Systems) in accordance with the procedures, formats and standards specified & 2004/Del/2024 8 Bose Corporation India Pvt. Ltd. under sub-rule (2), and verified in accordance with the procedures, formats and standards specified under sub- rule (2). (2) The Director General of Income-tax (Systems) shall specify the procedures, formats and standards for the purposes of furnishing and verification of the Form 26A and be responsible for the day-to-day administration in relation to furnishing and verification of the Form 26A in the manner so specified.] 4.3 Hence the onus is on the appellant to prove that the recipient of the income paid by the appellant is offered to tax. However no certificates or other evidences as mandated in the above proviso are submitted by the assessee.”
It is in this factual backdrop that the assessee’s learned counsel takes us to the tribunal’s recent order dated 27.04.2023 in M/s Chadha Sugars and Industries Pvt. Ltd. Vs. ACIT, for A.Y. 2014-15 holding TDS as not deductible u/s 194I on such common area maintenance charges as under:
“6. On careful consideration of the rival submissions, first of all, we are of the considered opinion that the details of CAM, the details of rent and CAM charges paid by the assessee, copy of agreement, copy of agreements between M/s. Ambience Developers & Infrastructure Pvt. Ltd and M/s. Chadha Sugars Pvt. Ltd dated 15.07.2013 reveals that the Ambience Facilities Management Pvt. Ltd secured the rented premises and under franchise agreement given the same to the present assessee and the franchisee was under obligation to pay rent and CAM charges on behalf of original tenant to the owner as well as CAM service providers. It has not been controverted by the ld. Sr. DR that the assessee has paid rent to different property owners and CAM charges to separate service providers.
Now, we turn to the findings given by the ITAT, Delhi ‘B’ Bench in the case of Connaught Plaza Restaurants P. Ltd. (supra), wherein the Bench has also considered the earlier judgement of ITAT ‘B’ Bench in the case of Kapoor Watch Company Pvt. Ltd. (supra) and held as under:-
& 2004/Del/2024 9 Bose Corporation India Pvt. Ltd. “11. We shall now advert to the claim of the assessee that both the lower authorities had erred in law and the facts of the case in concluding that the CAM charges paid by the assessee to Ambience Group (supra) were liable for deduction of tax at source @10%, i.e., u/s.194-I and not @2%, i.e., u/s.194C of the Act, as claimed by the assessee. Succinctly stated, the assessee company which is engaged, inter alia, in the business of running of fast food restaurants in North and East India under the brand name “Mc. Donalds”, had taken shop/spaces/units in commercial areas/malls on lease from various parties by way of lease agreements. Apart from the rent, the assessee-company had also paid CAM charges, i.e., charges which are fundamentally for availing common area maintenance services, which may either be provided by the landlord or any other agency. In so far the CAM charges that were paid by the assessee to the same party to whom rent was being paid pursuant to the lease agreements, or to an appointed or related party with whom the lease agreement had been entered into, the AO was of view that the assessee was obligated to deduct tax at source @10%, i.e., 194-I of the Act. Backed by his aforesaid conviction the A.O had held the assessee as an assessee-in-default u/s.201(1) of the Act, for short deduction of tax at source @2%, i.e. u/s.194C instead of @10% u/s 194-I of the Act.
Issue involved qua the aforesaid controversy lies in a narrow compass, i.e., as to whether the CAM charges paid by the assessee were liable for deduction of tax at source u/s.194-I, i.e., @10% or u/s 194C, i.e. @2%. Before adverting any further it would be relevant to cull out the provisions of Section 194-I of the Act, which reads as under: “194-1. Rent. 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 ofpayment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of— (a) two per cent for the use of any machinery or plant or equipment; and (b) ten per cent for the use of any land or building (including factory building) or land appurtenant to a & 2004/Del/2024 10 Bose Corporation India Pvt. Ltd. building (including factory building) or furniture or fittings: Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed one hundred and eighty thousand rupees: …………………. ……………………. Explanation.-For the purposes of this section,- (i) “rent” means any payment, by whatever name called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,- (a) land; or (b)building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings, whether or not any or all of the above are owned by the payee; ………… ………………..” (emphasis supplied) On a perusal of the definition of the terminology “rent” as had been provided in the aforesaid statutory provision, viz. Sec. 194-I of the Act, we find that the same includes payment for the use of land, building, land appurtenant to a building, machinery, plant, equipment, furniture or fittings. In sum and substance, only the payments for use of premises/equipment is covered by Section 194-I of the Act. In our considered view, as the CAM charges are completely independent and separate from rental payments, and are fundamentally for availing common & 2004/Del/2024 11 Bose Corporation India Pvt. Ltd. area maintenance services which may be provided by the landlord or any other agency, therefore, the same cannot be brought within the scope and gamut of the definition of terminology “rent”. On the other hand, we are of the considered view, that as the CAM charges are in the nature of a contractual payment made to a person for carrying out the work in lieu of a contract, therefore, the same would clearly fall within the meaning of “work” as defined in Section 194C of the Act. In our considered view, as the CAM charges are not paid for use of land/building but are paid for carrying out the work for maintenance of the common area/facilities that are available along with the lease premises, therefore, the same could not be characterized and/or brought within the meaning of “rent” as defined in Section 194-I of the Act.
In the backdrop of our aforesaid deliberations, we concur with the claim of the ld. AR that as the payments towards CAM charges are in the nature of contractual payments that are made for availing certain services/facilities, and not for use of any premises/equipment, therefore, the same would be subjected to deduction of tax at source u/s.194C of the Act. Our aforesaid view is supported by the order of the ITAT, Delhi in the case of Kapoor Watch Company P. Ltd. vs. ACIT in ITA No.889/Del/2020. In the aforesaid case, the genesis of the controversy as in the case of the assessee before us were certain proceedings conducted by the Department in the case of Ambience Group (supra) to verify the compliance of the provisions of Chapter XVII-B of the Act. On the basis of the facts that had emerged in the course of the proceedings, it was gathered by the Department that the owners of the malls in addition to the rent had been collecting CAM charges from the lessees on which TDS was deducted @2% i.e u/s.194C of the Act. Observing, that payment of CAM charges were essentially a part of the rent, the AO treated the assessee as an assesseein-default for short deduction of tax at source u/ss. 201(1)/201(1A) of the Act. On appeal, it was observed by the Tribunal that the CAM charges paid by the assessee did not form part of the actual rent that was paid to the owner by the assessee company. As the facts involved in the case of the assessee before us remains the same as were therein involved in the aforesaid case, therefore, in the backdrop of our aforesaid deliberations, and respectfully following the aforesaid order of the Tribunal, we herein conclude, that as claimed by the assessee, and rightly so, the CAM charges paid by it were liable for deduction of tax at source @2%, i.e., & 2004/Del/2024 12 Bose Corporation India Pvt. Ltd. u/s.194C of the Act. We, thus, in terms of our aforesaid observations set-aside the order of the CIT(A) who had approved the order passed by the AO treating the assessee company as an assessee-in default u/s.201(1) of the Act. The Grounds of appeal
no.4 to 4.5 are allowed in terms of our aforesaid observations.”
8. In view of the above, we have no hesitation to hold that the CAM charges paid by the assessee did form part of the actual rent payment which was paid to the property owner by the assessee company. In the present case, the facts and circumstances of the payment of CAM charges are quite similar to the facts and circumstances of the above two cases i.e., Kapoor Watch Company Pvt. Ltd. (supra) and Connaught Plaza Restaurants P. Ltd. (supra). Therefore, I am inclined to hold that CAM charges paid by the assessee were liable for deduction at source @ 2% i.e., u/s 194C of the Act. Therefore, in terms of the proposition rendered by ITAT Delhi in the above referred orders and observations made by me in the earlier part of this order, I set aside the order of assessment as well as first appellate order and direct the AO to delete the entire addition made in the hands of the assessee.”
6. Learned departmental representative hardly dispute that the assessee herein had infact made payment not to the landlord entity but its group company only which could attract the corresponding TDS @ 10% u/s 194I of the Act.
7. Faced with this situation, we adopt the learned co- ordinate bench detailed discussion mutatis mutandis to allow the assessee’s instant sole substantive ground challenging section 201(1) and 201(1A) TDS and interest liability; respectively in very terms. This lead appeal succeeds therefore.
8. Same order to follow in the assessee’s latter appeal since raising identical sole substantive ground of TDS deduction on common area maintenance charges.
& 2004/Del/2024 13 Bose Corporation India Pvt. Ltd. 8.1 No other ground or arguments has been pressed before us.
These assessee’s twin appeal & 2004/Del/2024 are allowed in above terms. A copy of this common order be placed in respective case files.
Order Pronounced in the Open Court on 05/12/2024.