TCNS CLOTHING CO. LTD,NEW DELHI vs. ACIT (TDS) CIRCLE - 76(1), NEW DELHI

आदेश /O R D E R PER C.N. PRASAD, J.M.

These two appeals are filed by the assessee against the different orders of Ld.CIT(Appeals)-38, Delhi dated 16.01.2020 for the assessment years 2011-12 and 2012-13 in upholding the action of the AO in treating assessee in default within the meaning of the provisions of Section 201(1) of the Act for failing to deduct tax at

I.T.A. Nos. 1994 & 1995/Del/2020

source of Common Area Maintenance charges (CAM) at 10% u/s 194I

as against 2% deducted by the assessee u/s 194C of the Act.

Act was carried out in the case of the Ambience Group by the

ACIT(TDS)-73(1), New Delhi on 12.02.2018 for the purpose of

verification of compliances of TDS provisions. Survey was carried

out at 2 Malls namely Ambience, Gurgaon and Ambience, Vasant

Kunj and it revealed that the Mall owners have collected/recovered

expenses in the form of CAM charges on which TDS was made at 2%

u/s 194C by the payers including the assessee. On the basis of

findings of survey a notice was issued to the assessee and in

response to which requisite details were furnished regarding CAM

charges. As per the AO tax should have been deducted 10% on CAM

charges u/s 194I instead of 2% u/s 194C and, accordingly, a show

cause notice was issued to the assessee. The assessee filed a

detailed reply stating that separate invoice 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 for possession of the

assessee. Not convinced with the submissions of the assessee, the

AO treated the assessee as the assessee in default u/s 201(1) for

short deduction of TDS u/s 194I of the Act. On appeal the

I.T.A. Nos. 1994 & 1995/Del/2020

Ld.CIT(Appeals) sustained the action of the AO in treating the

assessee as an assessee in default for short deduction of TDS u/s

194I of the Act.

issue as to whether the TDS on CAM charges has to be made u/s 194I

of the Act at 10% or u/s 194C of the Act at 2% has came up before

various benches of the Tribunal including the coordinate bench of

Delhi Tribunal in the case of Connaught Plaza Restaurant Vs. DCIT,

ITA No.993 & 1984/Del/2020 dated 31.12.2021 and the Tribunal

held that the CAM charges paid by the assessee are liable for

deduction at source at 2% u/s 194C of the Act.

decisions of Delhi Bench in the case of Nijhawaan Travel Services

Pvt. Ltd. Vs. ACIT, ITA No. 1417/Del/2020 dated 01.07.2022 and the

Bangalore Bench Tribunal in the case of Life Style International Pvt.

Ltd. Vs. ACIT (TDS) 140 taxmann.com 445.

below. The only controversy in these appeals is whether the CAM

charges paid by the assessee were liable for TDS at 10% u/s 194I of

I.T.A. Nos. 1994 & 1995/Del/2020

the Act or at 2% u/s 194C of the Act. The assessee company has

deducted tax at source on rental payments to shop owners/Malls at

10% under the provisions of Section 194I of the Act. The assessee

also made payments in the nature of CAM charges on which taxes

have been deducted at 2% under the provision of Section 194C of

the Act. We noticed that the CAM charges mainly comprises of

maintenance fees for work performed on the common area of a

commercial property. Each lessee pays its pro-rata shares of

properties total CAM charges. During these assessment years the

assessee company paid CAM charges to various lessors which were

primarily in the nature of the following services: -

I.T.A. Nos. 1994 & 1995/Del/2020

Therefore, CAM charges paid by the assessee or not for land used or

area allotted simplicitor. These are the charges for various common

services provided to various lessees.

coordinate bench in the case of Connaught Plaza Restaurant Vs.

DCIT (supra) and the Tribunal held as under: -

“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. 194-1 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 “Me. 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., 194-1 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 194-1 of the Act. 12. 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

I.T.A. Nos. 1994 & 1995/Del/2020

u/s.194-1, 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 194-1 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 of payment 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 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 6

I.T.A. Nos. 1994 & 1995/Del/2020

(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. 194-1 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 194-1 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 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 194-1 of the Act. 13. In the backdrop of our aforesaid deliberations, we concur with the claim of the Id. 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

I.T.A. Nos. 1994 & 1995/Del/2020

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 assessee-in-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., 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(l) of the Act. The Grounds of appeal no.4 to 4.5 are allowed in terms of our aforesaid observation.” 8. Similar view has been taken by the coordinate bench in the

case of Aero Club Vs. DCIT (200 ITD 318), wherein the Tribunal

following the various decisions of the Tribunals held that CAM

charges are liable for TDS u/s 194C of the Act at 2% observing as

under: - “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:

I.T.A. Nos. 1994 & 1995/Del/2020

“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 8 ITA No. 1621/Del/2020 Aero Club 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.” The assessee in this case namely Aero Club was also one of the

lessees in the Ambience Mall.

2013-14 the Ld.CIT(A) (NFAC), Delhi by order dated 09.06.2022

following the decision of the Tribunal in the case of Connaught

Plaza Restaurant Pvt. Ltd. Vs. DCIT (supra) and the decision of the

Bangalore Bench in the case of Life Style International Pvt. Ltd. Vs.

ACIT (supra) held that the CAM charges paid by the assessee were

liable for deduction of tax at source at 2% u/s 194C of the Act and

directed the Assessing Officer not to treat the assessee as an

assessee in default u/s 201(1) of the Act. 9

I.T.A. Nos. 1994 & 1995/Del/2020

benches of Delhi Tribunal (supra), we hold that the CAM charges

paid by the assessee are liable for TDS only at 2% u/s 194C of the

Act and not at 10% u/s 194I of the Act. Grounds raised by the

assessee on this issue are allowed.

Order pronounced in the open court on 31.05.2023

Sd/- Sd/- (PRADIP KUMAR KEDIA) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 31.05.2023 *Kavita Arora, Sr. P.S. Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order

Assistant Registrar, ITAT: Delhi Benches-Delhi