Common Area Maintenance Charges liable to TDS @ 2% u/s 194C not @10% u/s 194I – ITAT

Common Area Maintenance Charges (CAM charges) liable for TDS rate @ 2% u/s 194C as contractual payment and not @10% u/s 194I towards rent payment – ITAT

In a recent judgment, ITAT has held that Common Area Maintenance Charges liable to TDS @ 2% u/s 194C 

Case Law Citation:
ABCAUS 3723 (2023) (04) ITAT

Important Case Laws relied upon:
Kapoor Watch Company Pvt. Ltd. vs. ACIT
Connaught Plaza Restaurants P. Ltd. vs. DCIT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming in confirming the demand of TDS u/s 194I of the Income Tax Act, 1961 (the Act).

In the instant case, the appellant assessee had paid rent and Common Area Charges (CAM). As per the franchise agreement the assessee was under obligation to pay rent and CAM charges on behalf of original tenant to the owner as well as CAM service providers towards maintenance fees for work performed on the common area of the property.  

As per the agreement, the premises was to be used as corporate office. The assessee deducted TDS on rent @10% u/s 194I and on CAM charges deducted TDS at 2% u/s 194C of the Act.

However, the Assessing Officer (AO) was of the view that TDS on CAM charges was deductible u/s 194I instead of section 194C. The AO treated the appellant as an assessee in default u/s 201(1)/201(1A) of the Act and made addition in the hands of the assessee for differential amount of 8% by holding that the provisions of section 194-I of the Act was applicable to the payments made by the assessee towards CAM charges.

Before the Tribunal, the assessee placed reliance on the judgment of the coordinate bench and contended that TDS under section 194-I of the Act is not applicable to payment of CAM charges.

The Tribunal observed that the coordinate bench of the ITAT on similar facts had held that 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.

The Tribunal noted that the CAM charges paid did form part of the actual rent payment which was paid to the property owner by the assessee company.

The Tribunal further observed that in the present case, the facts and circumstances of the payment of CAM charges were quite similar to the facts and circumstances of the judgments relied upon by the assessee.

Therefore, the ITAT held that CAM charges paid by the assessee  were liable for deduction at source @ 2% i.e., u/s 194C of the Act as contractual payment and not @10% u/s 194I towards rent payment.

Accordingly, the Tribunal set  aside  the order of assessment and directed the AO to delete the entire addition made in the hands of the assessee.

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