Diamondtree vs. Income Tax Officer, ITA No. 5062/Del/2024
The central question before the Tribunal was whether tax was required to be deducted at source (TDS) at the rate of 10% under Section 194I (rent) or at 2% under Section 194C (contractual payments) of the Income Tax Act on common area maintenance (CAM) charges paid by a lessee occupying commercial premises in a shopping mall.
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Revenue’s Position:
Revenue contended that under a composite agreement for renting and maintenance, CAM charges were inseparable from “rent” and therefore attracted TDS at the higher rate as per Section 194I. Revenue relied on the Punjab & Haryana High Court ruling in Sunil Kumar Gupta. -
Assessee’s Stand:
The taxpayer maintained that CAM charges are contractual payments for availing specific services/facilities (not for the use of premises per se) and fall under Section 194C, attracting TDS at 2%.
Tribunal’s Analysis
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The Tribunal turned to binding precedents, particularly:
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Connaught Plaza Restaurants P. Ltd. (ITA Nos. 993 & 1984/2020, ITAT Delhi)
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Kapoor Watch Company Pvt. Ltd. vs. ACIT (ITA No. 889/Del/2020, ITAT Delhi)
Both these rulings held that:
Payments towards CAM charges are in the nature of contractual payments for services, not rent for use of premises/equipment. They therefore attract TDS at 2% under Section 194C, not Section 194I.
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Applying these decisions, the Tribunal found that:
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CAM charges are distinct from rent, despite being part of a composite arrangement.
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TDS compliance under Section 194C is sufficient; failure to deduct TDS under Section 194I does not justify treating the payer as “assessee in default” under Section 201.
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Outcome
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The Tribunal allowed the appeals.
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Set aside the orders treating the taxpayer as assessee-in-default under Section 201(1) for short-deduction of TDS on CAM charges.
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Held: CAM charges are subject to TDS at 2% under Section 194C, not 10% under Section 194I.
Key Takeaways
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CAM charges for mall/commercial tenants are not “rent” but contractual payments for services.
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Section 194I does not apply to CAM charges, even under composite lease and maintenance agreements.
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The Tribunal’s approach is in line with other recent ITAT Delhi decisions, maintaining consistency and clarity for taxpayers and authorities alike.