DEPUTY COMMISSIONER OF INCOME TAX, LAXMI NAGAR V. AIR FRANCE, DELHI

ITA 3113/DEL/2024

AI Insights

The case involves the Income Tax Department (Revenue) appealing against the decision of the Commissioner of Income-tax (Appeals), which partly allowed the appeal of Air France, a foreign company operating in India. The core issue was the classification of Common Area Maintenance Charges (CAM Charges) and the applicable rate of Tax Deducted at Source (TDS). The Assessing Officer had initially treated these charges as rent, subject to a higher TDS rate under section 194-I. However, the CIT (A) and subsequently the Tribunal found that these charges were for specific maintenance services and should be classified under section 194C, attracting a lower TDS rate.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126232 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Other Referred Cases: Japan Airlines Co Ltd. vs. CIT, Apeejay Surrendra Park Hotels Ltd. vs. UOI, Sunil Kumar Gupta vs. ACIT, HV Global Pvt Ltd Vs ITO, Aero Club vs. DCIT, Connaught Plaza Restaurants (P) Ltd. v. Dy CIT, Lifestyle International (P) Ltd v. Asst. CIT, Yum Restaurants India (P) Ltd. v. ACIT (TDS)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHISH TRIPATHI
• Assessee Lawyers: ANIL MAKHIJA
• Keywords: TDS; Grounds of appeal; Principal; Dismissed; Judgment; Factory building; Maintenance expenses; Commissioner; Commercial Complex; Affirmed; Explanation; Services; Common Area Maintenance
• Section: 201; 73; 201(1); 194C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’: NEW DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER and SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.3113/DEL/2024 (Assessment Year: 2016-17) DCIT, vs. Air France, Delhi. 7, Prakashdeep Building, Connaught Circus, New Delhi – 110 001. (PAN : AAACA5284B) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Anil Makhija, Advocate Shri Sunil Anand, CA REVENUE BY : Shri Ashish Tripathi, Sr. DR Date of Hearing : 23.04.2025 Date of Order : 23.04.2025 O R D E R PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER : 1. This appeal has been filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals), Delhi-42 (for short ‘ld. CIT(A)) dated 15.02.2024 for the Assessment Year 2016-17. 2. Brief facts of the case are, the assessee is a Branch Office of a Foreign Company i.e., Air France incorporated under the Laws of France and is engaged in the business of \"Operations of Aircraft in International 2 ITA No.3113/DEL/2024 traffic\". It operates in India through a branch office which has been duly approved by the Reserve Bank of India. For the year under consideration, i.e. FY 2015-2016, the case of the assessee was taken up for verification u/s 201(1)/201(1A) of the Income-tax Act, 1961 (for short ‘the Act). During the course of verification, the AO issued notice to the assessee requiring the assessee to furnish details and in response to which requisite details were furnished regarding Common Area Maintenance Charges (CAM Charges). Assessing Officer observed that tax should have been deducted at 10% on CAM charges u/s 194-I instead of 2% u/s 194C and accordingly a show cause notice was issued. In response, the assessee filed the submissions. However, the AO relying on the decision of the Hon'ble Supreme Court in the case of Japan Airlines Co Ltd. vs. CIT (2015) 60 taxmann.com 71, Hon'ble Delhi High Court in the case of Apeejay Surrendra Park Hotels Ltd. vs. UOI (67 taxmann.com 291) and the decision of the Hon'ble Punjab and Haryana High Court in the case of Sunil Kumar Gupta vs. ACIT [(2016) 73 taxmann.com 374] rejected the explanation of the assessee that it is clear that the in the nature of common area which are part of rental activity are covered under section 194-I and further, in the instance case, even for rental and common area (CAM) payments is same, thereby removing any doubts to the nature of CAM expenses; and as CAM expenses are squarely covered under the of 3 ITA No.3113/DEL/2024 Section 194-I, therefore the assessee is treated as an assessee in default within the meaning of section 201(1) of the Act falling to approximately deduct tax on payment as required by the provisions of the Act. Assessing Officer therefore held that assessee has committed TDS default of Rs.4,25,956/- and accordingly directed the assessee to pay the principal amount of Rs.4,25,956/- u/s 201(1) along with interest of short deduction amounting to Rs.3,85,178/- u/s 201(1A) of the Act, totaling to Rs.8,11,134/-. 3. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A) and filed written submissions. Ld. CIT (A) after going through the submissions of the assessee, assessment order and the rulings of the Hon’ble Courts partly allowed the appeal of the assessee. 4. Aggrieved Revenue is in appeal before us raising following grounds of appeal :- “1. On the facts and circumstances of the case and provisions of law, whether ld. CIT(A) erred in treating the Common Area Maintenance Charges as contractual payments u/s 194C of the Income-tax Act, 1961(the Act') without appreciating that the definition of 'Rent' u/s 194-I of the Act has a wider scope and covers all kind of incidental charges paid to the owner in connection with letting out of property? 2. On the facts and circumstances of the case and provisions of law, whether Ld. CIT(A) erred in treating the Common Area Maintenance Charges as contractual payments u/s 194C of the Act without appreciating the quantum of said charge is only Rs.53,24,389 as against the rent of Rs.8,17,38,010 which clearly 4 ITA No.3113/DEL/2024 establishes that the same is incidental to activity of letting out of property by providing other facilities such as lift maintenance, water and electricity consumed in the common area, security services, maintenance of landscape and parking area etc.? 3. On the facts and circumstances of the case and provisions of law, whether Ld. CIT(A) erred in deleting the demand of Rs.8,11,34 raised on account of short deduction's of TDS u/s 194-I of the Act on Common Area Maintenance Charges without appreciating that the both Rent and Common Area Maintenance Charges were paid to the same party-owner of the Property as per single rent agreement and hence both payments are squarely covered under the definition of Rent u/s 194-I of the Act? 5. At the time of hearing, ld. DR of the Revenue relied upon the orders of the Assessing Officer and pleaded that the grounds taken by the Revenue be allowed. 6. On the other hand, ld. AR of the assessee reiterated the submissions made before the ld. CIT (A) and relied upon the findings of the ld. CIT (A) and prayed that the order of the ld. CIT (A) may be sustained and the appeal of the Revenue be dismissed. 7. Considered the rival submissions and material placed on record. We find that the ld. CIT (A) has given detailed finding while allowing the appeal of the assessee and for the sake of clarity, the relevant findings are reproduced below :- “6,4 Considering the facts of the case, I am of the considerate view that CAM charges is for utilization of services received in the form of maintenance of lifts installed in the common area; water, electricity consumed in the common area, security services for the entire complex, maintenance of landscaping attached thereto; 5 ITA No.3113/DEL/2024 parking area; etc., hence, these services cannot be clubbed with Rental Charges of the premises but are in the nature of Maintenance Charges that are necessary to be incurred in the commercial complex and necessarily fall within the meaning of \"work\" as defined in section 194C- Payment to Contractors and hence can only be taxable under the said section. 6.5 In the course of hearing before this office, the appellant has also drawn inference from the order of the Hon'ble Delhi ITAT in the case of HV Global Pvt Ltd Vs ITO (1TA No. 1676/Del2020) dated 23-11-2022 wherein it is held at Para 5 as under: “5 In the present case also the AO in the assessment order observed that the payments received by Ambience group are split into two companies of same group on single contract one for rent and the other for maintenance charges. However, the AO noted that this arrangement has been made to avoid the higher deduction of TDS ate applicable to which we do not agree as when the receiver of rent and receiver of maintenance charges are different and distinct and the character of the payment is also different and distinct. then, the payments towards maintenance charges has to be made after TDS @ 2% u/s 194C of the Act and not @ 10% u/s 194 of the Act From the material available on record t is clearly discernible that the assessee company has paid rent to the owner after deduction u/s 194 of the Act @ 10% and the payment for operation/maintenance was made directly to the service provider company after deduction of tax u/s 194C of the Act Therefore, we are inclined to hold that in the present case the common area maintenance charges was not forming part of the actual rent paid to the owner by the assessee company. Payments of rent and common area maintenance charges have been made to distinct entities/companies, therefore, the authorities below were not right in creating the impugned liability payable by the assessee firm under the provisions of sub-sections (1) and (1A) of section 201 of the Act Therefore, respectfully following the order of the coordinate Bench of the Tribunal in the case of Nijhawan Travel Service (P) Ltd. (supra), the grievance/grounds of the assessee are allowed and the AO is directed to delete the impugned liability u/s 201(1) and 201(1A) of the Act. 6 ITA No.3113/DEL/2024 6.6 I have duly gone through the aforementioned ruling of the Hon’ble Delhi ITAT and observed that in that case, the payment for rent is being made to the mall owner and the maintenance charges were paid to a separate entity maintaining the premises. However, in the case of the appellant, both the payments, i.e., rent and maintenance charges are being paid to the one party, i.e., M/s DLF Cyber City Developers Ltd. 6.7 There are plethora of judicial decisions on this issue which also include judgments of the Hon'ble Jurisdictional Delhi ITAT, where the payments are being made to one party only and through the same single agreement for rent and maintenance charges. The Hon'ble Delhi ITAT has come across this situation in the case of Aero Club vs. DCIT [149 taxmann.com 339 (2023), wherein the tenant and landlord had entered into single agreement for Rent and CAM charges. In its decision in this case, it was held by Hon'ble Delhi ITAT that the payment of CAM Charges is a separately identifiable transaction on which TDS is deductible u/s 194C and this payment cannot be clubbed with payment of Rent to which Section 194-| applies. It is specifically observed by Hon'ble Delhi ITAT at Para 8-11 as under: “8 After having considered the submissions of the assessee, the ld. CIT(A) held that undisputedly there is single lease agreement for payment of rent as well as CAM charges The ld 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 194- which defines \"Rent\" takes into its ambit any payment, by whatever name called, under any lease, sub- lease, tenancy 7 ITA No.3113/DEL/2024 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 1S 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 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 194I are-applicable. This view also gets support from the decision of Hon'ble High Court in the case of Sunil Kumar Gupta v. Asstt. CIT 2016] 73 taxmann. com 374/243 Taxman 65/389 ITR 38/2017] 298 CTR 106 (Punj. & Har), 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, it 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 194-I. 9. Heard the arguments of both the parties and perused the material available on record. 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) Lid. v. Dy CIT (|T Appeal Nos. 993 & 1984 (Delhi) of 2020, dated 31-12- 2021). Lifestyle international (P) Ltd v. Asst. CIT (2022) 140 taxmann. com 445 (Bang. Trib)/[TS-352- ITAT-2022] Bang and Lifestyle International (P) Ltd v. Asst. CIT (2022) 141 taxmann. com 559 (Bang. -Trib)ITA No 400-405 (Bang,) of 2021, dated 26-4-2022] and also by the order of this bench in the case of Yum Restaurants India (P) Ltd. v. 8 ITA No.3113/DEL/2024 ACIT (TDS) (2023] 147 taxmann. com 257/100 ITR (T) 239 [|T Appeal No. 1115 (Delhi) of 2020. dated 3-10-2022) (Delhi - Trib)/[1T Appeal No. 1115 (Deihi) of 2020. dated 3- 10-2022) The operative part of the said order is as under :- “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. CITA) s that the rent by any name, lease, sub-lease, tenancy or the reliance on the judgment wherein the services are interpolated 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 194-1 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 @ 29%. Hence, the appeal of the assessee is hereby allowed.” 6.8 In view of the aforementioned ruling of the Hon'ble TAT in the case of Aero Club and other decisions, it is principally decided that payment of CAM charges is a separate transaction to which section 194C applies irrespective whether there are separate agreements or the payments are flowing out of a single agreement and irrespective whether the payment is to a single entity or separate entities. Hence, 1 am of the considered view that the payment of CAM charges is covered by Section 194C on which TDS @ 2% is deductible. Therefore, Grounds 1, 2, 4, 5 & 6 are decided in favour of the appellant.” 9 ITA No.3113/DEL/2024 8. Considered the rival submissions and material placed on record. We have gone through the elaborate findings of the ld. CIT (A) as above and we do not find any infirmity in the findings of the ld. CIT(A). Accordingly, we are not inclined to interfere with the order of ld. CIT (A) and affirmed the same, hence the grounds taken by the Revenue are dismissed. 9. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on this 23rd day of April, 2025 after the conclusion of hearing. SD/- SD/- (VIKAS AWASTHY) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 23.04.2025 TS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "