Lifestyle International Private Limited, Bengaluru V. Assistant Commissioner Of Income Tax, TDS Circle-2(1), Bengaluru

ITA 56/BANG/2022

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3340 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2018-2019
• Appeal Filed On: 19-01-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHINI BESAGANNI
• Keywords: TDS
• Section: 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND MS. PADMAVATHY S, ACCOUNTANT MEMBER ITA No.56/Bang/2022 Assessment year : 2018-19 Lifestyle International Pvt. Ltd., 77 Town Centre, Building No.3 West Wing, Off. HAP Airport Road, Yemalur PO, Bengaluru-560 037. PAN – AAACL 2937 J Vs. The Asst. Commissioner of Income- tax TDS, Circle-2(1), Bengaluru. APPELLANT RESPONDENT Assessee by : Smt. Tanmayee Rajkumar, Advocate Revenue by : Shri. Priyadarshini Besaganni, Addl.CIT DR Date of hearing : 29.04.2022 Date of Pronouncement : 29.04.2022 O R D E R Per Padmavathy S, Accountant Member The assessee has filed these appeals challenging the order of the CIT(A) NFAC dated 25/11/2021 for the asst. year 2018-19. 2. The issue the assessment year under appeal is the treatment of common area maintenance charges (CAM charges) as rent and ITA No.56/Bang/2022 Page 2 of 10 applying TDS rates at 10% u/s. 194I of the Act instead of 2% u/s. 194C of the Act. The grounds raised by the assessee are reproduced below. I. Characterisation of common area maintenance charges ["CAM charges"] as rent and applying TDS rate at 10% u/s. 1941 of the Act instead of 2% u/s. 194C of the Act 1. The Learned CIT(A) and Learned AD have grossly erred in stating that CAM charges are subject to withholding tax at 10% u/s. 1941 of the Act as against 2% u/s. 194C of the Act. 2. The Learned CIT(A) grossly erred in upholding the view of Learned AO that CAM charges are in the nature of rent. 3. The Learned CIT(A) and the Learned AD failed to appreciate that the payments made by the Appellant towards CAM charges is in the nature of contractual payments and has erroneously considered the same as rent. 4. The Learned CIT(A) and Learned AD ought to have appreciated that CAM charges constitutes payments for various services rendered to the Appellant which cannot be equated with rental payments. 5. The Learned CIT(A) and Learned AD grossly erred in treating CAM charges as rent merely because of the fact that there was a common agreement for both rental payments and CAM charges. 6. The Learned CIT(A) and Learned AO failed to consider various judicial precedents relied upon by the Appellant in its submissions, wherein it was inter-alia observed that actual nature of the transaction and the terms of the contract have to be looked upon before concluding the payment as rent. 7. The Learned CIT(A) and Learned AO erred in not complying with the circular issued by the Central Board of Direct Taxes, which clarifies that any routine maintenance charges, which is not technical in nature, will be covered u/s. 194C of the Act. 8. The Learned CIT(A) and Learned AO ought to have appreciated various judicial pronouncements which held that maintenance charges fall under preview of section 194C of the Act. ITA No.56/Bang/2022 Page 3 of 10 9. The Learned CIT(A) and Learned AO erred in relying on certain judicial precedents which are distinguishable from the facts of the Appellant's case. 10. The Learned CIT(A) has grossly erred in relying on the CIT(A)'s order in Appellant's own case for AY 2011- 12 without appreciating that the said order has been quashed by the Hon'ble ITAT. II. Erroneous levy of interest u/s. 201(1A) of the Act 11. The Learned CIT(A) and Learned AO have erred in levying interest u/s. 201(1A) of the Act amounting to INR 868,207/- which is consequential in nature.” 3. The assessee is a private limited company and is engaged primarily in retailing in ready-made garments, leather products, furniture, toys, baby basics, footwear and other household accessories. The survey u/s. 133A(2A) of the Act was conducted on the registered address of the assessee on 08.03.2018 for the purpose of verifying whether appropriate taxes have been deducted at source on the expenses incurred/payments made by the assessee. During the survey the AO observed that the assessee has taken many properties on lease and the assessee has been deducting TDS on rent payments u/s. 194I of the Act. The AO also noticed that the common area maintenance charges (CAM charges) paid on these leased properties is treated as contractual payments and tax is deducted u/s. 194C at the rate of 2%. The AO stated that the CAM charges are directly relatable to and are part of the rental activity hence prime facie these payments fall under the purview of 194I and not of 194C calling for a deduction at 10% instead of 2%. The AO therefore treated the assessee as an assessee in- ITA No.56/Bang/2022 Page 4 of 10 default and passed an order u/s. 201(1) of the Act on 18.02.2020 stating that there is short deduction of tax at source on the CAM charges. The AO also computed interest u/s. 201(1A) on the tax short deducted. 4. Aggrieved by the order of the AO the assessee preferred an appeal before the CIT(A). The CIT(A) observed that there was a single lease agreement for the premise’s rent and the CAM charges and concluded that CAM charges are integral part of the agreement between the assessee and the lessor. The CIT(A) therefore dismissed the appeal of the assessee by confirming that TDS on CAM charges should be done at 10% u/s. 194I of the Act by relying on the earlier year order passed by the CIT(A) in assessee’s own case. The CIT(A) also dismissed the claim of the assessee that the assessment order passed by AO was barred by limitation u/s. 201(3) of the Act. 5. The assessee is in appeal before the Tribunal against the order of the CIT appeals. 6. The learned AR submitted that the coordinate bench of the Tribunal in assessee’s own case (ITA No.400-405/Bang/2021) for assessment years 2013-14 to 2017-18 had considered the same issue and held in favour of the assessee. 7. The learned DR supported the decision of the lower authorities. ITA No.56/Bang/2022 Page 5 of 10 8. We notice that the coordinate bench of the Tribunal in assessee’s own case (supra) has held that 14. We have heard the rival submissions and perused the materials on record. The assessee has entered into lease agreement with AKM enterprises Private Limited whereby the assessee has taken a property on lease. As per the terms of the lease deed the assessee is required to pay rent (clause 8 of the lease agreement) and maintenance (clause 9 of the lease agreement). The issue contended is whether the rent and maintenance which are paid as part of single agreement is liable to be deducted tax at source at the same rate of 10% u/s. 194I. For this purpose we will look at the provisions of section194I is reproduced below. “ “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,- ITA No.56/Bang/2022 Page 6 of 10 (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”; 15. From the definition, the term “rent” would include payments for the use of land building land pertinent to building, machinery, plant, equipment, furniture, fitting. In short the payments for use of premises/equipment are covered by section 194I of the Act. We notice that a similar issue is considered by the honourable Delhi Tribunal in the case of Connaught Plaza Restaurants P. Ltd (supra) where to held that 13. 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 ITA No.56/Bang/2022 Page 7 of 10 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(1) of the Act. The Grounds of appeal no.4 to 4.5 are allowed in terms of our aforesaid observations. 16. As per clause 9 of the lease agreement (pages 62 of paper book) makes it clear that the maintenance charges paid are not paid for use of land/building to fall within the ambit of the definition of rent u/s. 194I. The CAM charges are in the nature of contractual payments towards electricity, water supply, security, lift maintenance etc., falling within the meaning of section 194C whereby these charges are paid for carrying out the work for maintenance of the common area that are available along with the lease premises. The fact that these two payments are agreed and paid under the same agreement does not change the character / nature of such payments warranting single rate of tax deduction at source. The law has provided for different rates of tax deduction at source based on the nature of payment and it is imperative that the correct rate of tax is applied depending on the nature of payments. ITA No.56/Bang/2022 Page 8 of 10 17. In view of the aforesaid discussions we are of the considered view that the payments made towards CAM charges are in the nature of contractual is payments that are made for availing maintenance services and they are not paid for use of any premises/equipment. Therefore the cam charges would be subjected to deduction of tax at source u/s. 194C of the Act at 2%. The assessee has applied the right rate of tax for deduction at source at 2% on CAM charges and therefore the assessee cannot be held to be an assessee in default u/s. 201(1) of the Act. We therefore allow the appeal in favour of the assessee on merits also 9. Respectfully following the decision of the coordinate bench we hold that the CAM charges would be subjected to deduction of tax at source u/s. 194C of the Act at 2%. The assessee has applied the right rate of tax for deduction at source at 2% on CAM charges and therefore the assessee cannot be held to be an assessee in default u/s. 201(1) of the Act 10. Since the appeal is allowed in favour of the assessee stating that the assessee could not be held to be an assessee in default u/s.201(1), the interest charged by the AO u/s.201(1A) which is consequential in nature is rendered infructuous. The ground raised by the assessee on this count does not require separate adjudication and hence dismissed. ITA No.56/Bang/2022 Page 9 of 10 11. In the result, appeal of the assessee is allowed. Order pronounced in court on 29 th day of April, 2022 Sd/- Sd/- (GEORGE GEORGE K) ( PADMAVATHY S) Judicial Member Accountant Member Bangalore, Dated, 22 nd April, 2022 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore. ITA No.56/Bang/2022 Page 10 of 10 1. Date of Dictation .......................................... 2. Date on which the typed draft is placed before the dictating Member ......................... 3. Date on which the approved draft comes to Sr.P.S ................................... 4. Date on which the fair order is placed before the dictating Member .................... 5. Date on which the fair order comes back to the Sr. P.S. ....................... 6. Date of uploading the order on website................................... 7. If not uploaded, furnish the reason for doing so ................................ 8. Date on which the file goes to the Bench Clerk ....................... 9. Date on which order goes for Xerox & endorsement.......................................... 10. Date on which the file goes to the Head Clerk ......................... 11. The date on which the file goes to the Assistant Registrar for signature on the order ..................................... 12. The date on which the file goes to dispatch section for dispatch of the Tribunal Order ............................... 13. Date of Despatch of Order. .....................................................