Facts of the Case

The Revenue filed two appeals under Section 260A of the Income-tax Act, 1961 challenging the common order dated 27.02.2025 passed by the Income Tax Appellate Tribunal, Delhi Bench ‘B’, in ITA Nos. 5062/Del/2024 and 5063/Del/2024, relating to Assessment Years 2011–12 and 2015–16 respectively.

The Assessing Officer had treated the respondent, Diamond Tree, as an assessee in default under Sections 201(1) and 201(1A) of the Act on the ground that tax was deducted at source on Common Area Maintenance (CAM) charges under Section 194C at 2%, whereas according to the Revenue such payments constituted rent liable for TDS under Section 194I at a higher rate.

The ITAT allowed the assessee’s appeals holding that CAM charges were not rent but contractual payments for services, and therefore liable for TDS under Section 194C.

Issues Involved

Whether Common Area Maintenance charges paid by a tenant form part of rent attracting TDS under Section 194I, or whether such charges are in the nature of contractual payments for services liable for TDS under Section 194C, and whether the assessee could be treated as an assessee in default under Sections 201(1) and 201(1A).

Appellant’s Arguments

The Revenue contended that there existed a composite agreement for rent and CAM charges, and therefore CAM payments were intrinsically linked to use of the premises and attracted TDS under Section 194I. Reliance was placed on the decision of the Punjab & Haryana High Court in Sunil Kumar Gupta to argue that CAM charges formed part of rent.

Respondent’s Arguments

The assessee relied on a series of decisions of the Delhi ITAT holding that CAM charges are independent of rental payments and are paid for availing maintenance and common facilities services. It was argued that CAM charges are not payments for use of land or building but are contractual payments for services, squarely covered under Section 194C.

The assessee also relied on binding Delhi High Court precedent, including Commissioner of Income Tax (TDS)-1, Delhi vs. Liberty Retail Revolutions Limited, and similar decisions where identical issues were decided in favour of assessees.

Court Order / Findings

The Delhi High Court noted that the issue was no longer res integra and stood conclusively covered by its earlier Division Bench decision in Commissioner of Income Tax (TDS)-1, Delhi vs. Liberty Retail Revolutions Limited. The Court reproduced and affirmed the reasoning that CAM charges are essentially maintenance charges contributed towards cleanliness, utilities, and upkeep of common areas, and cannot be construed as rent or license fees for occupying premises.

The Court held that CAM charges are separate and independent of rent, are contractual payments for services and facilities, and therefore fall within the scope of Section 194C and not Section 194I. The Court further recorded the fair concession of the Revenue that similar appeals in Commissioner of Income Tax (TDS)-01 vs. Bose Corporation India Private Limited had already been dismissed by the Court on the same issue.

The Court concluded that no substantial question of law arose from the ITAT’s order.

Important Clarification

The Court clarified that payments made towards Common Area Maintenance are not payments for use of land or building. Such charges are shared service-related expenses and cannot be artificially treated as rent merely because they arise in the context of a lease arrangement. Consequently, deduction of tax at source on CAM charges under Section 194C is legally correct.

Final Outcome

The appeals filed by the Revenue were dismissed. The Delhi High Court upheld the order of the Income Tax Appellate Tribunal holding that Common Area Maintenance charges are liable for TDS under Section 194C and not under Section 194I, and confirmed that Diamond Tree could not be treated as an assessee in default under Sections 201(1) and 201(1A) of the Income-tax Act.

Link to download order - https://www.mytaxexpert.co.in/uploads/1769678190_COMMISSIONEROFINCOMETAXTDS01VsDIAMONDTREE.pdf

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