Chadha Sugars & Industries P. Ltd vs ACIT, Circle-73(1), Delhi: A Dispute over TDS on CAM Charges for AY 2014-15

Introduction

The Income Tax Appellate Tribunal Delhi ‘B’ Bench, in a landmark judgment dated April 27, 2023, for the case number ITA 1312/DEL/2022 for the assessment year 2014-15, allowed the appeal filed by Chadha Sugars & Industries P. Ltd, Aligarh (Appellant) against the Assistant Commissioner of Income Tax (ACIT), Circle-73(1), Delhi (Respondent). The core of the legal battle was the determination of the correct section under the Income Tax Act, 1961 (the Act), applicable for the deduction of Tax at Source (TDS) on Common Area Maintenance (CAM) charges paid by the appellant.

Background

The case emerged from the assessment order dated April 27, 2022, for AY 2014-15 where the CIT(A) -30, New Delhi, confirmed the demand of TDS plus interest amounting to Rs. 2,20,319. The primary issue revolved around the interpretation of sections 194C vs. 194-I of the Act concerning the deduction of TDS on CAM charges paid alongside rent to Ambience Group entities.

Arguments Presented

The counsel for the appellant argued that the matter is squarely covered in their favor by various orders of the coordinate bench of the Tribunal. They highlighted the orders in the cases of Kapoor Watch Company Pvt. Ltd. vs. ACIT and Connaught Plaza Restaurants P. Ltd. vs. DCIT, arguing that the CAM charges should be subjected to TDS deduction under section 194C of the Act at 2%, contrary to the 10% under section 194-I as held by the authorities below.

The respondent’s representation leaned heavily on the assessment and first appellate order, asserting that the nature of CAM charges mandated a deduction under section 194-I at 10%. They emphasized the lease agreements showing that CAM charges were integral to the rental agreements and thus should be considered as part of the rent, attracting higher TDS.

Judgment and Analysis

The Tribunal, after careful consideration of the submissions, precedents, and the provisions under the Act, favored the appellant’s interpretation. It highlighted the difference in nature between rent and CAM charges, and the specific applicability of sections 194C and 194-I. The Tribunal observed that CAM charges are for services related to maintenance of common areas and not for the use of property per se, thereby falling under the ambit of ‘work’ as envisaged under section 194C.

Quoting the precedent cases, the Tribunal elucidated that CAM charges, being in the nature of contractual payments for services, should not be conflated with rent that pertains to the use of premises. Consequently, it directed the AO to delete the entire addition made towards differential TDS and interest, thereby siding with the precedent judgements favoring a lower TDS deduction under section 194C for CAM charges.

Conclusion

The Tribunal’s decision in Chadha Sugars & Industries P. Ltd vs. ACIT, Circle-73(1), Delhi upholds the principle of rightful interpretation of statutory provisions, providing clarity on the applicability of TDS on CAM charges. This judgement not only resolves the dispute for the assessment year 2014-15 in favor of Chadha Sugars but also sets a precedent for similar cases, reinforcing the distinct treatment of rent and service-related payments under the Income Tax Act.

Chadha Sugars & Industries P. Ltd vs ACIT, Circle-73(1), Delhi: A Dispute over TDS on CAM Charges for AY 2014-15