Income Tax Officer vs The Amusement Rooms Pvt. Ltd.

“6. Decision:

6.1

On Grounds of Appeal Nos. 1to 4:- The assessee is engaged in the business o f recreational and amusem ent activities and has taken space on lease from Ambience Developers and Infrastructure Pr ivate Limited (ADI) at Ambience Mall, G urugram' Haryana' For the purpose of mainte nance services of the common area, the assessee entere d into a separ ate arrangement with Ambie nce Facilities Management Pvt. Ltd. (AFMPL), a group Company, which pro vided maintenance services for common areas o f the mall. The mainte nance charges were paid to AFMPL, and T DS was de ducte d @ 2o/o under section 194C of the Act' TDS on lease rent was deducted under Section 1941 o f the Act.

A survey was co nducted at the premises of Ambie nce Group by the ACIT(TDS), Circle 73(1) , De lhi on 12.02.2018. During the s ur vey' ii was obse rve d that besides lease rent, the Ambience Group also reco ve red common maintenance ( CAM) charges. The AO alle ged that these CAM charges were part of the rental activity and should have been subject to TDS under section 1941 of the Act at the rate of 10% rathe r than 2% deducted under Section 194C of the Act.

6.2

T he assessee submi tte d that the maintenance char ges paid to AFMPL were fo r Separate services provide d fo r common area maintenance, which is distinct from the lease re nt paid to A DI. TDS on maintenance char ges was co rr ectly deducte d under Section 194C of the Act as per the contract for maintenance services' The assessee refe rre d to circular No.715 dated 08.08.1995, which clarifies that payments for maintenance se rvices fall under Section 194C, not section 194I. The assessee also placed re liance on the decision of the Hon'ble Delhi ITAT in the case of Kapoo r watch company Pvt. Ltd. vs ACIT (I.T.A . No. 889/Del/2020, A .Y. 2011-12), where the Tribunal held that TDS on maintenance char ges paid for common area maintenance services should be deducted under section 194C and no t unde r Section 194I. The assessee further distinguished the present case from the decision of the Hon'ble Punj ab and Haryana High in the case of Sunil Kum ar Gupta vs. ACIT (389 ITR 38), as the present case invo lves separate payments fo r maintenance services, and not as part o f the re ntal income .

It is pe rtinent to mention here that M/s Kapoo r Watch Company Pvt. Ltd. in which the decisio n has been delivered by the Hon'ble ITAT, Ne w Delhi, was the tenant and similar actio n was taken by the AO(TDS) o n findings of Surve y conducted at the premise s of Ambience Group by the ACIT(TDS) , Circle 73(1), Delhi on 12.02.2018.

6.3

In the extant case, the core issue to be decided is whether the TDS on maintenance charges paid to AFMPL should be deducte d unde r Section 194I or section 194C of the Act. It is undisputed that the assessee has ente red into a separate arrangement with A FMPL fo r maintenance services, and TDS was deducted at 2% under Section 194C.The AO, however, treated the mainte nance charges as "re nt" and dire cted the assessee to deduct T DS at 2% under sectio n 194I. The AO relied on the fact that the mainte nance charges were part o f the rental activity and should be covere d unde r Section 194I. However, the mainte nance charges paid to AFMPL are for distinct mainte nance services, which are se par ate from the lease rent paid to ADI. The payment for mainte nance services canno t be classifie d as "re nt" unde r Section 194I, as the nature of the payment is fo r services rendered, not for the use of pro perty. The re liance placed by the assessee on circular No.715 dated 08.08.1995 and the decision of the De lhi ITAT in the case o f Kapoo r watch company Pvt. Ltd. is val id, as it suppo rts the position that maintenance char ges fall under section 194C of the Act. Furthe r, the Hon'ble Punjab and Haryana High Court's judgment in Sunil Kumar Gupta is distinguishable, as it de alt with the issue of calculating the annual value of prope rty under section 23(1) o f the Act, which is not the issue in the present case. T he dispute here is limited to the cor rect provisio n unde r which TDS sho uld be deducte d.

6.4

In view of the abo ve findings and the judgment of the jurisdictional ITAT, New Delhi as cited above, it is held that the T DS on maintenance char ges paid to AFMPL should be deducte d under sectio n 194C of the Act at the rate of 2% and not under section 194I at the rate of 10%. The AO’s conclusion that that mainte nance charges should be treated as rent under sec tion 194I is incor re ct and these grounds of appeal are allo wed.

7.

In the result, the appeal is allowe d.”