The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that Common Area Maintenance (CAM) charges paid by an occupant or unit holder in a mall, where such charges are separate from rent and are in consideration of maintenance and common area services, do not fall within the definition of “rent” under Section 194I of the Income-tax Act, 1961.
Since such charges are contractual payments for carrying out work and are therefore subject to deduction of tax at source (TDS) under Section 194C, consequently, the ITAT clarified that deduction of TDS at 2% on such CAM charges does not constitute short deduction under Section 194I, and no demand under Sections 201(1) and 201(1A) can be sustained on that basis.
The Division Bench comprising Raj Kumar Chauhan (Judicial Member) and Renu Jauhri (Accountant Member) observed that recorded that the sole controversy was the demand raised for short deduction of TDS on CAM charges, and that the issue had already been considered in earlier years on materially identical facts. It noted that the assessee had entered into agreements under which CAM charges were paid separately and these payments did not form part of rent.
The Bench adopts the reasoning accepted by the CIT(A), including the reliance placed on the Delhi High Court’s decision in CIT vs Liberty Retail Revolutions Ltd. [(2025) 175 taxmann.com 35 (Delhi)], where it was held that CAM charges are essentially maintenance charges paid by a unit for proper maintenance of common areas, including expenditure on cleanliness, utilities and maintenance, and that such charges are shared expenses for common works and utilities. On that reasoning, such payments cannot be treated as rent for occupying the premises.
The Tribunal also reiterated that CAM charges are completely separate from rental payments and are fundamentally for availing common area maintenance services, whether provided by the landlord or any other agency. It was observed that payments of this nature are not made for use of land, building or equipment, but for carrying out work relating to maintenance of common areas and facilities, and therefore fall within the meaning of “work” under Section 194C rather than “rent” under Section 194I.
Briefly, the respondent/ assessee was engaged in the business of manufacturing and retail of ethnic wear under the brands “Biba” and “Rangriti”. A survey under Section 133A(2A) was conducted in the case of Ambience Group, where it was found that Ambience Group operated malls at Gurugram and Vasant Kunj, where units/shops were either sold or rented, and CAM charges were recovered from tenants or occupants. The Department formed the view that since such CAM payments were connected with the occupation of premises, tax ought to have been deducted at 10% under Section 194I instead of 2% under Section 194C. Proceedings under Section 201 were accordingly initiated against the assessee for short deduction of TDS.
In response, the assessee contended that CAM charges were payments for services relating to maintenance of the premises and had therefore rightly been subjected to TDS under Section 194C. The assessee also argued that it could not be treated as an assessee in default because the statutory conditions regarding return filing, inclusion of income and payment of tax by the payee stood satisfied. The Assessing Officer rejected the assessee’s position, held the CAM charges to be part of rental activity covered under Section 194I, and treated the assessee as in default under Section 201(1) and 201(1A).
On appeal, the CIT(A) allowed relief to the assessee and held that CAM charges were paid against services provided for maintenance of the premises and did not fall within the definition of “rent”. On that basis, the CIT(A) directed deletion of the demand raised under Sections 201(1) and 201(1A).
