Are Common Area Maintenance (CAM) charges subject to TDS under Section 194I or Section 194C?

CAM charges are payments for services such as security, cleaning, and maintenance, and are subject to TDS at 2% under Section 194C, not at 10% under Section 194I, provided they are not part of the actual rent for the premises.

Can a taxpayer rely on its own prior tribunal ruling in a subsequent assessment year?

Yes, the ITAT held that when facts are identical, a taxpayer may rely on its own prior successful appeal before the same tribunal, and the Revenue cannot ignore such binding precedent.

Is interest under Section 201(1A) leviable if TDS was deducted at 2% under Section 194C?

No, interest under Section 201(1A) is not leviable if the taxpayer deducted TDS at the correct rate under Section 194C, as the deduction was not in default.

CAM Charges Are Service Payments, Not Rent | Section 194C Overrides Section 194I for TDS: ITAT Delhi

The Income Tax Appellate Tribunal, Delhi, has clarified that Common Area Maintenance charges collected by mall owners from tenants are not part of rent and therefore attract TDS at 2% under Section 194C of the Income Tax Act, not 10% under Section 194I. This ruling resolves a recurring dispute in commercial real estate and provides binding clarity for property managers and deductors.

Background & Facts

The Dispute

The appellant, Diamond Tree, operates as a tenant in Ambience Mall, Vasant Kunj, Delhi. The mall owners, who are the deductors in this case, collect Common Area Maintenance (CAM) charges from tenants for services such as housekeeping, security, cleaning, and maintenance of shared facilities. These charges are separate from the monthly rent paid for the leased space. The Assessing Officer (AO) treated these CAM charges as part of rent and mandated TDS deduction at 10% under Section 194I of the Income Tax Act, 1961. The AO initiated proceedings under Section 201(1) and 201(1A) for short deduction of tax and levied interest and penalties.

Key Facts

The appellant paid CAM charges to mall owners for services rendered in common areas, distinct from rent for leased premises
The deductors had been consistently deducting TDS at 2% under Section 194C, treating CAM charges as payments for services
The Assessing Officer issued show cause notices in 2023, asserting that CAM charges were part of rent and required TDS at 10% under Section 194I
The AO raised a demand of Rs. 91,314 for short-deducted TDS and Rs. 36,065 as interest under Section 201(1A)
The total demand confirmed by the Commissioner of Income Tax (Appeals) was Rs. 1,27,379
The appellant had previously prevailed in identical facts for Assessment Years 2011-12 and 2015-16 in ITA Nos. 5062/Del/2024 and 5063/Del/2024

Procedural History

2022-23: Assessment proceedings initiated by AO for A.Y. 2017-18 and 2018-19
10.10.2025: Order passed by Ld. CIT(A) upholding AO’s demand
25.06.2026: Hearing before ITAT Delhi
15.07.2026: Judgment pronounced by ITAT Delhi

The Parties' Positions

For the Appellant: The CAM charges are payments for services rendered, not for use of property. They are analogous to maintenance contracts and fall squarely under Section 194C. The appellant relied on its own prior successful litigation for A.Y. 2011-12 and 2015-16, where the same tribunal held in its favour.

For the Respondent (Revenue): The CAM charges are inseparable from the rental arrangement and form part of the composite rent. Relying on Sunil Kumar Gupta (2016) (9) TMI 1198 (P&H), the Revenue argued that such charges should be taxed at 10% under Section 194I.

Relief Sought

The appellant sought: (1) quashing of the AO’s demand of Rs. 91,314 for TDS and Rs. 36,065 for interest; (2) setting aside the CIT(A)’s order; (3) recognition of TDS at 2% under Section 194C as valid; and (4) deletion of penalty and interest.

The Legal Issue

The central question was whether Common Area Maintenance (CAM) charges collected by mall owners from tenants constitute rent under Section 194I of the Income Tax Act, or whether they are payments for services falling under Section 194C.

Arguments Presented

For the Appellant

The appellant’s counsel argued that CAM charges are contractual payments for specific services - security, cleaning, maintenance - and not for the use of any premises. The payment structure is not tied to the size or value of the leased space but to the cost of services rendered. The appellant relied on the tribunal’s own precedent in Connaught Plaza Restaurants Pvt. Ltd. v. DCIT and Kapoor Watch Company Pvt. Ltd. v. ACIT, both of which held that CAM charges are not part of rent. The appellant also cited its own prior successful appeals for A.Y. 2011-12 and 2015-16, where the same tribunal had ruled in its favour on identical facts.

For the Respondent

The Revenue relied on the Punjab & Haryana High Court decision in Sunil Kumar Gupta, which held that CAM charges are part of composite rent and attract TDS at 10% under Section 194I. The Revenue contended that the payments were made in the context of a lease agreement and therefore should be treated as rent, regardless of their service-based nature.

The Court's Analysis

The tribunal rejected the Revenue’s reliance on Sunil Kumar Gupta, distinguishing it on factual grounds. It emphasized that the nature of the payment, not the context of the lease, determines the applicable section. The tribunal noted that in Connaught Plaza Restaurants and Kapoor Watch Company, it had already held that CAM charges are payments for services and not for use of property.

"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 hold 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."

The tribunal further observed that the Revenue’s argument conflated the contractual arrangement with the nature of the payment. The fact that CAM charges are collected alongside rent does not transform them into rent. The tribunal reaffirmed that Section 194C applies to payments for work contracts and services, while Section 194I applies only to payments for use of land or building.

The tribunal also noted that the Assessing Officer had failed to provide a meaningful opportunity of hearing before initiating proceedings under Section 201(1), which further vitiated the proceedings. The interest and penalty levied under Section 201(1A) were therefore unsustainable.

The Verdict

The appeals of the assessee are allowed. The order of the CIT(A) dated 10.10.2025 is set aside. The demand of Rs. 91,314 for short deduction of TDS and Rs. 36,065 for interest under Section 201(1A) are deleted. The appellant’s TDS deduction at 2% under Section 194C is upheld. No penalty shall be levied. The assessment for both A.Y. 2017-18 and 2018-19 shall be reopened to reflect the correct TDS treatment.

What This Means For Similar Cases