CAM Charges included in Rent allowable as Income Tax Deduction: ITAT

The Income Tax Appellate Tribunal (ITAT) Bangalore bench consisting of N V Vasudevan, Vice President, and Padmavathy S, Accountant Member held that CAM (Common Area Maintenance) Charges included in rent were allowable as a deduction.

The assessee(Lifestyle International Pvt. Ltd) is a private limited company and is engaged primarily in retailing ready-made garments, leather products, furniture, toys, baby basics, footwear, and other household accessories. . During the survey the Assessing Officer observed that the assessee has been deducting TDS (tax deducted at source) on rent payments. The Assessing Officer (AO) also noticed that the common area maintenance charges (CAM charges) paid on these leased properties are treated as contractual payments and tax is deducted at the rate of 2%. The AO stated that the CAM charges are directly relatable and are part of the rental activity hence prima facie these payments are subject to a deduction at 10% instead of 2%. The Assessing Officer, therefore, treated the assessee as an assessee in default and passed an order stating that there is a short deduction of tax at source on the CAM charges. The AO also computed interest on the tax short deducted.

Aggrieved by the order of the Assessing Officer the assessee preferred an appeal before the Commissioner of Income Tax. The Commissioner observed that CAM charges are an integral part of the agreement between the assessee and the lessor and hence dismissed the appeal of the assessee by confirming that TDS on CAM charges should be done at 10%.

ITAT (Income Tax Appellate Tribunal) held that “the payments made towards CAM charges are in the nature of contractual is payments that are made for availing maintenance services and they are not paid for use of any premises/equipment. Therefore the cam charges would be subjected to deduction of tax at source u/s. 194C of the Act at 2%. The assessee has applied the right rate of tax for deduction at source at 2% on CAM charges and therefore the assessee cannot be held to be an assessee in default u/s. 201(1) of the Act”.