CAM Charges TDS Dispute: Delhi ITAT Directs CIT(A) to Reconsider Section 194C vs Section 194-I Classification

Background of the Case

A significant TDS classification dispute came before the Income Tax Appellate Tribunal, Delhi, in the matter of Fairwood Holdings Pvt Ltd Vs ITO (ITAT Delhi), pertaining to Assessment Year 2017-18. The core question revolved around whether Common Area Maintenance (CAM) charges paid by the assessee ought to attract TDS at 2% under Section 194C of the Income Tax Act, 1961, or at 10% under Section 194-I of the same Act.

The assessee, Fairwood Holdings Pvt. Ltd., was originally incorporated on 10.10.1991 under the name Fairwood Consultants Pvt. Ltd. and was subsequently renamed Fairwood Holdings Pvt. Ltd. with effect from 18.06.2012. The company operated in the domain of project development and consultancy services, with its business spanning energy, transportation, city development, infrastructure, residential, industrial, and commercial sectors, including supplementary services such as layout preparation, blueprint drafting, design planning, and technical drawings.

Factual Matrix

The CAM Payment and TDS Deduction

During the relevant financial year, the assessee, in its capacity as a tenant, made payments towards Common Area Maintenance (CAM) charges amounting to Rs. 23,82,310/- to M/s IT Enfra Services Pvt. Ltd., which was a group company under the M/s Logix Infra Developers Pvt. Ltd. umbrella. On these payments, the assessee deducted TDS at the rate of 2% under Section 194C of the Income Tax Act, 1961, treating the payments as contractual in nature.

Survey Action and AO Proceedings

The matter came to light following a TDS survey conducted at the registered office of M/s Logix Infra Developers Pvt. Ltd. and its associated group entities on 31.01.2019. During this survey, it emerged that several group companies had recovered charges in the nature of maintenance, housekeeping, and security services from occupants and tenants under the label of CAM charges. The deductors, including the assessee, had uniformly applied TDS at 2% in accordance with Section 194C.

Subsequently, a survey action under Section 133A(2A) of the Act was carried out on 10.03.2017 at the assessee's business premises, during which an outstanding TDS liability of Rs. 6,69,097/- was identified against the assessee in its capacity as a deductor company.

The Assessing Officer thereafter initiated proceedings under Section 201(1)/Section 201(1A) of the Income Tax Act, 1961. The AO took the view that CAM charges, being in the nature of maintenance, housekeeping, and security services forming part of rent-related expenses, were squarely covered under Section 194-I, which mandates TDS deduction at 10%, rather than 2% as applied under Section 194C.

Demand Raised by the Assessing Officer

Based on the documentary evidence submitted by the assessee, the AO concluded that the payment of CAM expenses fell within the scope of Section 194-I of the Income Tax Act, 1961. Accordingly, the assessee was held to be an assessee in default for short deduction of TDS. The total demand raised was as follows: