Common Area Maintenance (CAM) charges and TDS Dispute:

The Delhi High Court recently dealt with an important question concerning the treatment of Common Area Maintenance (CAM) charges under the provisions of the Income Tax Act, 1961. The case, Commissioner of Income Tax – TDS-01 vs. Diamond Tree, decided on 6 August 2025, involved appeals filed by the Revenue under Section 260A of the Act challenging the order of the Income Tax Appellate Tribunal (ITAT), Delhi Bench. The appeals related to the assessment years 2011-12 and 2015-16.

The core issue before the Court was whether CAM charges should be subjected to Tax Deducted at Source (TDS) under Section 194I, which deals with rent, or under Section 194C, which relates to payments made under a contract for work. The Assessing Officer had earlier treated the assessee as an assessee-in-default for short deduction of tax on CAM charges, arguing that such charges formed part of rent and thus attracted a higher rate of TDS under Section 194I. The ITAT, however, ruled in favour of the assessee by holding that CAM charges were contractual payments for services, falling under Section 194C.

The Tribunal relied on earlier decisions in Connaught Plaza Restaurants Pvt. Ltd. vs. DCIT and Kapoor Watch Company Pvt. Ltd. vs. ACIT, where it was clearly established that CAM charges cannot be equated with rent. Instead, such payments were recognized as payments towards services like maintenance, cleanliness, and common facilities. The Tribunal observed that these charges were separate from the rental component, and therefore, tax should be deducted at 2% under Section 194C, rather than the higher rate applicable under Section 194I.

When the matter reached the High Court, Senior Standing Counsel for the Revenue, Mr. Ruchir Bhatia, fairly conceded that the issue was already settled by this Court in Commissioner of Income Tax (TDS)-1, Delhi v. Liberty Retail Revolutions Limited. In that case, the Court had categorically held that CAM charges are not rent but shared expenses for maintenance and services, and therefore, fall within the ambit of Section 194C. The Court had clarified that only payments made for the use of land, building, or equipment could be considered rent under Section 194I, whereas CAM charges are contractual in nature.

The High Court also noted that two similar appeals, Commissioner of Income Tax-TDS-01 v. Bose Corporation India Pvt. Ltd., had already been dismissed earlier in August 2025, affirming the same principle. Thus, in the present matter, the Court found no reason to take a different view. It reiterated that CAM charges cannot be treated as lease rentals or license fees and, accordingly, no substantial question of law arose for consideration.

Consequently, the appeals filed by the Revenue were dismissed, and the decision of the ITAT in favour of the assessee was upheld.

This judgment reinforces the settled legal position that CAM charges are in the nature of contractual payments for services and are liable for TDS deduction at the lower rate under Section 194C of the Act. It provides much-needed clarity for businesses, landlords, and tenants alike, ensuring uniformity in the tax treatment of such charges across similar transactions.