Common Area Maintenance Charges Attract 2% TDS under Sec 194C, Not Rent: High Court

Recently, the Delhi High Court ruled that CAM charges are service payments, not rent, and must be taxed under Section 194C with 2% TDS, not under Section 194I with 10% TDS, thereby dismissing the Income Tax Department’s appeals.

The current writ petition is being filed by a Commissioner of Income Tax (petitioner) against a company named Diamond Tree (respondent) before the benches comprising Hon’ble judges Mr. Justice V. Kameswar Rao and Mr. Justice Vinod Kumar in the Delhi High Court. The case was heard on August 6, 2025. It involves two appeals (ITA 275/2025 and ITA 276/2025).

The legal dispute is about how Tax Deducted at Source (TDS) should be applied on Common Area Maintenance (CAM) charges, i.e, the charges tenants pay for services like cleaning, lighting, and maintenance of shared areas (like corridors, lobbies, and elevators) in a rented property.

A dispute arose when the Income Tax Department (Revenue) earlier passed orders against the Diamond Tree, treating it as an “assessee-in-default.” That means the department believed that Diamond Tree did not deduct enough TDS on the CAM charges it paid, which is a violation of tax rules under Section 201(1) of the Income Tax Act. The department believed that CAM charges should be treated as rent, and hence TDS should be deducted under Section 194-I at a higher rate (10%). On which the company argued that these CAM charges were not rent but instead payments for services (like maintenance), and therefore TDS should be deducted under Section 194-C.

Before reaching the High Court, the case was decided by the Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘B, in favour of Diamond Tree. Where the tribunal observed that CAM charges are not rent but instead are contractual payments for services such as cleaning, security, and upkeep of common areas. Hence, TDS should be deducted under Section 194C (for contracts), not under Section 194I (for rent). For announcing its decision, ITAT also cited a few previous judgments, such as Connaught Plaza Restaurants Pvt. Ltd. vs. DCIT and Kapoor Watch Company Pvt. Ltd. vs. ACIT. In both judgments, the conclusion was that CAM charges are not part of rent and should be taxed under Section 194C.

The department was not satisfied with this decision and hence approached the Delhi High Court, where the judges reviewed the earlier decision of the ITAT and heard both sides of the respondent and petitioner and made the following conclusions:

To announce its decision on the issue, i.e., whether CAM charges should be considered as “rent” (Section 194I) or as payments under a contract (Section 194C), the court cited its previous judgement titled “Commissioner of Income Tax (TDS)-1, Delhi v. Liberty Retail Revolutions Ltd.” (2025: DHC:4589-DB), where it ruled that CAM charges are not for using the building but for maintenance services. These are shared costs among tenants and not part of the lease rent. Therefore, they fall under Section 194C (contractual services) and not under 194I (rent). The court also pointed out two previous appeals on the same case (ITA 261/2025 and ITA 263/2025) where tribunals dismissed on August 10, 2025, in favour of the company on the same legal question.

In the final order, the Delhi High Court agreed with the ITAT and previous rulings and said that no new or substantial question of law arises in these appeals. Hence, the High Court dismissed both appeals (ITA 275/2025 and ITA 276/2025) filed by the Income Tax Department.