By CA Surekha S Ahuja
In TDS law, the most expensive mistakes are not made by non-compliance, but by misclassification. Common Area Maintenance (CAM) charges—an unavoidable feature of modern commercial leasing—have become a frequent trigger for TDS notices, primarily because they are mechanically equated with rent or contractual payments without examining their true legal character.
Recent judicial pronouncements, culminating in Dy. CIT v. Bird Automotive (P) Ltd. (ITAT Delhi, 2025), following the Delhi High Court in CIT (TDS) v. Liberty Retail Revolutions Ltd., have now settled the law. Yet disputes continue, largely because Sections 194-I and 194-C are applied without first satisfying their charging conditions.
This note undertakes a complete statutory and interpretative analysis of both sections, explains where CAM charges fit (and where they do not), and sets out a compliance framework that prevents mismatches, notices and assessee-in-default proceedings.
Section 194-I — Law, Scope and Interpretation
Statutory Language (Essence)
Section 194-I applies where a person responsible for paying to a resident any income by way of rent deducts tax at source at the prescribed rate.
“Rent” is defined as any payment, by whatever name called, for the use of land, building, land appurtenant thereto, machinery, plant or equipment.
Judicial Interpretation of “Rent”
Courts have consistently held that:
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Rent must be consideration for possession, occupation, or right to use immovable property.
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The expression “by whatever name called” does not enlarge the scope of rent beyond its essential character.
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Payments that do not grant or regulate the right of occupation cannot be treated as rent merely because they arise from a lease arrangement.
Why CAM Charges Fail the Section 194-I Test
CAM charges:
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Do not confer possession or right to occupy
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Do not enhance or regulate tenancy rights
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Do not create any interest in property
They represent proportionate sharing of common expenses incurred for:
cleanliness, electricity, water, security, HVAC, lifts, common repairs and upkeep.
In Bird Automotive (P) Ltd., the ITAT categorically held that such payments “cannot, by any stretch of imagination, be construed as payment of rent.”
Once a payment fails to qualify as rent, Section 194-I is excluded at the charging stage itself. Thresholds, rates, defaults and interest provisions become irrelevant.
Section 194-C — Law, Scope and Interpretation
Statutory Language (Essence)
Section 194-C applies where any person responsible for paying a resident any sum for carrying out any work (including supply of labour) in pursuance of a contract, deducts tax at source.
The section is triggered only when:
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There exists a contract, and
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The contract is for carrying out work.
Judicial Interpretation of “Work”
Courts have clarified that:
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“Work” implies execution of an obligation for another person.
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Mere reimbursement or cost sharing does not amount to carrying out work.
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The payer-payee relationship must be that of contractee and contractor, not owner and occupier.
Application of Section 194-C to CAM Charges
CAM charges do not automatically fall under Section 194-C.
Where CAM is:
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Recovered by the landlord as cost sharing for maintaining common areas, and
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The landlord is merely discharging ownership obligations or allocating expenses,
there is no contract for carrying out work for the tenant.
In such cases, Section 194-C does not apply.
Section 194-C becomes relevant only where:
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The tenant (or association of tenants) directly engages service providers, or
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The landlord separately undertakes service contracts as a contractor, not as an owner.
Thus, Section 194-C applies based on contractual substance, not payment labels.
The Crucial Distinction: Responsibility for Maintenance
Maintenance Responsibility with Landlord
Where the lease places responsibility for common area maintenance on the landlord:
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CAM is reimbursement / contribution
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Landlord is not a contractor
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CAM is neither rent (194-I) nor contractual payment (194-C)
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No TDS obligation arises
This is the strongest legally defensible position and is directly supported by judicial precedent.
Maintenance Responsibility with Tenant
Where tenants:
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Directly contract security, housekeeping, facility management, or
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Act through a tenants’ association,
payments may attract Section 194-C, subject to existence of a work contract.
Section 194-I has no application in this model, as payments are unrelated to occupation rights.
Hybrid Models
In mixed arrangements:
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Rent → tested only under Section 194-I
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CAM cost sharing → outside TDS
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Outsourced services → tested independently under Section 194-C
Segregation is mandatory. Aggregation is legally impermissible.
Why Thresholds Do Not Cure Wrong Classification
A recurring compliance fallacy is applying thresholds first. This is legally unsound.
Thresholds:
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Do not create taxability
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Operate only after a payment satisfies the charging description
CAM charges do not become rent because they are large, recurring or linked to lease tenure. Courts have repeatedly held that quantum cannot substitute legal character.
Why Notices and Section 201 Demands Commonly Arise
Most CAM-related demands arise because:
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Rent and CAM are clubbed in lease agreements
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Invoices lack descriptive break-ups
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TDS is deducted “to be safe” under wrong sections
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Authorities apply thresholds mechanically
Courts have consistently disapproved this approach.
Compliance Architecture That Survives Scrutiny
A litigation-proof framework requires:
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Clear lease clauses separating rent and CAM
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CAM defined as cost sharing / reimbursement
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Invoices reflecting actual expense heads
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Consistent accounting and TDS treatment
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Reliance on binding judicial precedents
In TDS matters, documentation determines destiny.
Final Conclusion
Sections 194-I and 194-C are charging provisions, not convenience tools. They apply only when their statutory conditions are met. Common Area Maintenance charges meet neither condition by default.
The law now stands settled:
CAM charges are operational contributions, not consideration for occupation and not automatically contractual payments.
Taxpayers who understand the distinction between rent, work contracts, and cost sharing, and who align their agreements and invoices accordingly, remain fully insulated from mismatches, notices and assessee-in-default exposure.
In TDS law, accuracy is not caution.
It is compliance.
