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Income Tax Appellate Tribunal, DELHI BENCH “G” DELHI
Before: SHRI KUL BHARAT & SHRI PRADIP KUMAR KEDIA
PER PRADIP KUMAR KEDIA, A.M.: The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals)-XXXI, New Delhi (‘CIT(A)’ in short) dated 07.05.2019 passed under Section 271C of the Income Tax Act, 1961 (the Act) concerning AY 2014-15.
The grounds of appeal raised by the assessee reads as under:
“The Ld. CIT(A) has erred in law and facts of the case in confirming penalty levied under section 271C by the Ld. CIT(A) brushing aside the submission and explanation of assessee for non-deduction of TDS under section 194C of the Act on payment of EDC to HUDA which is highly unjustified, uncalled for and bad in law.
2. The Ld. CIT(A) has erred in law and facts of the case in confirming penalty levied under section 271C by the Ld. CIT(A) and alleging that the appellate was aware of the obligation under section 194C of the Act which is highly arbitrary, uncalled for and bad in law.
3. The Ld. CIT(A) has erred in law and facts of the case in confirming penalty levied under section 271C by the Ld. CIT(A) on matter which is under litigation which is highly unjustified, uncalled for and bad in law.”
3. Briefly stated, the assessee-company is assessed to TDS vide TAN: DELK08144D and claimed to have filed its quarterly TDS returns for the year under reference. A survey under section 133A of the Income Tax Act, 1961 ("the Act") was carried at the premises of Haryana Urban Development Authority (HUDA). During the survey proceedings, it was observed by the Revenue Authorities that HUDA receives payment from various parties on account of External Development Charges ("EDC"). During the year under consideration, the assessee is also found to have paid such amount of Rs.3,07,23,000/- as EDC to HUDA. Consequent upon the survey proceedings undertaken on HUDA, a notice under section 201/201(1A) of the Act dated 19.05.2017 was issued upon the assessee by Assessing Officer along with a questionnaire requiring explanation for non-deduction of TDS on EDC payments made to HUDA. The Assessee submitted its detailed submission dated 01.06.2017 stating that the provisions of TDS were not applicable on payments made to HUDA. Thereafter, a show-cause notice dated 18.01.2018 was issued by the Joint Commissioner of Income Tax, on the basis of reference made by the ACIT/Assessing Officer for initiation of penalty under section 271C of the Act alleging that the assessee has defaulted in the provisions of Act by not deducting TDS on EDC paid to HUDA for the F.Y. 2013-14. In response to the said show cause notice, the assessee submitted its reply justifying the non-applicability of TDS provisions on payments made to HUDA against EDC. It was contended that no work or service was performed by HUDA in pursuance to any contract and there was complete absence of the Contractor - Contractee relationship. However, the Ld. JCIT did not find merit in the assessee’s contention and levied penalty under Section 271C of the Act amounting to Rs.6,14,460/- vide impugned order dated 29.01.2018.
4. Aggrieved by the impugned order passed by the JCIT, the assessee preferred appeal before the CIT(A). However the assessee did not get any relief from the CIT(A).
Further aggrieved, the assessee preferred appeal before the Tribunal.
We have carefully considered the rival submissions. The Assessing Officer/JCIT levied penalty of Rs.6,14,460/- under Section 271C for short deduction/non deduction of tax at source alleging default committed by the assessee under Section 194C on payment of External Development Charges (EDC) to Haryana Urban Development Authority (HUDA). With the assistance of the ld. counsel, we find that the Directorate of Town and Country Planning, Haryana (Haryana Government) has issued clarification on TDS deduction on EDC payments vide letter dated 19.06.2018 which is self explanatory and thus reproduced herein for ready reference:
“To The Chief Administrator, Haryana Shahari Vikas Pradhikaran, Panchkula, Memo No.DTCP/ACCTTS/Assessing Officer(HQ)/CAO/2894/2018 Date: 19.6.2018
Subject: Clarification on TDS Deductions on EDC Payments.
Please refer to the matter cited as subject above.
Section 2(g) of the Haryana Development and Regulation of Urban Areas Act, 1975 defines that external development works (hereinafter referred as EDW) shall includes any or all infrastructure development works like water supply, sewerage, drains, provisions of treatment and disposal of sewage, sullage and storm water, roads, electrical works, solid waste management and disposal, slaughter houses, colleges, hospitals, stadium/sports complex, fire stations, grid sub-stations etc. and/or any other work which the Director may specify to be executed in the periphery of or outside colony/area for the benefit of the colony/area. 2- As per Section 3(3)(ii), license holder has to pay proportionate development charges if the external development works as defined in clause (g) of section 2 are to be carried out by the Government or any other local authority. The proportion in which and the time within which, such payment is to be made, shall be determined by the Director.
Presently, external development works in the periphery of or outside colony/area for the benefit of the colony/area are being executed by Haryana Shahari Vikas Pradhikaran thereafter HSVP) which is the Development Authority or state Govt. Earlier upto 31.03.2017, Department of Town 8t Country Planning used to collect the external development charges from the colonizer to whom licences have been granted under Act No. 8 of 1975 and the persons to whom permission for change of land use have been granted under Act No. 41 of 1963, in the shape of bank draft drawn in favour of CA, HSVP and send the same to CA, HSVP.
As the receipt on account of EDC was not sufficient to carry out the all development works under EDC for the urban estate as per approved development plans, therefore to meet out the shortfall, a new scheme Swaran Jayanti Haryana Urban Infrastructure Development Scheme (renamed as Mangal Nagar Vikas Yojana was approved by the State Govt. and appropriate budget provision for execution of development works has been made in the said scheme. From Financial Year 2017-18, the receipts on account of EDC is being deposited in the consolidated fund of the State under Major Receipt Head-0217 receipts and all license/CLU holders have also been directed vide order dated 12.05,2017 that payment of EDC in respect of license/CLU granted by TCP Deptt. may be made online through e-payment gateway or in shape of demand drafts favouring Director, Town 6 Country Planning, Haryana. Required funds for execution of development works are released to HSVP after granting the sanction from the Finance Department.
It is, therefore, clarified that HSVP is only an executing agency for and on behalf of State Govt. for carrying out EDW for which funds are given to HSVP by the Govt. through TCP Deptt. Since, payment for EDC has been made to TCP Deptt. of State Govt., no TDS was/is to be deducted out of payment made to Govt. for EDW.
Accounts officer (HO) For: Director Town & Country Planning Haryana, Chandigarh
On the basis of the aforesaid clarification, the assessee contends that the payment to HUDA is, in effect, payment to State Government and therefore such payment is exempt from obligations to deduct TDS in view of Section 196 of the Act.
We also notice that identical issue has been examined by the Co-ordinate Bench in the case of Perfect Constech Pvt. Ltd. vs. Additional Commissioner of Income Tax in order dated 29.12.2020 wherein Co-ordinate Bench found that the provisions of Section 194C are not applicable on payments to agencies like HUDA on behalf of the State Government. The imposition of penalty under Section 271C was consequently found to be unsustainable in the absence of default of Section 194C of the Act.
The facts and issue being identical, in the light of the clarification noted above coupled with view taken by the Co- ordinate Bench in the identical facts situation, we see no reason to depart therefrom. Consequently, we find merit in the plea raised on behalf of the assessee for cancellation of penalty imposed under Section 271C of the Act.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 26/05/2022.