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Facts
The assessee, a developer, entered into a development agreement with Shri Premal Dayalal Doshi, who held leasehold rights. The assessee deducted TDS at 1% under Section 194IA. The AO held that TDS should have been deducted at 10% under Section 194IC for a 'Specified Agreement' and levied tax and interest.
Held
The Tribunal held that the definition of 'Specified Agreement' under Section 45(5A) and the legislative intent behind Section 194IC are broad enough to include agreements with leasehold right holders. However, the case was remitted to the AO to verify if the payee offered the income for taxation and to re-compute interest.
Key Issues
Whether the leasehold rights holder's agreement falls under 'Specified Agreement' for TDS under Section 194IC? Whether the assessee can claim relief under the proviso to Section 201(1) if the payee has already paid tax?
Sections Cited
250, 201, 201(1), 201(1A), 194IC, 133A(2A), 194IA, 45(5A), 45, 49, 194C
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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: JUSTICE (RETD.) C V BHADANG&
Appellant) : Respondent) : Shri Rakesh Joshi, AR Assessee / Appellant by Revenue / Respondent by : Shri Swapnil Choudhary, Sr. DR Date of Hearing : 16.09.2025 Date of Pronouncement : 10.10.2025 O R D E R 2314, 2315 & 2316/Mum/2025 M/s Sugee Seven Developers LLP Per Padmavathy S, AM: These appeals by the assessee are against the separate orders of the Commissioner of Income Tax (Appeals) / ADGL/JCIT(A)-1, Hyderabad [In short FAA'] passed under section 250 of the Income Tax Act, 1961 (the Act) all dated 24.02.2025 for Assessment Years (AY) 2020-21 to 2023-24. Common issue contended in these appeals is with regard to levy of tax and interest under section 201(1) / (1A) due to alleged short deduction of TDS under section 194IC of the Act.
The assessee is a limited liability partnership firm engaged in the business of development and construction of real estate project and redevelopment of old residential building. A survey action under section 133A(2A) was undertaken in 27 entities of M/s Sugee Group including the assessee on 12.03.2024. During the course of survey various details and information related to the various real estate projects were called for in order to verify the compliance with regard to the issue of tax deduction under section 194IC. On verification of the documents the AO noticed that the assessee has entered into a development agreement with Shri Premal Dayalal Doshi who was the alleged owner of land on which the building known as Zaver Vihar was constructed. As per the agreement it is noticed by the AO that the owner has allowed the assessee to develop/ construct new buildings and to sell out saleable area to the prospective buyers and the owner was entitled to a share of area out of the total constructed area in the new building. The AO further noticed that the owner was also entitled to receive a certain sum of cash / monetary consideration as per the agreement. The AO also noticed that the assessee has paid the following amounts to Shri Premal Dayalal Doshi during the years under consideration on which the assessee has deducted TDS at 1% as per the provisions of section 194IA of the Act.
Assessment Year Amount Paid (in Rs.) 2020-21 3,10,00,000/- 2021-22 55,00,000/- 2022-23 2,90,00,000/- 2023-24 3,96,00,000/- 3. The AO was of the view that the assessee should have deducted TDS under section 194IC at 10% since the payment is made as per "Specified Agreement" and the AO issued a show-cause notice to the assessee in this regard. The assessee submitted before the AO that Shri Premal Dayalal Doshi is holding only the lease rights and not the owner and therefore the payment made cannot be considered as made under "Specified Agreement" since the term is applicable only to the person owning land or building or home. Without prejudice the assessee submitted that Shri Premal Dayalal Doshi has declared the Capital Gain and paid tax on the same and therefore as per the proviso to section 201 the assessee cannot be treated as assessee in default. The AO in this regard called on the assessee to furnish Form 26A and since the assessee could not provide the same rejected the said contention of the assessee. The AO did not accept the submissions of the assessee regarding the ownership and proceeded to levy tax under section 201 and 201(1A) for the differential tax of 9%. Before the FAA the assessee raised the contention that section 194IC is not applicable to the assessee and also that the assessee is covered under the proviso to section 201(1). The assessee furnished the details of Capital Gain declared by Shri Premal Dayalal Doshi in this regard. The FAA however did not accept the submissions stating that “This acknowledgment without submitting the computation of income and other details such as inclusion of the payment made by the appellant in deductee's return and making of payments of taxes thereof and certificate from the CA concerned is of no use to the appellant as it has not followed the proviso to the section 201 to claim relief there.
Thus, the case of the appellant fails on both the counts. In other words, the appellant would have deducted TDS @ 10 percent under the specific provision for JDA u/s 194IC rather than general section 194C and failed to fit its case in the proviso to the section 201 and therefore, appellant is deemed to be assessee in default. Accordingly, all the grounds are rejected.”
Aggrieved the assessee is in appeal before the Tribunal. The ld. AR at the outset submitted that the definition of "Specified Agreement" as contained in section 45(5A) states that the term means a registered agreement in which a person owning land or building or both agrees to allow another person to develop a real estate project on such land or building or both in consideration of a share being land or building or both in such projects whether with or without payment of part of the consideration in cash. The ld. AR therefore submitted that the ownership of the land / building / both is the criteria which need to be considered for applicability of section 194IC. The ld. AR drew our attention to the relevant clauses in the Joint Development Agreement where it has been stated that Shri Premal Dayalal Doshi has acquired the leasehold right, title and interest in the said property and therefore he is not the owner of the land. Without prejudice the ld. AR argued that the payee Shri Premal Dayalal Doshi has already included the payment as his income and therefore as per the proviso to section 201(1) the assessee cannot be treated as assessee in default. The ld. AR further submitted that the assessee could not furnished the Form 26A before the AO for the reason that Shri Premal Dayalal Doshi has declared the receipts as income based on the Completion Certificate in AY 2024-25. The ld. AR also argued that the lower authorities should have considered the fact that the payee has paid tax on the impugned income and accordingly should not have levied tax and interest under section 201(1)/(1A).
We heard the parties and perused the material on record. During the course of survey the AO noticed that the assessee has deducted TDS at 1% on payments made to Shri Premal Dayalal Doshi and called on the assessee to show cause why the TDS under section 194IC as per which the tax should have been deducted at 10% is not applicable in the present case. The assessee contended that Shri Premal Dayalal Doshi is holding only a lease hold right which does not fall within the definition of specified agreement under section 45(5A) and there the TDS was deducted under section 194IA @ 1%. Without prejudice the assessee submitted that the impugned payments have already been included as income by Shri Premal Dayalal Doshi and taxes have been duly paid. The AO did not accept the contention regarding ownership and for the reason that the assessee could not submit Form 26A proceeded to levy tax and interest under section 201(1)/(1A) for the differential TDS of 9%. The CIT(A) upheld the order of the AO. The revenue's contention is that the TDS should have deducted at 10% under section 194IC since the payments are made under specified agreement by the assessee. The assessee's contention is that the provisions of section 194IC is not applicable since the term specified agreement includes only those agreements entered into with the owner and the assessee's agreement is with person holding only lease hold rights. Before proceeding further we will look at the definition of specified agreement under section 45(5A) of the Act which reads as under – "specified agreement" means a registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash.
2314, 2315 & 2316/Mum/2025 M/s Sugee Seven Developers LLP 7. Subsection (5A) was introduced by Finance Act 2017 and it is relevant to look at the Memorandum explaining the intention behind introducing the said sub- clause and the consequential amendment in section 49 and introduction of section 194IC – Special provisions for computation of capital gains in case of joint development agreement Under the existing provisions of section 45, capital gain is chargeable to tax in the year in which transfer takes place except in certain cases. The definition of 'transfer', inter alia, includes any arrangement or transaction where any rights are handed over in execution of part performance of contract, even though the legal title has not been transferred. In such a scenario, execution of Joint Development Agreement between the owner of immovable property and the developer triggers the capital gains tax liability in the hands of the owner in the year in which the possession of immovable property is handed over to the developer for development of a project. With a view to minimise the genuine hardship which the owner of land may face in paying capital gains tax in the year of transfer, it is proposed to insert a new sub-section (5A) in section 45 so as to provide that in case of an assessee being individual or Hindu undivided family, who enters into a specified agreement for development of a project, the capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority. It is further proposed to provide that the stamp duty value of his share, being land or building or both, in the project on the date of issuing of said certificate of completion as increased by any monetary consideration received, if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. It is also proposed to provide that benefit of this proposed regime shall not apply to an assessee who transfers his share in the project to any other person on or before the date of issue of said certificate of completion. It is also proposed to provide that in such a situation, the capital gains as determined under general provisions of the Act shall be deemed to be the income of the previous year in which such transfer took place and shall be computed as per provisions of the Act without taking into account this proposed provisions.
2314, 2315 & 2316/Mum/2025 M/s Sugee Seven Developers LLP It is also proposed to define the following expressions "competent authority", "specified agreement" and "stamp duty value" for this purpose. It is also proposed to make consequential amendment in section 49 so as to provide that the cost of acquisition of the share in the project being land or building or both, in the hands of the land owner shall be the amount which is deemed as full value of consideration under the said proposed provision. These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years. It is also proposed to insert a new section 194-IC in the Act so as to provide that in case any monetary consideration is payable under the specified agreement, tax at the rate of ten per cent shall be deductible from such payment. This amendment will take effect from 1st April,2017.
From the perusal of the above it is clear that the legislative intention to introduce to sub section (5A) was to define the year of taxability for transfers under a JDA to minimise the genuine hardship of the assessee who may face capital gains in the year of transfer i.e. year of entering into JDA. If the narrower interpretation as contented by the assessee is to be accepted then it would lead to anomaly that transfer by the lease hold right owner under JDA would go out of the tax net as the transferor is not the owner as mentioned in the definition of specified agreement. Therefore in our considered view the interpretation as argued by the ld AR cannot be accepted since the legislative intent behind introduction of subsection (5A) is to ease the tax burden on the assessee and such beneficial provision if interpreted as not applicable to transferor holding leasehold rights who has transferred under the JDA would go against the legislative intent. Further from the perusal of the JDA entered into by the assessee with Shri Premal Dayalal Doshi, we notice that the land has been given on perpetual lease in the year 1938 since then the land has been held by various persons and Shri Premal Dayalal 2314, 2315 & 2316/Mum/2025 M/s Sugee Seven Developers LLP Doshi has acquired the land along with the conditions as prescribed for the perpetual lease. We also notice that Shri Premal Dayalal Doshi is holding the right to give the land for development and is entitled to receive consideration in monetary as well non-monetary form. Given these facts and the legislative intent as already discussed we are unable to agree with the submission that in the present case, the provisions of section 194IC is not applicable.
Now coming to the alternate contention of the assessee, it is the claim of the assessee that Shri Premal Dayalal Doshi has paid capital gains on the transfer under the JDA. We notice that since the assessee could not produce the evidences and Form 26A that the FAA did not accept the submissions of the assessee. With regard to the alternate plea that assessee cannot be treated as assessee in default on this ground, we notice that the ITR for AY 2024-25 filed by Shri Premal Dayalal Doshi is submitted by the ld AR (page 45 of the paper book). The ld AR submitted that the income includes the capital gains since the completion certificate was obtained during the said AY. However before us no new material is brought on record to substantiate that the income offered in AY 2024-25 includes capital gains. We notice in this regard that the FAA has upheld the order of the AO for the same reason that the assessee did not submit any details in this regard. Therefore we are remitting the appeal back to AO with a direction to verify the claim of the assessee that Shri Premal Dayalal Doshi has offered the impugned payments to tax in AY 2024-25. The AO is further directed to allow the claim if supported by evidences as may be submitted by the assessee and not to deny the claim on the ground that Form 26A has not been filed for the years under consideration taking into account the facts peculiar to the present appeals. The AO is also directed to re-compute the interest under subsection (1A) of section 201 as per the proviso to the said sub section for AY 2020-21 to 2023-24. The assessee is directed file the 2314, 2315 & 2316/Mum/2025 M/s Sugee Seven Developers LLP relevant details in support of the claim and co-operate with assessment proceedings. It is ordered accordingly.
In result appeals of the assessee for AY 2020-21 to 2023-24 are partly allowed. Order pronounced in the open court on 10-10-2025. Sd/- Sd/- (JUSTICE (RETD.) C.V. BHADANG) (PADMAVATHY S) President Accountant Member *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT BY ORDER,