SWIFTRANS INTERNATIONAL PVT LTD vs. INCOME TAX OFFICER WARD 77 4 NEW DELHI & ORS.

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W.P.(C)/1615/2024HC DelhiDLHC01003904202421 March 2024Bench: HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV,HON'BLE MR. JUSTICE YASHWANT VARMA4 pages
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What did the High Court hold?

The High Court, following its judgment in Puri Constructions Private Limited, held that payments made for External Development Charges (EDC) to Haryana State Industrial and Infrastructure Development Corporation (HSIIDC) do not fall within the scope of Section 196 of the Income Tax Act, 1961. The court reasoned that Section 196 is concerned with payments made to a Government or an authority specified therein, and HSIIDC, despite state funding, is a distinct legal entity. The fact that EDC could be recovered as arrears of land revenue or that payments were made on the directives of the DTCP was considered immaterial. The court emphasized that the applicability of Section 196 is not determined by whether the amount has a statutory hue but by the category of entities to whom the payment is made. The court also found that payments made to HSIIDC would not fall within Section 196, as the income was placed in the hands and at the disposal of HSIIDC. Furthermore, the court reaffirmed the unambiguous legislative command of Section 194C, which mandates the payer to deduct tax from all payments made to a contractor, without granting discretion to the payer to examine the chargeability of the payment to tax. The court found that the Tribunal's decisions in Santur, Satya, Perfect Constech, and Spaze Tower, which relied on contractual obligations and directives from DTCP, were irrelevant for considering the applicability of Section 194C. The court set aside the impugned orders but left it open for the respondents to proceed in accordance with law and the observations in Puri Constructions.

What were the facts?

The petitioner, Swiftrans International Pvt Ltd, filed a writ petition challenging orders dated March 16, 2023, and October 31, 2023. The respondents, including the Income Tax Officer, had not filed a counter affidavit despite time granted. The High Court noted that the issue was governed by its previous judgment in Puri Constructions Private Limited v. Additional Commissioner of Income Tax & Ors. [2024 SCC OnLine Del 939]. This prior judgment dealt with the applicability of TDS provisions, specifically Section 196 and Section 194C of the Income Tax Act, concerning payments made for External Development Charges (EDC) to Haryana State Industrial and Infrastructure Development Corporation (HSIIDC). The court had examined whether such payments were to a Government or specified authority, or if they constituted payments to a contractor.

What were the issues?

1. Whether payments made for External Development Charges (EDC) to Haryana State Industrial and Infrastructure Development Corporation (HSIIDC) fall within the scope of Section 196 of the Income Tax Act, 1961, which exempts payments to a Government or specified authority from Tax Deducted at Source (TDS)? 2. Whether payments made for EDC to HSIIDC are subject to TDS under Section 194C of the Income Tax Act, 1961, as payments made to a contractor? Assessee's contentions (implied from the court's reliance on Puri Constructions): The assessee likely argued that payments for EDC were either to a government authority (making Section 196 applicable) or that TDS was not leviable under Section 194C due to the nature of the payment or the recipient's status. Revenue's contentions (implied from the court's reliance on Puri Constructions): The revenue likely contended that payments for EDC were not to a government or specified authority under Section 196, and that they constituted payments to a contractor exigible to TDS under Section 194C, irrespective of whether the amount was income or reimbursement.

Which sections of the Income-tax Act were involved?

Section 196,Section 194C

AI-generated summary — verify with the full judgment below

$~62 * IN THE HIGH COURT OF DELHI AT NEW DELHI + W.P.(C) 1615/2024 & CM APPL. 6679/2024 (interim relief)

SWIFTRANS INTERNATIONAL PVT LTD ..... Petitioner

Through: Mr. Sandeep Malik, Mr. Sanjay

Malik and Ms. Vartika Malik,

Advs.

Versus

INCOME TAX OFFICER WARD 77 4 NEW DELHI & ORS. ..... Respondents

Through: Mr. Sanjeev Menon, Jr.SC for

Mr. Zoheb Hossain, Sr.SC.

CORAM:

HON'BLE MR. JUSTICE YASHWANT VARMA

HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR

KAURAV

O R D E R %

21.03.2024

1.

Although we had granted time to the respondents to file a counter affidavit, no counter affidavit has been filed. 2. In any view, we note that the issue would be governed by the judgment rendered by us in Puri Constructions Private Limited v. Additional Commissioner of Income Tax & Ors. [2024 SCC OnLine Del 939]. 3. In Puri Constructions Private Limited, we had enunciated the legal position as under:- “72. In A.P. SRTC, the Supreme Court had held that a statutory corporation has a personality distinct and separate from that of the State or its shareholders. This would thus appear to lend credence to the stand of the respondents who had argued that even if HSVP be funded by the State Government, it would continue to remain a legal entity separate from the State Government. We are also unimpressed by the argument that since the payment was made on This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/03/2024 at 11:31:35

the directives of the DTCP, it should be treated as falling within the scope of Section 196 of the Act. It becomes pertinent to note that Section 196 is not dependent upon a directive to pay. It is concerned solely with whether the payment is made to a Government or an authority specified therein. Similarly, the fact that arrears of EDC could be recovered as arrears of land revenue is also wholly immaterial. Section 10A is merely a mode of recovery of EDC. Even if that provision were to elevate EDC to a statutory levy, the same would not be determinative of whether the payment falls within the scope of Section 196. The applicability of Section 196 is not liable to be answered on the basis of whether the amount has a statutory hue. The amount paid would be exempt from the rigours of TDS only if it is made to a category of entities specified therein.

73.

Ultimately, the question which warrants consideration is whether EDC was a payment to the State. This must necessarily be answered in the negative bearing in mind the undisputed fact that the income was placed in the hands and at the disposal of HSVP. We note that undisputedly at least till 31 March 2017 all EDC payments even as per the DTCP were being made out in favour of HSVP. It is only thereafter that EDC was deposited with the DTCP. This too leads us to the irresistible conclusion that the payments made to HSVP would not fall within Section 196.

74.

We also bear in mind the unambiguous legislative command of Section 194C which places the payer under the unshirkable obligation of deducting tax from all payments being made to a contractor. We have already noticed in the preceding parts of this decision that Section 194C of the Act vests no discretion in the payer to examine or contemplate chargeability of that payment to tax. We, in this connection, note the following pertinent observations as rendered by the Supreme Court in Associated Cement Co. Ltd. v. Commissioner of Income Tax.

“7. The above decision cannot be of any help to the appellant for it does not lay down that the percentage amount deductible under Section 194-C(1) should be out of the income of the contractor from the sum or sums credited to the account of or paid to him. The words in the sub-section „on income comprised therein‟ appearing immediately after the words „deduct an amount equal to two per cent of such sum as income tax‟ from their purport, cannot be understood as the percentage amount deductible from the income of the contractor out of the This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/03/2024 at 11:31:35

sum credited to his account or paid to him in pursuance of the contract. Moreover, the concluding part of the sub- section requiring deduction of an amount equal to two per cent of such sum as income tax, by use of the words „on income comprised therein‟ makes it obvious that the amount equal to two per cent of the sum required to be deducted is a deduction at source. Indeed, it is neither possible nor permissible to the payer to determine what part of the amount paid by him to the contractor constitutes the income of the latter. It is not also possible to think that the Parliament could have intended to cast such impossible burden upon the payer nor could it be attributed with the intention of enacting such an impractical and unworkable provision. Hence, on the express language employed in the sub-section, it is impossible to hold that the amount of two per cent required to be deducted by the payer out of the sum credited to the account of or paid to the contractor has to be confined to his income component out of that sum. There is also nothing in the language of the sub-section which permits exclusion of an amount paid on behalf of the organisation to the contractor according to Clause 13 of the terms and conditions of the contract in reimbursement of the amount paid by him to workers, from the sum envisaged”

75.

We thus find ourselves unable to sustain the challenge as raised.

76.

In light of the foregoing discussion and for reasons set out hereinabove, we find ourselves unable to concur with the view taken by the Tribunal in Santur, Satya, Perfect Constech and Spaze Tower. Those decisions have proceeded on the basis of a contractual obligation between the petitioner and HSVP being a prerequisite. They have additionally based their decision on the fact that HSVP was undertaking external development work on the directives of the DTCP. These, for reasons recorded hereinabove, were factors wholly irrelevant for the purposes of considering the applicability of Section 194C.

77.

That only leaves to consider some of the supplemental questions which were raised and which included the Show Cause Notices not specifically adverting to the specific provision contained in Chapter XVIIB and in terms of which the petitioners were held liable to deduct tax. We, in this regard, also bear in consideration the two earlier rounds of This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/03/2024 at 11:31:35

litigation when in the first instance the respondents had sought to hold the petitioners liable to deduct tax under Section 194 in the case of BPTP and subsequently under Section 194I as is evident from the judgment rendered in DLF Homes Panchkula.” [Emphasis supplied]

4.

In view of the aforesaid, while we set aside the impugned orders dated 16 March 2023 and 31 October 2023, we leave it open to the respondents to proceed further in accordance with law and the observations as rendered in Puri Constructions Private Limited. 5. The petition is disposed of.

YASHWANT VARMA, J.

PURUSHAINDRA KUMAR KAURAV, J. MARCH 21, 2024/p

This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 28/03/2024 at 11:31:35

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