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Facts
The Revenue challenged the CIT(A)'s order, which deleted the tax and interest levied on the assessee for failing to deduct TDS under Section 194-IC. The assessee, a real estate developer, paid compensation to tenants for alternative accommodation during redevelopment. The AO held this compensation was rent and attracted TDS, while the assessee contended it was hardship compensation not liable for TDS.
Held
The Tribunal held that the compensation paid for alternative accommodation/hardship allowance is not a 'consideration' under the specified agreement as per Section 45(5A) and thus does not fall within the purview of Section 194-IC of the Income Tax Act. Therefore, the assessee is not in default for non-deduction of TDS.
Key Issues
Whether payments made as compensation for alternative accommodation/hardship during redevelopment are considered 'rent' or 'consideration' attracting TDS under Section 194-IC of the Income Tax Act.
Sections Cited
194, 1941, 194T, 4S(SA), 194IC, 45(SA), 201(1), 201(1A), 133A(2A), 45(5A), 194-1A
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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI B R BASKARANSHRI SANDEEP SINGH KARHAIL
Date of Hearing – 28/01/2025 Date of Order - 30/01/2025
O R D E R PER SANDEEP SINGH KARHAIL, J.M.
The present appeals have been filed by the Revenue challenging the common impugned order dated 25.09.2024 passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals)-48, Mumbai [“learned CIT(A)”], for the Assessment Years 2018-19 and 2019-20.
Since both the appeals involve similar issue arising out of a similar factual matrix, therefore, as a matter of convenience both appeals were ITAs No.6334 & 6328-Mum-2024 2 heard together and are being decided by way of this consolidated order. Since in both appeals, the Revenue has raised similar grounds, the grounds raised
by the Revenue in A.Y. 2018-19 are reproduced as follows for ready reference: - “1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) is justified in holding that the payments made by the assessee company of Rs.2,28,88,500/- as compensation paid towards alternative accommodation not being in the nature of rent as defined in section 1941 of the Income Tax Act, 1961, there was no requirement of deduction of tax under the said provision, rent towards compensation for alternate accommodation cannot be treated as payments towards rent within the meaning of section 1941 of the Act and thus would not make these payments liable for TDS w/s. 194T of the Act.
2. Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) failed to appreciate the fact that by virtue of development agreement entered into by 'Jankalyan Sahakari Grahnirman Sanstha', it was liable to provide each of the members rent as compensation which is clear rental compensation; it was a joint agreement and when the agreement itself was very clear and uses the term rental compensation, there was no scope available with assessee to interpret the compensation as hardship compensation.
3. Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) failed to appreciate the fact that the development agreement executed by the assessee is a specified agreement as per the provisions of section 4S(SA) of the Income Tax Act, 1961, as the agreement clearly shows the monthly rent payable by the assessee to the Tenants /Occupants/Owners/Members and thus TDS on such payment is attracted as per section 194IC of the Income Tax Act, 1961.
4. Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) failed to appreciate the fact that with effect from 01.04.2017 section 194|C has been inserted in the Income Tax Act wherein even if it is accepted that the payments made by assessee to members of the society are not rent but hardship allowance then also TDS obligations get fastened by virtue of said section 194IC of the Act.”
The only issue arising for our consideration is whether the assessee is liable to deduct tax under section 194-IC of the Act on payment of compensation towards alternative accommodation.
ITAs No.6334 & 6328-Mum-2024 3
The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a real estate developer and is engaged in the business of development and construction. A survey action for TDS verification under section 133A(2A) of the Act was conducted in the case of the assessee. During the survey proceedings, it was found that the assessee has booked expenses amounting to Rs.2,28,88,500/- under the head ‘Rent to Tenant SRA’ in its profit and loss account for the year under consideration. During the survey proceedings, the assessee was asked whether TDS has been deducted on rent paid to tenant. In response, the assessee submitted that it has not deducted TDS on rent paid to the tenant. Accordingly, notice under section 201(1)/201(1A) of the Act was issued to the assessee requesting it to furnish the details of payment made along with rental agreements, TDS return filed and challan etc. In response, the assessee submitted that the persons to whom compensation have been paid are from the low-income class who do not have any source of income and have very limited sources to generate income which is not liable to tax under the Act and as per practice, no one deducts TDS on such payments. The assessee further submitted that it is in the redevelopment business and accordingly, it enters into a redevelopment agreement wherein rent is given to the occupant, during the construction period, to compensate for the hardship caused by displacement from the accommodation.
The AO (TDS) vide order dated 25.03.2021 passed under section 201(1)/201(1A) of the Act disagreed with the submission of the assessee and held that by virtue of the development agreement entered into by the ITAs No.6334 & 6328-Mum-2024 4 assessee with the occupants of the building under redevelopment, the assessee is liable to provide each occupant rent as compensation which is clearly rental compensation to enable them to procure temporary accommodation elsewhere. As regards the contention of the assessee that the payment made does not fall within the ambit of the provisions of section 194- I of the Act, the AO (TDS) held that w.e.f. 01.04.2017, section 194-IC has been inserted in the Act, whereby the assessee is liable to deduct TDS on payment made as compensation for rent. Accordingly, the AO (TDS) held that the assessee clearly falls within the ambit of the provisions of section 194-IC of the Act and was required to deduct TDS @ 10%. Accordingly, it was held that the assessee is an assessee in default within the meaning of section 201(1)/201(1A) of the Act due to failure to deduct TDS under section 194-IC of the Act.
The learned CIT(A), vide impugned order, allowed the appeal filed by the assessee and deleted the tax and interest levied under section 201(1)/201(1A) of the Act by following the decision of Hon’ble Jurisdictional High Court in Sarfaraz S. Furniturewalla vs. Afshan Sharfali Ashok in Writ Petition No. 4958/2024 and the decision of the Co-ordinate Bench of the Tribunal in Nathani Parekh Constructions Pvt. Ltd. vs. ITO in and 4171/Mum/2023. Being aggrieved, the Revenue is in appeal before us.
During the hearing, the learned Departmental Representative (“learned DR”) by referring to the provisions of section 194-IC of the Act submitted that the development agreement entered into by the assessee with the occupants of the building falls under section 45(5A) of the Act, and therefore, the ITAs No.6334 & 6328-Mum-2024 5 assessee was liable to deduct TDS under section 194-IC of the Act. The learned DR submitted that as the assessee failed to do so, tax and interest were rightly levied by the AO(TDS) under section 201(1) and section 201(1A) of the Act.
On the contrary, the learned Authorized Representative submitted that the issue under consideration is covered in favour of the assessee by the decision of the Co-ordinate Bench in Nathani Parekh Constructions Pvt. Ltd. (supra).
We have considered the submissions of both sides and perused the material available on record. In the present case, there is no dispute regarding the fact that during the year under consideration under the development agreement entered into by the assessee with Jankalyan Sahakari Grahnirman Sanstha, the assessee paid rent per month to the tenants/occupants/owners/members of the aforesaid society as monthly compensation in lieu of temporary alternate accommodation for acquiring development rights from the tenants/occupants/owners/members for vacating and handing over the existing premises to the assessee. We find that it was further agreed under the agreement that such payment shall not be made to the tenants/occupants/owners/members if they shift to their own premises elsewhere. Thus, from the perusal of the record, it is evident that the compensation was paid for the alternative accommodation due to the disposition of the occupants from the property under development. As per Revenue, the compensation which is in the nature of hardship compensation was paid by the assessee without deducting TDS under section 194-IC of the ITAs No.6334 & 6328-Mum-2024 6 Act and thus the assessee is assessee in default within the meaning of section 201(1)/201(1A) of the Act.
10. We find that a similar issue came up for consideration before the Co- ordinate Bench of Tribunal in Nathani Parekh Construction Pvt. Ltd. (supra), wherein while deciding the issue in favour of the taxpayer the Co-ordinate Bench of the Tribunal vide order dated 11.07.2024 held that alternate accommodation charges/rent cannot be treated as consideration paid as part of share in land and building or both under the specified agreement and therefore, would not fall within the provisions of section 194-IC of the Act. The relevant findings of the Co-ordinate Bench, in the aforesaid decision, are reproduced as follows: -
“6. The assessee is in appeal against the order of the CIT(A) before the Tribunal. The common issue arising out of the various grounds raised by the assessee is whether the payment made by the assessee to the tenants of M/s Dalal Estate Co-operative Housing Society Ltd. towards alternate accommodation charges/hardship allowance/rent are liable for tax deduction under section 194IC of the Act.
7. The Id. AR submitted that the provisions of section 45(5A) talks about the consideration paid towards transfer of a capital asset and that in assessee's case the alternate accommodation charges are not paid towards transfer of capital asset. The Id AR further submitted that the impugned payments are not consideration received within the meaning of section 45 and that the same is a capital receipt not chargeable to tax as has been held by the Hon'ble Jurisdictional High Court. The Id. AR also submitted that the tenant who is the recipient of the amount is not the owner of the land and is party of the re- development agreement in the capacity as a tenant/member and therefore the AO is not correct in holding that the payment would attract TDS under section 194IC.
8. The Id DR on the other hand vehemently argued that for the purpose of section 194IC, the provisions of section 45(5A) should be applied to the limited extend of "any payments done under the specified agreement". Accordingly the Id DR submitted that the impugned payments which are made as part of the re-development agreement entered into by the assessee with the tenants would attract tax deduction under section 194IC. Thus the Id DR supported the order of the CIT(A).
ITAs No.6334 & 6328-Mum-2024 7
9. We heard the parties and perusal the materials on record. We notice that the assessee has entered into redevelopment agreement dated 30.07.2007 for the development with M/s. Dalal Estate Cooperative Housing Society Ltd. As per the terms of the agreement the assessee agreed to pay a fixed sum per Sq.ft for the temporary alternate accommodation to each of the tenants for the reason that the existing property is to be demolished for re- development. From the terms of the said agreement it is clear that the impugned payment made is in the nature of compensation towards hardship the tenants would have to undergo in order to handover the vacant possession of the property for demolition and towards the alternate accommodation charges which the tenant has to bear during the time of re-development. From the observations of the CIT(A) as extracted in the earlier part of this order, the contention of the revenue is that as per section 194IC any sum paid by any person under the specified agreement referred to in section 45(5A) shall be subjected to TDS at the rate of 10% and that since the compensation towards hardship is paid as per specified agreement the TDS provisions under section 194IC is applicable in assessee's case. Therefore before proceeding further we will first look at the relevant provisions of Section 45(5A) and Section 194IC. "45(5A) Notwithstanding anything contained in sub-section (1), where the capital gain arises to an assessee, being an individual or a Hindu undivided family, from the transfer of a capital asset, being land or building or both. under a specified agreement, 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; and for the purposes of section 48, the stamp duty value, on the date of issue of the said certificate, of his share, being land or building or both in the project, as increased by [the consideration received in cash, 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: Provided that the provisions of this sub-section shall not apply where the assessee transfers his share in the project on or before the date of issue of the said certificate of completion, and the capital gains shall be deemed to be the income of the previous year in which such transfer takes place and the provisions of this Act, other than the provisions of this sub-section, shall apply for the purpose of determination of full value of consideration received or accruing as a result of such transfer. Explanation.—For the purposes of this sub-section, the expression — (i) "competent authority" means the authority empowered to approve the building plan by or under any law for the time being in force; (ii) "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; (iii) "stamp duty value" means the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of an immovable property being land or building or both." 194-IC. Notwithstanding anything contained in section 194-1A, any person responsible for paving to a resident any sum by way of consideration, not being consideration in kind, under the agreement referred to in sub-section (SA) of ITAs No.6334 & 6328-Mum-2024 8 section 45, shall at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax thereon.
Accordingly the provisions section 194IC of the Act would get attracted at the time of credit / payment of any sum by way of consideration under the specified agreement as defined under section 45(SA). Therefore the question here is whether the alternate accommodation/hardship allowance paid by the assessee is a sum by way of consideration under the specified agreement as claimed by the revenue. The term "consideration" is not specifically defined for the purpose of section 194IC, and its meaning has to be inferred from the definition of the term "specified agreement" as extracted above. As per the definition, it is the agreement entered into between the owner and the developer allowing the developer to develop the real estate project in consideration of share in the land or building or both in such project, with or without payment of part of the consideration in cash. Therefore in our considered view any sum paid under the specified agreement, to be treated as a "consideration" should have been paid as part of a share in the land or building or both including cash payments. In the given case, the payment towards alternate accommodation/hardship allowance is in the nature of a compensation paid by the developer towards hardship suffered by the owner/ tenant due to dispossession and is not paid as part of a share in the land or building or both. The terms of the agreement in assessee's case makes it clear that the payment is made towards compensation for handing over the vacant possession of the property and towards rent if any payable by the tenants in the alternate accommodation until the completion of the re-development. Therefore we are of the view that the "Alternate accommodation charges / rent" cannot be treated as a consideration paid as part of a share in the land or building or both under the specified agreement, and would not fall within the provisions of section 194IC. Accordingly we hold that the assessee cannot be treated as an assessee in default for non-deduction and non-payment of TDS under section 194IC of the Act and we set aside the order of the AO passed in this regard.”
Since the issue under consideration has already been adjudicated by the Co-ordinate Bench in the decision cited supra, which has rightly been followed by the learned CIT(A) in deleting the tax and interest levied under section 201(1) and section 201(1A) of the Act, we find no infirmity in the impugned order passed by the learned CIT(A) and the same is upheld. Accordingly, grounds raised by the Revenue in its appeal for the Assessment Year 2018-19 are dismissed.
ITAs No.6334 & 6328-Mum-2024 9
Since in the appeal for the Assessment Year 2019-20, the Revenue has raised a similar issue, our findings/conclusions as rendered in the appeal for Assessment Year 2018-19 shall apply mutatis mutandis. Accordingly, the grounds raised by the Revenue in its appeal for the Assessment Year 2019-20 are dismissed.
In the result, both appeals by the Revenue are dismissed. Order pronounced in the open Court on 30/01/2025