Loading judgment…
Facts
The appeals were filed by the assessee against the orders of the CIT(A) which upheld the AO's order treating the assessee in default for non-deduction of TDS on External Development Charges (EDC). The assessee argued that EDC payments were not covered under Section 194I or 194C of the Act.
Held
The Tribunal, following the Delhi High Court's decision in DLF Homes Panchkula Pvt. Ltd. and CBDT memorandum, held that TDS u/s 194C of the Act was deductible on EDC payments. For AY 2017-18, the appeal was allowed. For subsequent years, the matters were remanded to the AO to verify if conditions in the first proviso to Section 201(1) of the Act were fulfilled.
Key Issues
Whether the External Development Charges (EDC) paid by the assessee are subject to TDS under Section 194C of the Income Tax Act, and if not deducted, whether the assessee is liable for consequences under Section 201(1)/201(1A).
Sections Cited
201(1), 201(1A), 194I, 194C, 196, 139
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “E” BENCH, DELHI
Before: SHRI S RIFAUR RAHMAN & SHRI ANUBHAV SHARMA
ITA No. & Ld. FAA who Appeal No. & Date of order AO who passed the AY passed the appellate of the Ld. FAA assessment order & order Date of order 5431/D/24 CIT(A)-3, Gurgaon Appeal No: 11804/2016-17 JCIT(OSD) TDS 2017-18 Dated 28.06.2024 Circle, Gurgaon Dated 22.04.2022 5432/D/24 CIT(A)-3, Gurgaon Appeal No: 10713/2017-18 JCIT(OSD) TDS 2018-19 Dated 28.06.2024 Circle, Gurgaon Dated 22.04.2022 5433/D/24 CIT(A)-3, Gurgaon Appeal No: 10953/2018-19 JCIT(OSD) TDS 2019-20 Dated 28.06.2024 Circle, Gurgaon Dated 22.04.2022 5434/D/24 CIT(A)-3, Gurgaon Appeal No: 10071/2020-21 JCIT(OSD) TDS 2021-22 Dated 28.06.2024 Circle, Gurgaon Dated 26.04.2022 5660/D/24 CIT(A)-3, Gurgaon Appeal No: 10816/2019-20 JCIT(OSD) TDS 2020-21 Dated 28.06.2024 Circle, Gurgaon Dated 22.04.2022
The cases were heard together as they involved common question of law and facts, therefore, they are being adjudicated together. The appellant company is engaged in the business of real estate development and during the year under consideration appellant deposited External Development Charges (EDC) without deduction of TDS. A survey was conducted at the premises of P a g e | 3 5 Appeals to 5434 & 5660/Del/2024 M/s M3M India Pvt. Ltd. (AY: 2017-18 to 2021-22) appellant on 28.12.2021 followed by issuance of show cause notice u/s 201(1)/201(1A) of the Act. Pursuant to these proceedings the impugned orders were passed on 22.04.2022 treating appellant as an assessee in default for non-deduction of TDS on EDC payments u/s 194I of the Act in AY:
2017-18 and u/s 194C in AY: 2018-19 to 2021-22. The assessee has failed before the Ld. CIT(A) for which is in appeal before this Tribunal.
AY: 2017-18 ld. Counsel has relied the decision of Hon’ble Delhi High Court in DLF Homes Panchkula Pvt. Ltd. v. Joint CIT [2023] 459 ITR 773 (Del) in which SLP of Revenue stands dismissed to contend that in any case provision of Section 194I of the Act are not applicable.
Though ld. DR has relied the decision of Hon’ble Delhi High Court in the case of Puri Constructions Pvt. Ltd. vs. Addl. CIT &Ors. (2024) 462 1TR 326) to contend that EDC payments are liable for TDS.
However, what is relevant is that in the impugned assessment order dated 22.04.2022 for Financial Year 2016-17 the assessing officer has reproduced in para 3 the copy of show cause notice issued to the assessee and invoked provision of Section 194I of the Act. At the same time without
P a g e | 4 5 Appeals to 5434 & 5660/Del/2024 M/s M3M India Pvt. Ltd. (AY: 2017-18 to 2021-22) prejudice invoked provision of Section 194C of the Act to hold assessee in default but ultimately after taking into consideration the reply of the assessee held assessee to be in default for non-deduction of TDS u/s 194I of the Act only and the default of Rs.111,96,473/- was calculated. The same stands sustained by Ld. CIT(A) by the impugned order dated 28.06.2024 but considering assessee to be in default for non-deduction of TDS u/s 194C of the Act.
Ld. DR has submitted that merely mentioning of wrong section in the assessment order has not prejudiced the assessee and ld. CIT(A) has duly taken into consideration the applicability of Section 194C of the Act instead of Section 194I of the Act.
However, this very aspect has been taken into consideration by a Coordinate Bench in the case of M/s Cogent Realtors Pvt. Ltd. & 1657/Del/2025 for AY:2014-15 & 2015-16 and by order dated 31.10.2025 the Bench has held as follows:
“6. We are also of considered view that department cannot call for an advantage by citing multiple provisions in show cause and which are not finally invoked for fasting the tax liability. The impugned orders very categorically show that provisions of Section 1941 of the Act have been invoked to hold assessee in P a g e | 5 5 Appeals to 5434 & 5660/Del/2024 M/s M3M India Pvt. Ltd. (AY: 2017-18 to 2021-22) default. Now, a with regard to applicability of section 1941 of the Act there seems to be no doubt that the same is not applicable in regard to EDC Charges paid to HUDA as held by Hon'ble Delhi High Court in the case of DLF Home Panchkula Pvt. Ltd. vs JCIT (OSD) (supra). Therefore, in the light of the aforesaid, we inclined to sustain the grounds of appeal no.4 with its sub grounds and the appeals are allowed.”
In the light of aforesaid circumstances appeal of assesse for AY: 2017-18 deserves to be allowed and accordingly ordered. to 5434 & 5660/Del/2024 for AYs: 2018-19 to 2021- 22 ld. counsel has submitted that prior to Financial Year 2017-18 the payment of EDC was made to the Director, Town and Country Planning Haryana (DTCP) who subsequently remitted the collected amount to the Haryana Urban Development Authority (HUDA). However, starting from Financial Year 2017-18 due to new scheme of “Swaran Jayanti Haryana Urban Infrastructure Development Scheme” significant change was implemented and the receipt on account of EDC were required to be deposited in consolidated fund of Haryana Major Head -0217 receipts.
License/CLU holders were directed to make EDC payments online through e-
P a g e | 6 5 Appeals to 5434 & 5660/Del/2024 M/s M3M India Pvt. Ltd. (AY: 2017-18 to 2021-22) payment gateway under receipt head 0217-60-800-51-51. In this regard, the Government of Haryana DTCP letter dated 12.05.2017 was relied and placed before us. It was also submitted that specifically the clarification were issued by the Government of Haryana that EDC are made directly to the consolidated fund of Haryana and HUDA/HSVP is only an executing agency for and on behalf of Haryana.
We find that these aspects have been taken into consideration by ld. CIT(A) and para 5 to 6.6 in AY: 2018-19 has dealt as follows:
“5. The appellant submitted during the appellate proceedings that EDC is a statutory obligation levied by the State Government of Haryana in terms of section 3(3)(a)(ii) read with section 2(g) of the HDRUA Act, payment of which is an essential pre-condition for carrying out urban development work by any colonizer/ developer in the State, and same does not partake the character of payment under any contract, or involve any reciprocal obligation from the payee; accordingly, since payment of EDC is not covered within the provisions of section 194l of the Act, no tax is required to be withheld there from. Further, the DCP vide letter dated 19.06.2018 has clarified that HUDA (now known as Haryana ShahriVikasPradhikaran) is only an executing agency working for and on behalf of the State Government established for carrying out External Development Works for which funds are given to HSVP by the Government through DCP. DCP further clarified that the receipts on account of EDC is deposited in the consolidated fund of the State Government under 'Major Receipt Head-0217' and therefore, no TDS is required to be deducted from the EDC paid to HSVP on behalf of the State Government for carrying out External Development Works.
P a g e | 7 5 Appeals to 5434 & 5660/Del/2024 M/s M3M India Pvt. Ltd. (AY: 2017-18 to 2021-22)
6.1 Upon consideration of facts of the case and perusal of material available on record,it is observed that the appellant was engaged in the business of real estate development during the year under consideration. For this purpose, the appellant had obtained necessary license from the DCP(Department of Town Planning and Country Planning, Govt of Haryana) after paying requisite license Fee. In addition to the license fee, as perterms of license, it had to pay External Development Charges for the infrastructural development to the Govt of Haryana.
6.2 As per section 3(3) of the Haryana Development and Regulation of Urban Areas Act, 1975,the amount of EDC is charged from developers on account of proportionate cost of infrastructure development such as water supply, sewerage/drainage, electricity supply etc. carried out by State Govt./local authority. The amount, period for the payment and manner of depositing EDC charges are regulated by the terms and condition laid in the license granted by the DCP. Accordingly, the appellant had made payments of Rs. 5,56,44,312/- on account of External Development Charges(EDC) to the DTCP upon which TDS was not deducted.
6.3 During the assessment proceedings, it was observed by the AO that the appellant had not deducted TDS on the payment of the EDC made to DCP under section 194C of the Act. Thus, the AO held the appellant as 'assessee in default within the meaning of sections 201(1)/201(1A) of the Act and raised demands accordingly. Therefore, in order to decidethe grounds of appeal raised by the appellant, it is imperative to examine whether payments on account of EDC made by the appellant to DCP are subjected to the provisions of section 194C of the Act or not.
6.4 In this respect, it is observed that there was in existence an arrangement between Govt. of Haryana and HSVP (HUDA) for the execution of external development works and in pursuance of the said agreement, EDC payment were released to HUDA through DTCP by the government. Although the EDC payments were routed through DCP, those payments undoubtedly were to the account of HSVP (HUDA). Thus, EDC payments even if paid to theDTCP falls under the purview of provisions of section 194C of the Act.The
P a g e | 8 5 Appeals to 5434 & 5660/Del/2024 M/s M3M India Pvt. Ltd. (AY: 2017-18 to 2021-22) reference is hereby drawn from CBDT memorandum F.No 370133/37/2017-TPL dated 23.12.2017 wherein it was clarified that TDS is deductible us 194 of the Act on payment of EDC to HSVP(earstwhile HUDA). The same is reproduced as under:
"2. In this regard it is submitted that provisions of non- deduction of tax under section 196 of the Income Tax Act, 1961, is applicable to the government and to the other authorities as mentioned under the section. Accordingly, external Development Charges (EDC) if paid to the Government of Haryana would be exempt from TDS provisions. However, in the instant case, it appears that the developer has made the payment in the nature of External Development Charges (EDC) not to the Government but to HUDA (Haryana Urban Development Authority) which is a development authority of State Government of Haryana and is a taxable entity under the ITax Act, 1961. Hence, TDS provisions would be applicable on EDC payable by thedeveloper to HUDA."
It is clearly evident from the CBDT circular that EDC charges would be exempted from the TDS provisions if paid to the government of Haryana. As per the directives of DCP all the EDC payments were directly being paid to HUDA till 31.03.2017. It is only thereafter that EDC was deposited with the DCP. Even if the appellant has made the EDC payments to DCP, it cannot be assumed that such payment was made to government of Haryana since such payments are placed in the hands and at the disposal of HSVP(HUDA).Further, reliance is hereby placed on the decision of Hon'ble Delhi High Court dated 13.02.2024 in the case of Puri Construction [2024] 159 taxmann.com 444(Delhi) wherein it was held that section 194C of the Act is applicable to EDC paid by Real Estate DevelopersPage 22 of 24to HUDA. It was also held that though the EDC payments were made to DCP but the funds were ultimately released to HUDA for carrying out the EDC work and thus, TDS had to bededucted on EDC payments. The Hon'ble High Court also turned out the challenge to the clarification issued by CBDT dated 23.12.2017 which is reproduced as above. Thus, it is noted that the judicial pronouncements relied upon the appellant have been superseded by the aforementioned latest judgment of Hon'ble Delhi High Court, moreover, it is also pertinent to mention
P a g e | 9 5 Appeals to 5434 & 5660/Del/2024 M/s M3M India Pvt. Ltd. (AY: 2017-18 to 2021-22) that in such judicial pronouncements, CBDT memorandum has not been challenged or been discussed by the respective judicial forums. Further, it is also seen that the ratio of Hon'ble Apex Court in the case of JIT (OSD) vs DLF Home Panchkula (P) Ltd. 161 Taxmann.com 237 (SC) (2024) relates to that it was not open for revenue to now contend whether EDC charges were payment made to a contractor under a contract or rent, hence this case law is not applicable for the issue under consideration in the instant appeal.
6.5 Keeping in view the above facts, discussion and respectfully following the ratio ofdecision pronounced by the Hon'ble High Court and CBDT memorandum, it is held that TDS u/s194C of the Act was to be deducted on EDC payments to DCP. Therefore, keeping in view the provisions of section 194C of the Act, the appellant was liable to deduct TDS on EDC payments u/s194C of the Act.
6.6 In respect of addition on account of deducting less TDS amounting to Rs. 89,58,733/- u/s 201(1)/ 201(1A) of the Act and failing to deposit the TDS in Govt account within prescribed time limit, the appellant has not furnished any submission. Thus, the findings of the AO in this respect are not being interfered with. Furthermore, it is held that there is no merit in the grounds of appeal taken by the appellant. Accordingly, demands ofRs. 5,56,44,312/- and Rs. 89,58,733/- raised by the A0 u/s 201(1) and u/s 201(1A) of the Act are hereby confirmed. Hence, the grounds of appeal no. 1-9 are hereby dismissed.”
11. Though ld. CIT(A) has not dealt with the issue as to how deposit directly in consolidated fund of State makes a difference, however, without entering on the merits of the aforesaid contentions, we find that HUDA has been furnishing its return of income and would certainly have been offering the impugned receipts and its profit and loss account so that its income could be assessed. A Coordinate Bench in Deputy Gothwal Construction (P) Ltd.
P a g e | 10 5 Appeals to 5434 & 5660/Del/2024 M/s M3M India Pvt. Ltd. (AY: 2017-18 to 2021-22)
Vs. DCIT (2025) 181 taxmann.com 771 (Delhi Trib) has taken this aspect into consideration and in para 2.1 has observed as follow:
“2.1 The Ld. AR has also preferred an alternative submission to the extent that HUDA has been furnishing its return of income and would certainly have been offering the impugned receipts in its profit & loss account so that its income could be assessed. If this be so then following several authorities, notably the case of Hindustan Coca Cola Beverage Pvt. Ltd. v. CIT [2007] 163 Taxman 355 (SC)/[2007] 293 ITR 226 (SC), the assessee could not be held to be in default for non-deduction of tax at source. The Ld. AR also relied on the case of GE India Technology Centre Pvt. Ltd. v. CIT [2010] 7 taxmann.com 18 (SC)/[2010] 193 Taxman 234 (SC)/[2010] 327 ITR 456 (SC). Lastly, the Ld. AR distinguished the case of Puri Construction Pvt. Ltd. v. Addl. CIT [2024] 159 taxmann.com 444 (Delhi)/[2024] 462 ITR 326 (Delhi)”
Thereafter the Coordinate bench in the case of Deputy Gothwal Construction Pvt. Ltd. (supra) has held as follows:
“However, the alternative submission of the Ld.AR that HUDA would be filing its returns of income and would be showing the receipts on account of EDC thereon, has considerable persuasive value since it is not only the Hindustan Coca Cola case (supra) but also a subsequent amendment in section 201(1) where a proviso has been inserted w.e.f. 01.07.2012 where a person would not be in default in case the payee has (i) furnished his return of income u/s 139; (i) has taken into account such sum for computing income in such return of income; and (i) has paid the tax due on the income declared by him in such return of income. There is also a directive in this section that the person needs to furnish a certificate to this effect from an Accountant in such form as may be prescribed. Accordingly, we deem it fit to set aside the impugned order and remand this P a g e | 11 5 Appeals to 5434 & 5660/Del/2024 M/s M3M India Pvt. Ltd. (AY: 2017-18 to 2021-22) matter back to the file of Ld. AO for verifying whether the conditions mentioned in the first proviso to section 201(1) of the Act have been fulfilled or not. In case the said conditions have been fulfilled, then the assessee cannot be saddled with any liability u/s 201(1)/201(1A) of the Act.”
We are of the considered view that assessee can certainly be benefitted with the ratio of Coordinate Bench findings in case of Deputy Gothwal Construction Pvt. Ltd. (supra).Accordingly, in regard to to 5434 & 5660/Del/2024 for AYs: 2018-19 to 2021-22, we deem it fit to set aside the impugned orders and remand the matters back to the file of Ld. AO for verifying whether the conditions mentioned in the first proviso to section 201(1) of the Act have been fulfilled or not. In case the said conditions have been fulfilled, then the assessee cannot be saddled with any liability u/s 201(1)/201(1A) of the Act. In aforesaid terms the to 5434 & 5660/Del/2024 for AYs: 2018-19 to 2021-22, stands allowed.
Order pronounced in the open court on 11.03.2026