INCOME TAX OFFICER (TDS),, BANGALORE vs. M/S. BANGALORE CITY KSRTC EMPLOYEES HOUSING COOPERATIVE SOCIETY LTD,, BANGALORE

Per Bench : These are a bunch of twelve appeals by the Revenue, directed against the order of Commissioner of Income Tax (Appeals)-13, Bangalore Dt.7.10.2016 for the Assessment Years 2008-09 to 2013-14. Since common issues are involved, these appeals were heard together and are being disposed off together by way of this order.

2.1 The assessee is a co-operative society engaged in the activity of identifying suitable lands and forming a residential layout for allotment of residential sites to its members. The Assessing Officer called for information under Section 133(6) of the Income Tax Act, 1961 (in short 'the Act') pertaining to details of payments made to developers / contractors and tax deducted at source thereon. From the details filed, the Assessing Officer noticed that the assessee had entered into agreement with one M/s. Supreme Associates for carrying out the above activities and had failed to deduct tax at source on payments made to them. As per the Assessing Officer, the agreement for acquisition of land and formation of residential layout for the benefit of its members (requiring the carrying out of civil work such as laying of roads, drainage, electrification, etc.) were in the nature of work contracts. The Assessing Officer, inter alia, noted that the aforesaid layout is to be developed as per the assessee's specifications and the procurement of land meant that the developer does not own any land as on the date of agreement. In that view of the matter, the Assessing Officer held the aforesaid work, carried out by the developer / contractor on behalf of the assessee, is in the nature of works contract and therefore the provisions of Sec. 194C of the Act were attracted. Since the assessee had failed to deduct tax at source on such payments, as required under Section 194C of the Act, the Assessing Officer held the assessee to be an assessee in default under 3 to 17/Bang/2017 Section 201(1) of the Act and was also to be charged consequential interest under Section 201(1A) of the Act. The explanation put forth by the assessee did not find favour with the Assessing Officer and he passed separate orders under Section 201(1) and 201(1A) of the Act for Assessment Years 2008-09 to 2013-14 all dt.13.3.2014, holding the assessee to be an assessee in default for failure to deduct tax at source on payments made by it to developers / contractors as required under Section 194C of the Act as it was in the nature of works contract.

2.1 Aggrieved by the orders under Section 201(1) and 201(1A) of the Act dt.13.3.2014 for Assessment Years 2008-09 to 2013-14, the assessee preferred appeals before the CIT (Appeals) – 13, Bangalore. The learned CIT (Appeals) allowed the aforesaid appeals filed by the assessee for Assessment Years 2008-09 to 2013-14 vide a common order dt.7.10.2016 holding that the assessee was not able to deduct tax at source on the payments it made to developers / contractors as the provisions of sec. 194C of the Act were not attracted in the case on hand, as the payments are made for purchase of land and did not constitute works contract.

3.1 Revenue, being aggrieved by the orders of the CIT (Appeals) – 13, Bangalore dt.7.10.2016 for Assessment Years 2008-09 to 2013-14, has filed these appeals before the Tribunal raising the following common grounds for the aforesaid assessment years.

3.2 The grounds raised (Supra) relates to the single issue pertaining to the deletion of the demands raised u/s 201(1) and 201(1A) of the Act by the ld CIT(A) by following the decision of the co-ordinate bench of this 5 to 17/Bang/2017 Tribunal in the case of Kautilya House Building Co-operative Society in ITA No.1334 to 1337/Bang/2015 dated 7/4/2016, which had in turn followed the decision of the Hon’ble High Court of Karnataka in the case of Karnataka State Judicial Department Employees House Building Co- operative Society Ltd., (Supra). 3.3.1 The ld DR for Revenue was heard in support of the grounds raised (Supra). It is the contention of Revenue that the activity mentioned in the agreements entered into by the assessee with developers/contractors clearly indicate that they are composite contracts for acquiring land and forming residential layouts thereon and therefore since it amounts to a works contract the provisions of section 194C of the Act were attracted. In support of his contentions, the learned Departmental Representative made elaborate written and oral submissions and also referred to various clauses in the agreement in this regard. The gist of the learned Departmental Representative’s submissions are as under : (i) The land owners enter into joint venture agreement with the first party, namely Karnataka Housing Board (KHB); (ii) The agreement confers the privilege of ownership on the assessee society without transfer of title; (iii) Land is deemed to be transferred to the assessee society on the date of agreement. (iv) The work is carried out as required by KHB and the role of developer is only facilitation and development of the layout.

3.3.2 According to the learned Departmental Representative, the judgemnet of the Hon'ble Karnataka High Court relied on by the learned CIT (Appeals) (supra) is distinguishable as in that case, the contract for purchase of sites was not a composite contract and the society in that case was only a purchaser of land.

3.3.3 In support of his contentions, the learned Departmental Representative placed reliance on the decision of the Hon'ble Apex Court in the case of Larsen &Toubro V State of Karnataka (CA No.8672 of 2013) and Sanjeev Lal V CIT (CA No.5899 – 5900 of 2014).

3.4.1 Per contra, the ld AR of the assessee supported the impugned orders of the ld CIT(A), and submitted that there is no error therein as the issue in dispute is covered by the orders of the co-ordinate benches of this tribunal which were relied on by the assessee i.e (i) Kautilya House Building Co-operative Society Ltd. (Supra) and (ii) Railway House Building Co-operative Society Ltd., in 1340 & 1344/Bang/2015 and 1343/Bang/2016. It was prayed that in the light of the above judicial precedents and facts of the case, the impugned order of the ld CIT(A) be upheld. 3.4.2 It was submitted in rebuttal to the contention of the learned Departmental Representative that the decision of the Hon'ble Apex

7 to 17/Bang/2017 Court in the case of Larsen & Toubro (supra) was rendered in the context of the specific definition of ‘work contract’ in a matter arising under the Karnataka Sales Tax Act and has no application to the Income Tax Act, 1961. It was also submitted that the decision in the cited case of Sanjeev Lal (supra) also has no application to the facts of the case on hand. 3.4.3 The learned Authorised Representative drew the attention of the Bench to various clauses in the Agreement and more particularly to the following clauses : (i) Part I of the Preamble which states that the assessee propose to purchase 110 acres of land. (ii) Clause 5(a) of the Agreement which states that the developers shall procure lands and the cost of conveying and the incidental expense shall be borne by the developer. (iii) Clause 6(a) of the Agreement which states that the lands are to be conveyed to KHB, the KHB shall hand over the land to the developer to facilitate the development of land. Relying on this clause, the learned Authorised Representative submitted that even if there is a Works Contract, it is between KHB and the developer and not between the assessee and the developer. (iv) Clause 7(a) of the Agreement makes it very clear that what the assessee has agreed to, is to purchase the land and the payments were made into an escrow account.

8 to 17/Bang/2017 (v) Clause 8(a) of the Agreement states very clearly that the price for sale of each site shall be Rs.351 per sq. ft. which is the entire price for purchase of land. 3.4.4 According to the learned Authorised Representative a conjoint reading of the various clauses would go to show that the assessee has only purchased the land and there is no works contract. On the issue raised that the payments are being released by the assessee but the document titles are given to KHB, the learned Authorised Representative submitted that the arrangement was to take advantage of the name and brand of KHB and that whoever is given title to the property, the fact remains that the transaction involved only purchase of land and there was no “works contract.” It was prayed that in the light of the judicial pronouncement of Hon'ble Karnataka High Court in the case of CIT Vs. Karnataka State Judicial Department Employees House Building Co- operative Society in ITA No.1275 of 2006 dt.10.3.2010 followed by the learned CIT (Appeals) in the impugned order and those of the co- ordinate benches of this Tribunal cited at para 3.4.1 of this order (supra), the impugned order of the learned CIT (Appeals) is upheld. 3.5.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. On an appraisal of the material before us, we find that there is nothing therein that shows that the assessee is liable to deduct tax at source on payments made to the developers in the Assessment Years 2008-09 to 2013-14 which are under appeal.

9 to 17/Bang/2017 3.5.2 Now coming to the merits of the issue in dispute, it is seen that the assessee society has entered into a tripartite agreements / MOUs with KHB and the developers, M/s. Supreme Associates. From the clauses in the aforesaid agreement / MOU it is seen that the assessee society has entrusted the procurement of land and development of residential layout thereon with the conditions to execute civil works to the developer. However, the fact remains that the agreements essentially and basically relate to the purchase of land, development and purchase of residential sites from the developer. The relevant portion of the agreement has already been highlighted by the learned Authorised Representative of the assessee.

3.5.3 On appeal, the ld CIT(A), on perusal of the aforesaid clauses of the agreements, has arrived at the conclusion that the payments for the purchase of the sites was calculated on sq. ft. area of the property and the amount was paid for the purchases of property and not for development work carried out. The ld CIT(A) found that the agreements were only for purchase of sites and does not involve any ‘works contract’. In our view, the aforesaid conclusion/finding of the ld CIT(A) cannot be faulted and the same is a correct reading of the scope of the agreements which has to be treated as a whole and not in piece meal manner. The mere fact that the developers were required to lay’out roads and undertake other activities before the delivery of the completed sites cannot be either determinative of the facts or need to 10 to 17/Bang/2017 mean that the agreements entered into by the assessee society is a composite contract and amounts to a works contract. Thus, in our considered opinion, the case of the assessee is squarely covered by the decisions of the Hon’ble Karnataka High Court in the case of Karnataka State Judicial Department Employees House Building Co-operative Society Ltd., (Supra); the relevant portion of which judgment is extracted hereunder:- “ ……..the short question that fell for the consideration for the Assessing Officer, the CIT and the Tribunal was whether if the assessee has agreed to purchase the sites from a vendor if any sale consideration is paid on instalment basis, the assessee is required to deduct the tax at source or not. When the assessee is only a purchaser, if any advance sale consideration is paid, the assessee has no business to deduct the tax at source as it is for the seller of the sites to pay the capital gains depending upon the tax payable by him.”

3.5.4 In the aforesaid case decided by the Hon'ble Karnataka High Court (supra), the co-ordinate bench of this Tribunal had rendered the following finding :- “ …..the agreement between Sh. Lakshman, and Karnataka State Judicial Department Employees House Building Co- operative Society begins to operate only after the layout is formed and so can never be construed as an agreement in the nature of works contract. A contractor is one who undertakes to do a particular work for a price. No such contract is envisaged in this agreement. This agreement envisages purchase of specified intermediate sites at a price after Sri Lakshman completes the job of formation of a layout either in 3.5.5 We find that Revenue’s contention that the aforesaid judgment of the Hon’ble Karnataka High Court in the case of Karnataka State Judicial Department Employees House Building Co-operative Society Ltd., (Supra) is distinguishable from the case on hand, has also been considered on similar fact situation, by co-ordinate benches of this Tribunal in the case of Karnataka State Co-operative Subhadranna Housing Federation Ltd. (ITA Nos.1301, 1307 to 1313/Bang/2015), Railway House Building Co-operative Society (ITA Nos.1139, 1140 & 1344/Ban g/2015 & 1343/Bang/2014) and in the case of Kautilya House Building Co-operative Society Ltd., (ITA Nos. 1324 to 1337/Bang/2015 dated 7/4/2016. The ld CIT(A) has observed that in these cases (Supra) also, the contents of the agreements were similar to those of the assesee in the case on hand and the co-ordinate benches of this Tribunal after examining the same has applied the ratio of the judgment of the Hon’ble Karnataka High Court in the case of Karnataka State Judicial Department Employees House Building Co-operative Society Ltd., (Supra) and have held that there was no requirement for deduction of tax at source u/s 194C of the Act. Respectfully following the ratio of the decision of the Hon’ble Karnataka High Court in the case of Karnataka State Judicial Departmental Employees House Building Society Ltd., (Supra) and of the co-ordinate benches of this Tribunal in the cases of Karnataka State co- operative Subhadranna Housing Federation Ltd., (Supra), Railway House

12 to 17/Bang/2017 Building Co-operative Society Ltd, (Supra) and Kautilya House Building Co-operative Society Ltd., (Supra), we find no reason to interfere with or deviate from the view taken in these decisions which have been rendered on similar facts and issues as in the case on hand. We, therefore, uphold the impugned orders of the ld CIT(A) deleting the demands raised by the AO u/s 201(1) and 201(1A) of the Act. Consequently, the grounds raised by the Revenue (Supra), being devoid of merits, are dismissed.

4. In the result, Revenue’s appeals for asst. years 2008-09 to 2013-14 are dismissed. Order pronounced in the open court on the 4th day of May, 2018.