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Income Tax Appellate Tribunal, BANGALORE BENCH ‘ B ’
Before: SHRI N.V. VASUDEVAN & SHRI JASON P BOAZ
Per Bench : These are a bunch of seven appeals by the Revenue, directed against the order Commissioner of Income-tax (Appeals) – 13, Bangalore dated 10.11.2016 for the assessment years 2008-09 to 2014-15. Since common issues are involved, these appeals were heard together and are being disposed off together by way of this common order for the sake of convenience.
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. In this case a search under Section 132 of the Income Tax Act, 1961 (in short 'the Act') was conducted on 12.9.2013 and thereafter a survey under Section 133A of the Act was conducted by the Assessing Officer for verification of details pertaining to payments made to developers/contractors and tax deducted thereon. From the details filed, the AO noticed that the assessee had entered into certain agreements and MOU’s, with the developer/contractor M/s MCN Developers for carrying out the above activities and had failed to deduct tax at source on payments made to this party with whom it had entered into agreements for the 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.); which in his view were in the nature of composite work contracts. The AO, inter alia, noticed that the aforesaid layout is to be developed as per the assessee’s specifications and the words 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 AO held that the aforesaid work, carried out by the developer/contractor on behalf of the assessee, is the nature of works contract and therefore the provisions of Sec. 194C of the Act was attracted. Since the assessee has failed to deduct tax at source on payments its made to developers/contractors as required u/s 194C of 3 to 232/Bang/2017 the Act; AO held the assessee to be an assessee in default u/s 201(1) of the Act and also to be charged the consequential interest u/s 201(1A) of the Act. The explanations put forth by the assessee did not find favour with the AO and he passed orders u/s 201(1) and 201(1A) of the Act for Asst. Years 2008-09 to 2014-15 dated 16.1.2014 holding the assessee to be an assessee in default for failure to deduct tax at source on payments made by it to developer/contractor as required u/s 194C of the Act as it was in the nature of works contract.
2.2 Aggrieved by the orders u/s 201(1) and 201(1A) of the Act dated 16.1.2014 for Assessment Years 2008-09 to 2014-15, the assessee preferred appeals before the CIT(A)-13, Bangalore. The ld CIT(A) allowed the aforesaid appeals filed by the assessee for asst. years vide a common order dated 10.11.2016 holding that the assessee was not liable 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.
3.1 Revenue, being aggrieved by the orders of the CIT(A)-13, Bangalore dated 10/11/2016 for asst. years 2008-09 to 2014-15, has filed these appeals before the Tribunal raising the following common grounds for the aforesaid Assessment Years.
“1. The order of CIT(A) is opposed to the facts and nature of the case on hand. 2. The Id. CIT (A) erred in holding that the assessee was not required to deduct tax at source u/s. 194C from the payments made to developer.
4 to 232/Bang/2017 3. The Ld. CIT(A) erred in deleting the demand u/s. 201(1) and 201(1A).
The Id. CIT (A) ought to have considered the fact that as per the assessee's agreement with the developer the works to be carried out like for procuring of land, developing, conversion, plan for approval, drainage, laying roads etc. clearly attracted provisions of Section 194C.
The Id. CIT (A) ought to have considered the fact that the agreement entered into by the assessee with the developer are in the nature of composite contracts for works for which provisions of Section 194C is clearly applicable.
The Ld. CIT(A) erred in relying on the decision of the jurisdictional High Court in the case of M/s. Karnataka State Judicial Department Employees House Building Co-Operative Societies in ITA No. 1275 of 2006 and the TAT's order in the case of M/s. Kautilya House Building Co- Operative Society Limited in ITA No. 1324 to 1337/Bang/2015 dated 7.4.2016 while allowing the assessee's appeal which have been accepted by the Department only for low tax effect and not in principle.
The appeals have been filed for all assessment years including the assessment years where the tax effect is below the prescribed minimum since a composite order has been passed by the learned CIT (Appeals) and therefore para 5 of the CBDT’s Circular NO.21 of 2015 dt.10.12.2015 is applicable in this case. For these and other grounds that may be raised during the course of appeal and actual hearing it is prayed that the order passed by the AO u/s. 201(1) and 201(1A) be upheld and the order of the learned Commissioner of Income Tax (Appeals) may be set aside and cancelled.”
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 Tribunal in the case of Kautilya House Building Co-operative Society in to 1337/Bang/2015 dated 7/4/2016, which had in turn
5 to 232/Bang/2017 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 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, forming residential layouts thereon with attendant civil works and therefore, since it amounts to a composite works contract, the provisions of section 194C of the Act are applicable. According to the ld DR, the judgment of the Hon’ble Karnataka High Court relied on by the ld CIT(A) (Supra) in distinguishable as in that case, the contract for purchase of sites was not a composite contract. It is further submitted that the two decisions of the Tribunal relied upon by the ld CIT(A) have not been accepted by the Department and the same are being contested in further appeal by Revenue.
3.4 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); (ii) Karnataka Legislature Secretariat Employees Housing Co-op Society Ltd., in to 1337/Bang/2015 and (iii) REMCO (BHEL) House Building Co-operative Society Ltd., in ITA Nos.1372 to 1377/Bang/2017. It was prayed that in 3.5.1 We have heard the rival contentions and 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 years under appeal.
3.5.2 Now coming to the merits of the issue in dispute, it is seen that the assessee society has entered into agreement/MOU with developer/contractor M/s MCN Developers, Kodigehalli, Bangalore District dated 25.6.2004, 6.2.2006, 14.6.2010 and 17.12.2011. From the aforesaid agreement/MOU’s it is seen that the assessee society has entrusted the procurement of land at Hosahalli Village, Jala Hobli, Yelahanka Taluk and development of residential layout thereon with the conditions to execute civil works such as roads, common amenities, drainage, electrification, plan approval, conversion of lands from agriculture to non-agriculture status, etc., to the developer. However, the learned CIT (Appeals) held that on perusal of the agreements concerned, the fact remains that the agreements essentially and basically relate to the purchase of land, development and purchase of residential sites from the developer / contractors.
3.5.4 On appeal, the ld CIT(A) on perusal of the aforesaid clauses of the agreement has arrived at the conclusion that the payments for the 7 to 232/Bang/2017 purchase of the sites was calculated on sq. ft. area of the property and the amount was paid for the purchases of completed 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 contractor/developer were required to layout roads and undertake other activities before the delivery of the completed sites cannot be either determinative of the facts or need to 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 that fell for the consideration for the Assessing Officer, the Commissioner of Income-tax 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.”
“….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 I 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 infti1 or in part. We accordingly hold that the assessee was not required to deduct tax in this regard.”
3.5.6 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 cases 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/Bang/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 9 to 232/Bang/2017 the case on hand and the various 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 Building Co-operative Society Ltd, (Supra), Kautilya House Building Co-operative Society Ltd., (Supra), Karnataka Legislature Secretariat Employees Co-operative Employees Co-operative Society Ltd., (Supra) and in the case of Telecom Employees Co-operative Society Ltd., (Supra) and REMCO (BHEL) 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) are dismissed.
Order pronounced in the open court on the 20th day of April,2018.