INCOME TAX OFFICER (TDS) WARD-3(2), BANGALORE vs. SRI LAKSHMI CO-OPERATIVE HOUSING SOCIETY LTD , BANGALORE

Per Sunil Kumar Yadav, Judicial Member

1. The order of CIT(A) is opposed to the facts and nature of the case on hand.

2. The ld. 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. 3. The Ld. CIT(A) erred in deleting the demand u/s. 201(1) and 201(1A).

Page 2 of 7 4. The ld. 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 levelling, constructing drawings and culverts, metalling and asphalting roads, providing electricity, etc. clearly indicates that the contract included "works contract" which attracts provisions of Section 194C.

5. The ld. 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.

6. 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 of 2006 and the ITAT'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. 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.

The learned DR however placed reliance upon the order of the AO.

Page 3 of 7 “I have gone through and carefully considered the orders of the assessing Officer, the written submissions filed by the appellant, relevant case laws and other material on record. The main issue in the present appeals is whether there was an obligation on the part of the appellant society to deduct tax at source in relation to the amounts paid by the appellant society to the developers. To determine the true character of the payment, it is pertinent to revisit the relevant clauses of the Agreements which are extracted in the order of the Assessing Officer (from the agreement with M/s. Lakshmi Narasimha Enterprises). The same are reproduced hereafter: WHEREAS the First Party is the House Building Co-operative Society registered under the provision of Karnataka Co-operative Society's Act, interallia carrying on the business of acquiring the lands, forming the layout, distributing the sites to its members and having identified suitable land for developing them in to layouts, approached to the Second Party with a proposal as to the layout formation. AND WHEREAS the SECOND PARTY, is an estate agent contractor carrying on the business of doing private layout house sites around Bangalore city, accepted the proposal which interallia, purchase of the identified lands, more fully described in the schedule hereunder and hereafter and referred to as the schedule property; conversion of schedule property into residential property; and the development of the same into a layout, after obtaining required permissions and clearances from the Government. AND WHEREAS the SECOND PARTY will get the layout plan approved by the Competent Authority. WHEREAS the FIRST PARTY after the negotiations with the SECOND PARTY agreed for the proposals on the following terms and conditions. NOW THEREFORE THIS WITNESTH AS HEREUNDER:

Page 4 of 7 The First Party has agreed to pay the Second Party an amount calculated at 5. Rs. 410/- Per Sq.ft for actual layout formed towards cost of sites towards layout works, specified as asphalting of roads, drainage work, culverts and providing water and UGD, underground cable electricity line, digging of bore-well, and construction of sump tank, septic tank etc., within the layout an providing UGD & water supply lines for individual sites to avoid the road cuttings. On completion of layout work in all respects, the Second Party agreed to get the 6. sites registered into First Party or its members. The First Party agrees to pay total cost for the individual developed site to the 7. Second Party before registering the sale deed or CPA in favour of the First Party or its members. The Parties have agreed that the amount towards the developed site cost shall 8. be paid to the Second Party as per the following schedule by the First Party on the basis of progress of the work. a. The First Party has this day paid an advance as party of payment of the sale consideration, in a sum of Rs. 41,00,000/ - (Rupees Fourty One Lakh Only) by th.e way of Cheque bearing No. 371101 dated: 24.11.2006, drawn on Syndicate Bank, J.C. Road Branch, Bangalore-02. Further they have agreed to pay the balance amount in Four equated monthly instalments out of which the first instalment amount will be paid before 31st December 2006.

9. The Second Party covenants as hereunder: a. The Second Party shall can-yout and complete the layout works as per the approved plan. b. The Second Party agrees to provide all civic amenities as mentioned hereunder:

1. 1. The residential sites to be formed of different dimensions as per the First Party request.

2. Sites to be marked and boundary stone fixed.

3. Main road and cross road should be metalled and chip carpeted.

4. The sites in the layout to be provided with side drains, culverts, water supply main line with CI pipes, underground sewerage lines for individual sites, underground cable electricity line and street lights including supervision charges payable to KPTCL and outside feeder work.

Page 5 of 7 5. Water supply to the site owners to be provided through bore- wells and overhead tank with Sump tank.

8. Sufficient number of operational bore-wells in different parts of the layout to be provided for proper and continuous water supply to the layout.

Page 6 of 7 Both the First Party and Second Party shall have the right to sue for 18. specific performance of this contract. In case the Second Party commits any default or cause any loss by 19. negligence, improper, substandard works and puts the First Party into loss, delay and inconvenience the First Party is at liberty to take such action open to it and proceed against the Second Party for recovery of the loss.

As noted by the Assessing Officer, the other Agreement/MOU with the other 7. developer/ contractor also contains similar clauses. On perusal of the relevant clauses of the said Agreement, it is clear that the payment was calculated on sq.ft. area of the property and was paid for the purchase of completed property and not development work carried out. The agreement is only for purchase of developed sites and does not involve any works contract.

Page 7 of 7 9. Similar decision has been rendered by Hon'ble ITAT, Bangalore in the case of M/s Kautilya House Building Co-op. Society Ltd. (ITA No. 1324 to 1337/Bang/2015, order dated 07.04.2016). The facts in the case of the appellant are similar to the facts in the cases referred to above. Respectfully following the decisions of the Hon'ble High Court of Karnataka and ITAT, Bangalore, it is held that the appellant society was not required to deduct tax at source from the payments made to the developers. Accordingly, the demand raised u/s 201(1) and 201(1A) is deleted. Ground number 2 is allowed.”