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Income Tax Appellate Tribunal, BANGALORE BENCH ‘A’
Before: SHRI JASON P BOAZ & SHRI LALIET KUMAR
PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER :
These are a bunch of seven appeals by the Revenue, directed against the order Commissioner of Income-tax (Appeals) – 13, Bangalore dated 23/11/2016 for the assessment years 2008-09 to - 225/B/17 2 2014-15. Since common issues are involved, these appeals were heard together and are being disposed off together by way of this order.
Briefly stated, the facts of the case are as under:- 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 (’AO’) called for information u/s 133(6) of the Income-tax Act, 1961 (in short ‘the Act’) pertaining to the details of 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 Jaya Surya Developers, for carrying out the above activities and had failed to deduct tax at source on payments made to these parties 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 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 ITA Nos.219 - 225/B/17 3 assessee has failed to deduct tax at source on payments its made to developers/contractors as required u/s 194C of 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 all dated 28/2/2014 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 28/2/2014 for asst. year 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 2008-09 to 2014-15 vide a common order dated 23/11/2016 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 23/11/2016 for asst. years 2008-09 to 2014-15, has filed these appeals before the Tribunal raising the following common grounds for the aforesaid asst. years.
“1. The order of CIT(A) is opposed to the facts and nature of the case on hand.
ITA Nos.219 - 225/B/17 4
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. 3 The Ld. CIT(A) erred in deleting the demand u/s. 201(1) and 201(1A). 4. 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. 5. 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. 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 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. - 225/B/17 5 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 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 ITA Nos.219 - 225/B/17 6 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) Railway House Building Co-operative Society Ltd., in ITA Nos.1339, 1340 & 1344/Bang/2015 and 1343/Bang/2016 and (iii) Telecom Employees Co-operative Housing Society Ltd., in ITA Nos:2274 to 2280/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. 3.5.1 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 Jayasurya Developers, No.2, 1st Floor, Utsav, ITI Layout, New BEL Road, Bangalore-560 054 dated ITA Nos.219 - 225/B/17 7 11/4/2008 and 30/4/2009 from 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 such as roads, common amenities, drainage, electrification, plan approval, conversion of lands from agriculture to non-agriculture status, etc., 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/contractors. The relevant portion of the agreement of the assessee society with M/s Jayasurya Developers i.e; developmental contractor is as under:- “A. Whereas the first party is a housing co- operative society and has been acting upon its objects by facilitating its members residential sites and other supports,' B. Whereas the second party is a land developer, promoter and in the line of business of formation of sites, layout development, land procurement and other land promotion business; and C. Whereas the first party approached the second party to produce certain lands and develop the same and hand over residential sites to the society or its members as the society intended to allot sites for its members; and - 225/B/17 8 D. Whereas in respect of the offer and acceptance of the parties, the first party and the second party, on mutual terms and conditions, have entered into an Agreement on 701 June 2004, uherein the second party had agreed to procure certain lands and subsequently develop and would hand over the proposed developed sites/layout to the members of the society; and E. Whereas the first party, as and when the demand raised for extra sites for its members, requested the second party to develop more sites and n respect of the same both the parties have entered into further continuation agreements on 17.11.2005 and 05.3.2007, wherein the second party has agreed to develop approximately about 43 acres of land in and around Yelahanka Town, Bangalore North Taluk, in Phasewise manner; and F. Whereas the parties herein in the aforesaid original agreement and subsequent continuation agreements covenanted and agreed mutually each other for certain terms and conditions in respect of rate (consideration), work specifications, time bound, including other contractual obligations, etc.; and ITA Nos.219 - 225/B/17 9 G. WHEREAS as per the agreed terms and conditions of the aforesaid agreements the FIRST PARTY released/ advanced certain amounts for procurement of land and for development activities from time to time as and when the SECOND PARTY approaches and requires for the said purposes. In respect of the amounts advanced by the FIRST PARTY the SECOND PARTY hypothecated certain lands agreed to be developed by way of creating simple mortgage by depositing original title deeds of the aforesaid lands with the FIRST PARTY, on various dates, and H. WHERE as the FIRST PARTY has been observing the development activities from time to time and the SECOND PARTY also been acting upon the instructions and specifications of the FIRST PARTY; and I. WHERE the parties herein deem fit and desire that as lot of modifications, amendments and rectifications need to be made in respect of earlier covenants between the parties as the circumstances forced to act by the parties about rates, time bound, specifications, and availability etc., the parties herein deem fit it is expedient to reduce all the - 225/B/17 10 amendments and changes into writing by executing this agreement. NOW THIS AGREEMENT WITNESS AS FOLLOWS: ………… 2. The SECOND PARTY herein agree to develop and hand over the sital area in phasewise as follows as orally agreed by both the parties in several meetings .................
The SECOND PARTY hereby state and confirm that they are in process of procuring another 3 Acres of land which are adjacent to the lands being developed in PHASE - I AND PHASE -II and further they hereby assure and agree that they shall hand over sital area about 70,000 (seventy thousand) square feet to the SECOND PARY as they have agreed in their earlier agreements.
The SECOND PARTY hereby agree and assure the FIRST PARTY that they shall hand over approximately about 10,25,000(Ten lakhs twenty Jive thousand) sq. feet of sital area out of all the THREE PHASES including the 3-00 Acres land as agreed in clause 3 supra. The SECOND PARTY hereby further agree that they shall hand over or execute sale deeds in respect of aforesaid available ITA Nos.219 - 225/B/17 11 sital area to the members of the SOCIETY/FIRST PARTY in whatever manner the FIRST PARTY requires or instructs about measurements of sites. In case any discrepancy find in allotment of sites in each Phases as mentioned in clause 2 supra, i.e. shortfall or excess of sq. feet any technical reasons the SECOND PARTY hereby assure the FIRST PARTY that they shall handover or deliver an aggregate of 10,25,000 sq. feet of sital area out of all three Phases, here or there.
The PARTIES hereby mutually decided about the rate/ considerations to be paid by the FIRST PARTY to the SECOND PARTY in respect of the sital area as follows: i) A sum of Rs. 3901- (Rupees three hundred and ninety only) per sq. feet for the sites available in the PHASE -I (PHASE ONE) ii) A sum of Rs. 640/- (Rupees six hundred and forty only) per sq. feet for the sites available in the PHASE - II (PHASE TWO) iii) A Sum of Rs. 7901- (Rupees seven hundred and ninety only) per sq. feet for the sites available in the PHASE -III (PHASE THREE) iv) The parties hereby state and covenant that the rate for the additional land agreed to be - 225/B/17 12 developed as mentioned in clause Ar of 3 Supra i.e. for 3 acres of land (70,000 sft), adjacent to the Phase - I and Phase - III, shall be Rs.3901-(Rupees Three hundred and ninety only). The parties hereby state and confirm that the aforesaid rates are exclusive of charges and other statutory deposits to be paid to B. W.S.S.B and BESCOM towards providing water and electricity supply to the layout.
The aforesaid rates/ consideration is escalated by mutual agreements and consent of both the parties herein as the land rates, labour charges, cost of development materials are drastically raised for last several years, secondly the zonal regulations and other approvals were to be obtained from BANGALORE DEVELOPMENT AUTHORITY instead of YELAHANKA CMC. The said reasons have been brought to the notice of the FIRST PARTY by the SECOND PARTY from time to time. The FIRST PARTY brought these facts before the office Bearers of the Society, time and again, and after considering the facts and inevitable circumstances the FIRST PARTY has agreed to pay the aforesaid escalated rate to the SECOND PARTY.
ITA Nos.219 - 225/B/17 13
The SECOND PARTY hereby acknowledges that they have received an aggregate sum of Rs. 36,65,97,795/- (Rupees thirty six crores sixty five lakhs ninety seven thousand seven hundred and ninety five only) as at 311312008 on various dates as against the aforesaid three agreements. In order to secure the amounts advanced by the FIRST PARTY the SECOND PART has hypothecated certain lands situated in various survey numbers by executing Equitable Mortgage deeds.”
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 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. - 225/B/17 14 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.”
3.5.5 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 - 225/B/17 15 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 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/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 - 225/B/17 16 to those of the assesee in 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) 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 2014-15 are dismissed.