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Income Tax Appellate Tribunal, ‘B’ BENCH, BANGALORE
Before: SHRI GEORGE GEORGE K & SHRI INTURI RAMA RAO
IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, BANGALORE
BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER
ITA Nos.1324 to 1337/Bang/2015 (Assessment years: 2008-09 to 2014-15)
Income-tax Officer, TDS ward 2(1), Bangalore. … Appellant Vs. M/s.Kautilya House Bldg. Co-operative Society Ltd., No.16, Adhichunchangiri Complex, 1st Main Road, Vijaynagar, Bangalore-560040. … Respondent PAN:AACAK 1745 P
Appellant by : Smt. Rukmani Attri, JCIT(DR) Respondent by : Shri P.R.Suresh, CA.
Date of hearing : 30/03/2016 Date of pronouncement : 07/04/2016 O R D E R Per BENCH : These are appeals by the revenue directed against the two different orders of the ld.CIT(A)-13, Bangalore, dated 6/4/2015 for the assessment years 2008-0 to 2014-15.
The revenue raised the following common grounds of appeal:
“The order of CIT(A) is opposed to the facts and nature of the case on hand.
ITA Nos.1324 to 1337/Bang/2015 Page 2 of 11 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 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 procuring the land, developing, conversion, plan approval, drainage and laying roads, chip carpeting, storm water drains, etc., clearly indicates that the contract included 'Works contract' which attracts provisions of Section 194C. 4. 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. 5. The Id. 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 while allowing the assessee's appeal. 6. Without prejudice to the above grounds, it is prayed that even if it is held that there is no element of contract for procurement of land whether there is no element of contract for developmental works also, especially when the supplemental agreement envisages the release of payment on a milestone basis which is typical of 'Contracts'?
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 order of CIT(A) is opposed to the facts and nature of the case on hand.
The Id. CIT (A) erred in deleting the interest levied u/s. 201(1A)
The Id. CIT (A) ought to have considered the fact that
ITA Nos.1324 to 1337/Bang/2015 Page 3 of 11 the assessee having committed default u/s. 201 (1) is liable for interest payment u/s. 201(1A) which is a mandatory provision. 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 AG 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. ”
Brief facts of the case are that the respondent-assessee is a co-operative society registered under the provisions of Karnataka Co-operative Societies Act. The object for which the respondent-co-operative society was set up was to provide housing sites to its members. In order to achieve this object, various activities are required to be undertaken like acquisition of lands, getting necessary approvals, development of lands into sites etc. As the laws governing the lands in State of Karnataka do not permit a co-operative society to acquire lands on its own, it is stated that, the respondent-co-operative society had identified one person who would acquire lands and also develop lands as per requirements of the society after duly complying with the rules and regulations of local bodies. In this direction, the society approached a person by nameShri Lakshman to undertake these activities. Shri Lakshman, in turn, acquired lands, developed lands into sites as per norms prescribed by local bodies and thereafter sites were sold to members of the respondent-co- operative society. The society was acting as a facilitator.
ITA Nos.1324 to 1337/Bang/2015 Page 4 of 11 4. Survey operations under the provisions of sec.133A of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] were carried on in the premises of the respondent-co- operative society on 5/12/2013 by investigation wing of the department. During the course of survey, the department found that no TDS was made by the respondent-co-operative society under the provisions of 194C of the Act on the payments made to the person alleged to be a developer i.e. Shri Lakshman. When the respondent-co-operative society was called upon to explain as to why tax was not deducted at source on such payments, respondent-co-operative society contended that only developedsites were purchased from the developer and there was no contract for development of sites and therefore, the provisions of sec.194C were not applicable. In support of this contention, respondent-co-operative society relied upon the decision of the Hon'ble jurisdictional High Court in the case of CIT vs. Karnataka State Judicial Department Employees House Bldg. Co-operative Society in ITA No.1260/2006. The ITO, TDS, Ward 2(1) has not accepted this contention of the respondent-co-operative society and held that the agreement entered into by the respondent-co- operative society is in the nature of works contract and therefore, the provisions of section 194C are applicable and the assessee is held to be in default for not deducting tax at source under the provisions of sec.194C and accordingly he passed orders u/s
ITA Nos.1324 to 1337/Bang/2015 Page 5 of 11 201(1) of the Act demanding TDS on payments made and orders u/s 201(1A) demanding interest on such TDS amounts.
Being aggrieved by the order, the respondent-co-operative society filed appeal before the CIT(A) who, vide impugned orders dated 6/4/2015 held that there was no agreement between respondent-co-operative society and the developer to construct apartments or to undertake any construction activity indicating that contract is of works contract nature and therefore, the provisions of sec.194C were not applicable. The CIT(A) further held that the decision of the Hon’ble High Court of Karnataka in the case of Karnataka State Judicial Department Employees House Bldg. Co-operative Society (cited supra) is squarely applicable to the facts of the case. The relevant part of the CIT(A)’s order is reproduced hereunder:
“3.5 In the instant case, the appellant had entered into an agreement with the Shri Lakhsman, a developer whereby the developer would locate and procure land on behalf of the appellant. The developer would hand over possession of sites to individual allottees after development of layouts. It is seen that the co-operative society assumes the role of a facilitator between the developer who procure land/ sites and the allottees who are members of the society. It is seen that there is no agreement between the society and developer to construct flats, apartments or undertake any construction activity whereby the agreement can be termed as a contract'. In this connection it is to be noted that as per the Concise Oxford Dictionary, a contractor' means a person who undertakes a contract to provide material or labour for a job. To that extent, the six developer neither had provided material nor labour for any kind of job to be undertaken for the society except for the fact that they were bound as per the agreement to locate and procure land and develop
ITA Nos.1324 to 1337/Bang/2015 Page 6 of 11 such land into residential sites for individual allottees who are members of the society. Therefore since no work has been executed by the developers, provisions of section 194C of the Act do not get attracted. Further the decision of the Hon'ble High Court of Karnataka in the case of CIT vs Karnataka State Judicial Department Employees House Building Co-operative Society in ITA 1260/2006 fortifies this stand. In the said judgment, the Hon’ble High Court upheld the jurisdictional ITAT Bangalore's decision in the said case and held that if any advance is paid as consideration the assessee has no business to deduct tax at source as it is the seller of sites who has to pay capital gains. Earlier the Hon'ble ITAT Bangalore had held that the agreement between Sh. Lakhsman, 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 a 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 full or in part. We accordingly hold that the assessee was not required to deduct tax in this regard. 3.6 It is noted that facts in the case of the appellant are similar and identical to the facts in the case of Karnataka State Judicial Department Employees Housing Building Co-operative Society cited in para 3.5 (supra). Since judicial discipline requires decision of higher authorities prevail, and respectfully following the decision of Hon’ble High Court of Karnataka, it is held that the appellant was not required to deduct tax at source from payments made to the developer. Accordingly, demands raised u/s 201(1) of the Act are hereby deleted.”
The CIT(A), accordingly held that the respondent-co-operative society was not required to deduct tax at source on the payments made to Shri Lakshman and allowed the appeals and consequently, the appeals filed against levy of interest u/s 201(1A) were also allowed.
ITA Nos.1324 to 1337/Bang/2015 Page 7 of 11 6. Being aggrieved by the orders of the CIT(A), the revenue is in present appeals before us.
At the outset, there is a delay in filing present appeals. The ITO(TDS), Ward 2(1), Bangalore, prayed for condonation of delay as the delay had occurred on account of the fact that the ITO was under bona fide belief that the decision of the Hon’ble High Court of Karnataka in the case of Karnataka State Judicial Department Employees House Bldg. Co-operative Society (cited supra) was accepted by the revenue on merits. However, on verification of records, he found that the revenue had not preferred further appeal before the Hon’ble Supreme Court only account of low tax effect. On coming to know of this fact, the ITO(TDS), Ward 2(1), Bangalore initiated steps for filing of appeals. In the process, there was a delay of 144 days. It is prayed that the delay may be condoned in view of the decision of the Hon’ble Supreme Court in the case of Collector, Land Acquisition vs. Mst. Khatiji & Others (167 ITR 471) wherein it was held that delay should be condoned liberally in order to advance the cause of substantive justice.
7.1 On the other hand, learned AR of the assessee has no serious objection for condonation of delay.
7.2 We have considered rival submissions and perused the contents of affidavit filed for condonation of delay in filing of the appeals. The contents of the affidavit are not doubted by the
ITA Nos.1324 to 1337/Bang/2015 Page 8 of 11 respondent-co-operative society. Therefore, we are of the opinion that it is a fit case for condonation of delay as the delay had occurred on account of mistaken impression that appeal was not filed against the decision of the Hon’ble High Court of Karnataka in the case of Karnataka State Judicial Department Employees House Bldg. Co-operative Society (cited supra) on merit of case. Keeping in view the ratio laid down by the Hon’ble Apex Court in the case of Mst. Khatiji & Others (cited supra), we condone the delay of 144 days in filing the appeals and admit the appeal filed by the revenue.
The issue in the present appeals is whether the payments made by the respondent-co-operative society to Shri Lakshman, stated to have been paid to acquire lands are in the nature of payment made for any work contract or consideration paid for purchase of sites. It is needless to mention that the provisions of sec.194C are applicable only to works contract. Once it is established that payments made to Shri Lakshman are not in the nature of works contract, question of deducting tax at source under the provisions of sec.194C does not arise. To determine the character of payments, it is essential to look into terms of the contract. We have perused the agreement dated 11/4/2005 entered into by the respondent-co-operative society with Shri Lakshman as well as the sale deed entered into by Shri Lakshman with members of the society on 27/8/2014 placed at page 11 of
ITA Nos.1324 to 1337/Bang/2015 Page 9 of 11 the paper book. Clauses 2, 3 and 4 of the agreement dated 11/4/2005 are as under:
“2. DEVELOPMENT OF LAYOUT & FORMATION OF SITES: The Second Party shall acquire the schedule property after securing conversion of the same from agriculture to non-agriculture residential use, apply for and obtain sanction from BMRDA/Competent Authority and develop the layout in accordance with the sanctioned plan confirming to the zonal regulations of the BMRDA;
FACILITIES & AMENITIES TO BE PROVIDED IN THE LAYOUT: (a) Wide Asphalted Roads ranging from 30 to 60 as per sanctioned plan. (b) Water & Sanitary connections to each site with Feeder & sub main connections; (c) Electrification with overhead lines and Transformers, Adequate Street Lights as per KPTCL norms,
(d) Dedicated Telephone Exchange; Milk booths. KPTCL Extension Counter, Police out post. BUS Terminus. shopping arcade including vegetable market etc (e) Overhead Tank/Sump Tank connected to Borewells in order to provide adequate water supply: (f) Road side tree plantation with tree guards.
SITES TO BE HANDED OVER TO THE SOCIETY FOR ALLOTMENT TO ITS MEMBERS; The Second party shall reserve all the (a) 'intermittent sites (excluding 50 intermittent sites of various dimensions to be
ITA Nos.1324 to 1337/Bang/2015 Page 10 of 11 identified by the second party) for the benefit of the members of the First Party. As soon as the Second party informs the (b) First party of the formation of the sites for the benefit of the members of the First Party, the First Party shall allot the same to its members and inform the Second party accordingly. After such allotment, the Second Party shall (c) convey the site to the allottee after receipt of the sale consideration (at the rates stipulated in clause 5 herein below) from the First Party by executing and registering the sale deed in the jurisdictional sub-registrars office. In respect of all the corner sites and 50 (d) intermittent sites (reserved for land owners and/or their nominee) retained by the Second Party shall be disposed off by Second Party in the manner he deems fit.
Clauses 1, 2 and 3 of the Sale Deed dated 27/8/2014 are as under:
The Vendor and confirming party in conformity with the facts stated above, today handed over actual vacant possession of the schedule site to the Purchaser. Pursuant to this deed of conveyance, a separate Possession Certificate issued confirming the site number, dimension and boundary. 2. The Purchaser shall be entitled to hold, possess, build upon and enjoy the schedule site hereby conveyed and the rents and profits received there from without any disturbance or interference by the Vendor/Developer/Confirming Party and/or any other person claiming through or under them. 3. The Schedule Site is one of the intermediate site formed in the private residential layout formed by the Vendor for the benefit of members of Koutilya Housing Building Co-operative Society Ltd., i.e. the Conforming Party herein and accordingly conveyed the same to the purchaser under this sale deed.
ITA Nos.1324 to 1337/Bang/2015 Page 11 of 11 A perusal of the above clauses reveals that it is a case of sale of developed sites of the developer to individual members of the co- operative society. The society was only acting as a facilitator. Therefore, it does not involve any works contract. It is a case of sale of plots to members of society. In such circumstances, it is settled law by now that the provisions of sec.194C are not applicable. We do not find any reason to interfere with the orders of the CIT(A) and accordingly, uphold the same.
In the result, the appeals filed by the revenue are dismissed.
Order pronounced in the open court on this 07th day of April, 2016
sd/- sd/- (GEORGE GEORGE K) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Place : Bangalore D a t e d : 07/04/2016 srinivasulu, sps Copy to : 1 Appellant 2 Respondent 3 CIT(A)-II Bangalore 4 CIT 5 DR, ITAT, Bangalore. 6 Guard file By order Assistant Registrar Income-tax Appellate Tribunal Bangalore