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Facts
The assessee, a real estate developer, paid lease rental to NOIDA Authority without deducting TDS. The authorities treated the assessee as being in default and liable for tax and interest. The assessee appealed against this order.
Held
The Tribunal, relying on the High Court and Supreme Court judgments in similar cases, held that payments made up to February 16, 2017, to authorities like NOIDA did not require TDS deduction. Therefore, the assessee could not be declared an 'assessee in default'.
Key Issues
Whether TDS was required to be deducted on lease rental payments made to NOIDA Authority, and whether the assessee could be treated as an 'assessee in default' for non-deduction.
Sections Cited
201(1), 201(1A), 194IA, 194-I, 194A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI
order of Ld. Commissioner of Income Tax (Appeals)-41, New Delhi (Ld.
CIT(A)’ for short), dated 20/02/2017 for the Assessment Year 2012- 13.
Brief facts of the case are that, the Assessee is a real estate developer during Financial Year 2011-12, the Assessee made payment of lease rental to NOIDA Authority without deducting the TDS on the payment of lease rental. An order u/s 201(1)/201(1A) of the Income Tax Act, 1961 ('Act' for short) came to be passed on 28/03/2014 by treating the appellant herein as ‘Assessee in default’ and ordered to pay the tax along with interest. Aggrieved by the order dated 28/03/2014, the Assessee preferred an appeal before the Ld. CIT(A).
The Ld. CIT(A) vide order dated 20/02/2017, dismissed the Appeal filed by the Assessee. As against the order of the Ld. CIT(A) dated 20/02/2017, Assessee preferred the present Appeal.
The Ld. Counsel for the Assessee submitted that the Assessee paid a total lease rental of Rs. 42,67,989/- to NOIDA authorities without deducting the TDS @ 10% i.e. 4,26,798/- u/s 194IA of the Act as the NOIDA Authority has not accepted the payment after TDS deduction as the said Authority claimed to be exempted and TDS need not be deducted.
Further submitted that, the issue as to whether the TDS to be deducted for the payment made to NOIDA Authority went up to Hon'ble Supreme Court in the case of M/s New Okhla Industrial Development Authority, Greater Noida Industrial Development Authority vs. Commissioner of Income Tax Appeals &ors. The Hon'ble Supreme Court upheld the Judgment of Hon'ble High Court of Delhi reported in 2017 (2) TMI 1109- Delhi High Court in the case of Rajesh Projects (India) Pvt. Ltd., and ors. Vs. Commissioner of Income Tax (TDS)-2 and ors., wherein the Hon'ble High Court gave prospective effect for application of provision of Section 194-I of the Act from 16/02/2017. Further submitted that as the subject payment has been made in F.Y 2012-13, applying the ratio laid down by the Hon'ble High Court and the Hon'ble Supreme Court, sought for allowing the present Appeal.
Per contra, the Ld. Department's Representative relying on the order of the lower authorities sought for dismissal of the Appeal.
We have heard both the parties and perused the material available on record. The issue as to whether the deduction of tax at source under Section 194-I of the Act should be made or not while making the payment to NOIDA Authority, has been dealt by the Hon'ble High Court of Delhi in the case Rajesh Projects (India) reported in 2017(2) TMI-1109. Wherein it is held that the payment made up to the date of the Judgment i.e. 16/02/2017, requires no deduction of TDS from the end of the payee to the NOIDA authority and only after 16/02/2017, the payment made to the authority shall be subject to TDS. The relevant portion of the Judgment of Hon'ble High Court in the case Rajesh Projects (India) (supra) is reproduced as under:-
“19. So far as the other issue, pertaining to TDS in respect of interest payments received by GNOIDA is concerned, the provision in question is Section 194A of the Income Tax Act. It reads as follows:
194A. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force:
................. (3) The provisions of sub-section (1) shall not apply-- (i) ... (iii) to such income credited or paid to-- (a) to (e) ..... (f) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette; (iv) ....
The question here is whether GNOIDA is an institution of the kind covered by Section 194A (3) (f). GNOIDA relies on the notification issued by the Central Government, on 22.10.1970, which specifies that Any Corporation established by a Central, State or Provincial Act would be entitled to exemption. Section 3 (i) of the UPIDA states that ''The State Government may, by notification, constitute for the purpose of this Act, an Authority to be called (Name of the area), industrial development authority, for any industrial development area. The UP Government established various industrial development authorities with the name of the area, such as, GNOIDA Authority, and others in connection with different cities.
The notification and the provision (Section 194A (3)) had been interpreted by the Income Tax Appellate Tribunal in the context of payments made by a Bank to the Ghaziabad Development Authority. In the said judgment (Canara Bank v. Department of Income Tax, decided on 07.08.2015) the ITAT held as follows:
Adverting to the facts of the instant case, we find that the assessee is a statutory corporation established by means of the UP Industrial Area Development Act, 1976. It has been noticed above from the preamble of this Act that it has been made for development of certain areas in the State into industrial and urban township. Instead of enacting area-wise Industrial Area Development Acts, the UP Government enacted a common UP Industrial Area Development Act, 1976 to cover Authorities under different areas with its distinct name. But, for the creation of various area- wise authorities such as NOIDA and Ghaziabad Authorities, there is no other purpose of the UP Industrial Area Development Act, 1976. In other words, we can also say that this Act is nothing but a culmination of several area-wise Industrial Area Development Acts. Since NOIDA has been notified under the UP Industrial Area Development Act, we are of the considered opinion that the expression ''any corporation established by a State Act'' shall include New Okhla Industrial Development Authority in the given circumstances.
We find that identical issue involving payment of interest by some banks to Ghaziabad Development Authority without tax withholding
came up for consideration before the Delhi Bench of the Tribunal in the case of Chief/Senior Manager, Oriental Bank of Commerce v. ITO. Vide its order dated 15.7.2011 in the Tribunal has held that the payment of interest by Oriental Bank of Commerce to Ghaziabad Development Authority is covered within the provisions of section 194A (3) (iii) (f) and, hence, there is no obligation for deduction of tax at source. Consequently, the order passed u/s 201(1) was set aside. Similar view has been taken by the Amritsar Bench of the Tribunal in the case of ITO (TDS) v. Branch Manager Jammu & Kashmir Bank Ltd. Vide its order dated 24.4.2012 in to 210/Asr/2011, the Tribunal has held that payment of interest by the bank to Jammu Development Authority (Jammu) is exempt u/s 194A(3)(iii)(f) and, hence, there can be no liability u/s 201(1) and 201(1A) on the bank and resultantly, the bank cannot be treated as an assessee in default u/s 201(1) and 201(1A). Likewise view has been taken by the Amritsar Bench of the Tribunal in ITO v. the Branch Manager, Jammu, Jammu & Kashmir Bank Ltd., by its order dated 2.7.2012, a copy of which has also been placed on record. All these precedents support the proposition that the payment of interest by banks to the State Industrial Development Authorities does not require any deduction of tax at source in terms of section 194A (3) (iii) (f) and, hence, the failure to deduct tax at source on such interest cannot lead to the banks being treated as assessee in default. No material has been placed on record to demonstrate that all/any of the above orders have either been reversed or modified in any manner by the Hon''ble High Courts. Further, the ld. DR failed to point out any contrary decision. In view of the legal position discussed supra and these precedents, we are of the considered opinion that the ld. CIT(A) was justified in reversing the order passed by the Addl. CIT (TDS), Ghaziabad declaring the assessee liable u/s 201(1) and 201(1A) of the Act. We, therefore, uphold the impugned order.
This court affirms and upholds the reasoning of the ITAT. GNOIDA is one such institution established by a state act. As pointed out by the ITAT, the UPIDA is an enabling enactment, which facilitates the setting up of development authorities like GNOIDA. Consequently, payments made by banks towards interest accruing on deposits, etc. are not deductible. 20. In view of the above analysis, the court hereby concludes as follows:
(1) Amounts paid as part of the lease premium in terms of the time- schedule(s) to the Lease Deeds executed between the petitioners and NOIDA, or bi-annual or annual payments for a limited/specific period towards acquisition of lease hold rights are not subject to TDS, being capital payments;
(2) Amounts constituting annual lease rent, expressed in terms of percentage (e.g. 1%) of the total premium for the duration of the lease, are rent, and therefore subject to TDS. Since the petitioners could not make the deductions due to the insistence of GNOIDA, a direction is issued to the said authority (GNOIDA) to comply with the provisions of law and make all payments, which would have been otherwise part of the deductions,for the periods, in question, till end of the date of this judgment. All payments to be made to it, henceforth, shall be subject to TDS.
(3) Amounts which are payable towards interest on the payment of lump sum lease premium, in terms of the Lease which are covered by Section194-A are covered by the exemption under Section 194A (3) (f) and therefore, not subjected to TDS.
(4) For the reason mentioned in (3) above, any payment of interest accrued in favour of GNOIDA by any petitioner who is a bank to the GNOIDA, towards fixed deposits, are also exempt from TDS.
In view of the above conclusions, it is hereby directed that wherever amounts have been paid by the petitioners, towards TDS as a result of the coercive process used by the Revenue, the GNOIDA shall make appropriate orders to credit/reimburse such payments. In case payments are made through deposit, over and above the rental amounts paid to the GNOIDA, without TDS, the income tax authorities shall not pursue any coercive proceedings; GNOIDA shall duly reimburse the petitioners for such amounts. Any amounts deposited in the court or with the Revenue, shall, to the extent of TDS liability only be appropriated for such purpose. It is clarified that GNOIDA shall ensure that reimbursement is made to compensate the petitioners'' excess payments; the income tax authorities shall not pursue any coercive methods for recovery of the amounts, or penalty, once the basic liability (with interest, to be paid by GNOIDA) is satisfied. The impugned orders are quashed; the Revenue shall make consequential orders, to give effect to this judgment, after duly hearing the petitioners and those likely to be affected, within 12 weeks from today.”
Further, the Hon'ble Supreme Court in the case of M/s New Okhla Industrial Development Authority, Greater Noida Industrial Development Authority vs. Commissioner of Income Tax Appeals &ors. and reported in 2018 (8) TMI 1374-Supreme Court, affirmed the above said direction/observation of the Hon'ble High Court of Delhi in so far as prospective effect of application of provision of Section 194-I of the Act in following manners:-
“ The very basis of the circular has been knocked out by the amendments made by Finance Act, 2002. Thus, the Circular cannot be relied by Noida/Great Noida to contend that there is no requirement of deduction of tax at source u/s 194-I. Thus, deduction at source is on payment of rent under Section 194-I, which is clearly the statutory liability of the respondent-company. The Hon'ble High Court has adjusted the equities by recording its conclusion in paragraph 20 and issuing a direction in Paragraph 21.”
Considering the fact that in the present case, the payments were made by the Assessee during F.Y 2011-12 relevant to Assessment Year 2012-13, in view of the Judgment of Hon'ble High Court and the Hon'ble Supreme Court (supra), we are of the opinion that the authorities below have committed error in declaring the appellant as ‘assessee in default’. Accordingly, the order passed u/s 201(1)/201(1A) of the Act dated 28/03/2014 and impugned order of the Ld. CIT(A) dated 20/02/2017 are hereby set aside.
In the result, Appeal of the Assessee is allowed.