INTERNATIONAL GREEN SCAPES LTD.,NEW DELHI vs. DCIT CIRCLE 74(1), NEW DELHI

While raising the said demand, the Assessing officer, held that during Financial Year 2014-15, the assessee had paid a sum of Rs. 5,34,24,000/- to the Haryana Urban Development Authority (hereinafter referred to as “HUDA”) towards External Development Charges (hereinafter referred to as ‘EDC’). According to the AO, HUDA was not a government organization and, therefore, the provision of section 194I of the Act, was applicable on such payments, which according to the AO was payments as being ‘rent’ or was in the nature of ‘rent’ and, therefore, levied the above demand.

On examination of the records of this case for the proceedings u/s 201(1)/(1A) of the Act, for the Financial Year 2014-15, vide the aforesaid order of the AO, the Ld. CIT(TDS) noted that the AO had incorrectly applied section 194I of the Act to such payments. The CIT(TDS) observed that the EDC was charged for development work by HUDA from Pvt. Builders pertaining to creation, development, and maintenance of urban infrastructure, which was a work carried out which was civil in nature for providing amenities and therefore, on such payments to HUDA, the correct provision of section 194C of the Act, was applicable. The Ld. CIT(TDS) further observed in para 6.5 of his order, that the Hon'ble Delhi High Court in it order 24.03.2023 in the case M/s DLF Homes Panchkula Pvt. Ltd. vs JCIT(OSD)[2023] 149 taxmann.com 176 (Delhi), adjudicated the issue of TDS u/s 1941 of the Act on the EDC payments made to HUDA and the Court held that EDC charges cannot be subjected to TDS under Section 1941 of the Act. The Ld. CIT further observed that the Hon'ble Delhi High Court has set aside the case by stating that "...we reject the contention that the findings of the AO regarding the nature of EDC charges as well as the provisions referred by him for determining the petitioner's liability are not material....". The Ld. CIT(TDS) further held that the 4 .- 2046 & 2047/Del/2024 Interna�onal Green Scapes Ltd. Hon'ble Supreme Court of India in its order dated 12.02.2024 dismissed the SLP of Revenue. 5.1 Further, the Ld. CIT(TDS) relied upon the decision of the Hon'ble Delhi High Court in the case of Puri Constructions (P.) Ltd. us Addl CIT, [2024] 159 taxmann.com 444, wherein he stated that, vide order dated 13.02.2024, in respect of TDS on EDC payments to HUDA, the Hon’ble Court held at para 88 of its order and reproduced the relevant extract as below: "...we negative the challenge raised in these writ petitions insofar as the invocation of Section 194C of the Act is concerned and hold that EDC payments would be covered there under. For reasons recorded in the body of this judgement, we also turn down the challenge to the clarification issued by Central Board of Direct Taxes dated 23 Dec 2017". 5.2 Accordingly, the Ld. CIT(TDS) held that the impugned order passed by the AO under Section 201(1)/(1A) of the Act, invoking the provisions of section 194I of the Act instead of section 194C of the Act on the payments of Rs. 5,34,24,000/- by the assessee to the HUDA was not in accordance with law, and was erroneous, and prejudicial to the interest of the Revenue. He therefore, cancelled the said order and asked the AO to pass fresh order under Section 201(1)/201A of the Act, in view of the direction given by him in the order u/s 263 of the Act to enquire and examine the applicability of 5 .- 2046 & 2047/Del/2024 Interna�onal Green Scapes Ltd. TDS provision u/s 194C of the Act in respect of EDC payments made by the assessee to HUDA on which no TDS was deducted by assessee after giving due opportunity to the assessee and to decide the matter in accordance with law.

Aggrieved by the said order, the assesse is in appeal before us.

During the course of hearing, the Ld. AR submitted that the order u/s 201(1)/201A of the Act was passed on 22.03.2022, and that the assessee had filed an appeal before the Ld. CIT(A)-TDS, Delhi-1, on 18.03.2023 against the said order. It was further submitted that as per the provision of section 263(1)(c) of the Act, the Ld. CIT(TDS) could not have exercised jurisdiction u/s 263 of the Act on the same issue i.e. deduction of TDS on EDC payments by the assessee to HUDA amounting to Rs. 5,34,24,000/-which was subject matter of the aforesaid appeal by issuing a show-cause notice dated 11.03.2024. It was further submitted that when the Ld. CIT(TDS) passed his order on 26.03.2024, setting aside the impugned order u/s 201(1)/201(1A) of the Act dated 22.03.2022, the Ld. CIT(A) had already disposed the appeal on the very same issue on 20.03.2024. In this regard, the assessee relied upon the order dated 31.12.2024 ITA Nos.- 2046 & 2047/Del/2024 Interna�onal Green Scapes Ltd. of Co-ordinate Bench of ITAT, Delhi in the case of M/s IREO Private Limited vs. CIT(TDS) in & others.

The Ld. Sr. DR, on the other hand, supported the order of the Ld. CIT(TDS).

We have heard the rival submissions and perused the material available on record. 9.1 On similar facts, the Co-ordinate Bench, in the case relied upon by the assessee, allowed the appeal of the assessee and set aside the order passed u/s 263 of the Act, of the Ld. CIT(TDS). The relevant findings of the Co-ordinate Bench of the Tribunal in para nos. 11 and 12 of its order are reproduced as under: “11. Considered the rival submissions and material placed on record. We observed that the issue under consideration is payment of EDC to HUDA. The core issue under consideration is payment made to HUDA relating to payment of EDC whether this payment falls under TDS provision or not, however the AO no doubt proceeded to treat the payment made to HUDA as chargeable under the provisions of section 1941 as rental payment and determined the liability u/s 201/201(1A) of the Act. The same issue on which assessee has preferred an appeal before the Id. CIT (A) is still pending for adjudication. However, in the meantime, Hon'ble Delhi High Court in the case of Puri Construction (P.) Ltd. vs. Addl.CIT (supra) passed an order treating the EDC payment falls under the provisions of section 194C on 13.02.2024. By relying on the said decision, ld. PCIT has initiated the proceedings u/s 263 of the Act. This development on the subject of payment of EDC was not available with the AO at the time of passing the assessment order. The recent development forced the ld. PCIT to revise the assessment order treating the same as against the law as erroneous as well as prejudicial to the interest of Revenue. After considering the submissions of both the sides, we observed that the issue under consideration is already pending before ld. CIT(A) and the issue under consideration is not settled considering the fact that Hon'ble 7 ITA Nos.- 2046 & 2047/Del/2024 Interna�onal Green Scapes Ltd. Supreme Court has stayed the operation of Hon'ble Delhi High Court decision in the case of Puri Construction (P.) Ltd. vs. Addl. CIT (supra). After careful consideration, we are of the view that the issue under consideration is payment of EDC to HUDA which is pending before first appellate authority where the provisions of section 1941 or 194C can also be the point of adjudication. However, ld. PCIT found that it is against the law and also observed that it is against the interest of Revenue. After careful consideration, we are of the view that the slab at which the AO calculated liability u/s 201/201(1A) is at 10% considering the same as rental payment. However, Id. PCIT has cancelled the relevant assessment order following the provisions of section 194C for which slab of 2% is applicable. It is not against the interest of Revenue.

After considering the overall facts on record, we observed that the order passed by the AO is not erroneous when the same was passed and also this is a debatable issue not settled considering the fact that the issue was pending before ld. CIT (A) and also Id. PCIT should not have proceeded to initiate proceedings u/s 263 of the Act when the same was pending before the ld. CTT (A). Let alone the fact that there is no prejudicial to the interest of Revenue in this case. Therefore, we are inclined to set aside the order passed u/s 263 of the Act and the same is quashed. Accordingly, this appeal being for AY 2015-16 filed by the assessee is allowed.”

Accordingly, this appeal filed by the assesse is allowed.

Now we take up ITA No.- 2046/Del/2024 for adjudication. 11.1 As discussed above, the AO in this case had applied the provisions of section 194I of the Act, in respect of payment of Rs. 5,34,24,000/- as EDC charges to HUDA. In this regard, the AO has relied upon the Office Memorandum dated 23.12.2017 of the CBDT, wherein it was clarified that payments in the nature of EDC are not to the Government but to HUDA which is a Developing Authority of State, Government of Haryana and it was a taxable entity under the Act, and the provision of TDS would be applicable on such payments. The relevant discussion of the AO in this regard in para 4.2 of his order is reproduced as under: “The CBDT Office Memorandum (UM) dated 23.12.2017 has clarified that payment in the nature of EDC are not to the Government but to HUDA which is a Developing Authority of State Govt. of Haryana and is a taxable entity under the Income Tax Act, 1961. The Board has further clarified that TDS provisions would be applicable on EDC payment made by the Builder to HUDA. The relevant para of the CBDT OM dated 23.12.2017 is reproduced hereunder as:

The Ld. AR submitted before us, that the provisions of section 194I of the Act were not applicable in the present case, and therefore, 12 .- 2046 & 2047/Del/2024 Interna�onal Green Scapes Ltd. the order passed under section 201 was not a valid order. Accordingly, the Ld. AR submitted that addition should to be deleted.

The Ld. Sr. DR, on the other side, supported the orders of the authorities below and submitted that the provisions of Section 194C of the Act was applicable in respect of the payments of Rs. 5,34,24,000/- to HUDA towards EDC, in view of the decision of the Hon’ble Delhi High Court in the case of Puri Constructions Pvt. Ltd. vs. Addl. CIT (Supra).

We have heard the rival submissions and considered the material available on record. In this regard, the Hon’ble Delhi High Court in the case of Puri Constructions (P.) Ltd. us Addl CIT, [2024] 159 taxmann.com 444, vide order dated 13.02.2024, held in para no. 88, that invocation of section 194C of the Act, on EDC payments to Haryana Shahari Vikas Pradhikaran (earlier known as HUDA) was justified. The relevant extracts of this order are reproduced as below: “1. This batch of writ petitions assail the action initiated by the respondents predicated upon a purported failure on the part of the writ petitioners to deduct tax on payments made to the Haryana Shahari Vikas Pradhikaran (earlier known as the Haryana Urban Development Authority, for short HUDA) under Section 194C of the Income Tax Act, 19612. The respondents assert that the External Development Charges which were paid by the writ petitioners to HSVP albeit on the directions of the Director General, Department of Town and Country Planning, Haryana, a department functioning under the Government of Haryana, would clearly fall within the ambit 13 .- 2046 & 2047/Del/2024 Interna�onal Green Scapes Ltd. of Section 194C of the Act and as a consequence of default, the petitioners are liable to be proceeded under Section 201 as also to answer why penalty be not levied in terms of Section 271C of the Act.

We at the outset deem it appropriate to note and observe that we have heard learned counsels for respective sides solely on the question of whether the payment of EDC would fall within the ambit of Section 194C of the Act and whether the writ petitioners can be held liable to have deducted tax at source in terms of that provision. We thus propose to principally answer the primary question and consequentially leave it open for the writ petitioners as well as the respondents to proceed further in respect of notices that may have been issued referable to HSVP The Act EDC DTCP Sections 201 and Section 271C of the Act in accordance with the present judgment. Xxxxx 88. Accordingly, we negative the challenge raised in these writ petitions insofar as the invocation of Section 194C of the Act is concerned and hold that EDC payments would be covered there under. For reasons recorded in the body of this judgement, we also turn down the challenge to the clarification issued by Central Board of Direct Taxes dated 23 Dec 2017". xxxxx 16.1 In view of the above decision of the Hon’ble Delhi High Court, we hold that the provision of section 194C of the Act, on the payment of Rs. 5,34,24,000/- by the assessee to HUDA towards EDC charges would be applicable. Therefore, ground no. 4 of the appeal of the assessee challenging the action of the Ld. CIT(A), in confirming the addition by invoking the provisions of section 194C of the Act is not maintainable, and therefore, this ground of appeal of the assessee is dismissed. .- 2046 & 2047/Del/2024 Interna�onal Green Scapes Ltd. 16.2 However, we agree with the submission made by the assessee in respect of ground no. 3 of the appeal, that the provisions of Section 194I on EDC payments will not be applicable. 16.3 We, therefore, set aside the order of the AO and the Ld. CIT(A) to the extent that the AO is directed to apply the provisions of Section 194C of the Act, on the payment of Rs. 5,34,24,000/- towards EDC charges paid by the assessee to HUDA, and modify his order accordingly. In the result, the appeal of the assessee is allowed for statistical purposes with the above observations.

To sum up, the appeal of the assessee in ITA No.- 2047/Del/2024 is allowed and the appeal of the assessee in is allowed for statistical purposes.