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Facts
The Revenue preferred appeals against orders of the CIT(A) that deleted demands raised for non-deduction of TDS by the assessee company on External Development Charges (EDC) paid to HUDA. The AO held the assessee in default under sections 201(1)/201(1A) for non-deduction of TDS.
Held
The Tribunal held that EDC payments made to HUDA attract TDS deduction under section 194C of the Income Tax Act, as it's a contractual payment. The Tribunal set aside the CIT(A)'s decision and restored the AO's order, allowing the Revenue's appeal.
Key Issues
Whether External Development Charges (EDC) paid to HUDA are liable for TDS deduction under Section 194C of the Income Tax Act, and if the assessee was in default for non-deduction.
Sections Cited
201, 201(1), 201(1A), 194C, 251(1), 221, 271C, 273B, 197, 197A, 196, 10A
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Income Tax Appellate Tribunal, DELHI ‘B’ BENCH,
Before: MS. MADHUMITA ROY, & SHRI NAVEEN CHANDRA
The above captioned bunch of 7 separate appeals by the Revenue are preferred against 7 separate orders of the ld. CIT(A), New Delhi dated 03.12.2024, 03.12.2024, 04.12.2024, 03.12.2024, 03.12.2024, 03.12.2024 and 04.12.2024 respectively.
2. Since common grievances are involved in the captioned 7 appeals and pertain to connected assessees, they were heard together and are disposed of by this common order for the sake of convenience and brevity. Page 2 of 11 to 442, 450 & 455/DEL/2024 Dy. CIT IREO Pvt Ltd
Representatives of both the sides were heard at length. Case records carefully perused. Relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules.
Both the parties before us fairly agreed that be taken as the lead case and the decision rendered thereon would apply with equal force for other assessees also in the same group in view of identical facts, except with variance in figures. Accordingly, we proceed to take up the appeal in ITA No. 438/DEL/2025.
The grounds raised by the Revenue read as under:
“1. That on the facts and in the circumstances of the case, the Ld. CIT(A)-29, New Delhi has erred in deleting the demand raised w/s.201(1)/201(1A) on account of non-deduction of TDS by the Deductor Company on EDC payments to HUDA and not considering the judgment of Hon'ble jurisdictional High Court, Delhi in the case of M/s Puri Construction Private Limited Vs. Addl. CIT & Ors. 159 taxmann.com 444 (Delhi) [2024] 462 ITR 326 (Delhi) on this issue.
That On the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate the facts of the case judiciously that External Development Charges (EDC) paid by deductor company to HUDA are liable for deduction of TDS u/s. 194C of the Income Tax Act, 1961.
Page 3 of 11 to 442, 450 & 455/DEL/2024 Dy. CIT IREO Pvt Ltd
3. That On the facts and in the circumstances of the case and in light of judgment of the Hon'ble jurisdictional High Court, Delhi in the case of M/s Puri Construction Private Limited Vs. Addl. CIT & Ors., it was within the power of the Ld. CIT(A) to hold that the Deductor Company has defaulted due to non-deduction of TDS on EDC payments to HUDA u/s 194C of the Act.
4. On the facts and in the circumstances of the case, the Ld. CIT(A)-29, New Delhi failed to exercise the powers conferred upon him under Section 251(1) of the Income Tax Act, 1961. Ld. CIT(A) may confirm, reduce, modify, or annul the assessment, in the light of facts & circumstances of the case and applicable legal principles 5. That the appellant craves leave to reserve itself the right to add, alter, amend and substitute any grounds of appeal at or before the time of hearing.”
6. At the very outset, the ld. DR vehemently stated that the issue involved in all these 7 appeals is identical and has been decided in favour of the Revenue and against the assessee by the decision of the Hon'ble jurisdictional High Court at Delhi in the case of M/s Puri Construction Private Limited [supra].
On the other hand, the ld. counsel for the assessee fairly conceded to the same but added that the appeal against the decision of M/s Puri Construction Private Limited is pending before the Supreme Court. The ld AR however, conceded that there is no stay granted by the hon’ble
Page 4 of 11 to 442, 450 & 455/DEL/2024 Dy. CIT IREO Pvt Ltd Supreme Court on the decision of M/s Puri Construction Private Limited.
We have heard the rival submissions and have carefully perused the materials on record. Brief facts of the case as we understand is that during the FY, the assessee has paid a sum of Rs.125,53,21,999/- to HUDA towards EDC charges. The assessee has not deducted the TDS on the said amount. The AO, therefore held the assessee in default u/s 201(1)/201(1A) of the Act for non-deduction of TDS on the expenses above.
On the issue of TDS on EDC payment made to HUDA, the Hon'ble Jurisdictional High Court in the case of Puri Construction Pvt Ltd [2024] 462 ITR 326 (Delhi) has held the issue in the favour of Revenue as under:
“Held that the objection raised on the maintainability of writ petitions, which had not been raised at the first instance, on the ground that the orders passed under section 201 were appealable under the provisions of the Act was unsustainable since most of these writ petitions were entertained as far back as in 2019 and 2021 and after hearing the respective parties, the court had passed interim orders. Therefore, it would be wholly inequitable to relegate the assessees to pursue an alternative remedy. Since the parties had addressed submissions on the merits of the questions which arose and the jurisdictional challenge that stood raised, there was no justification to accept the objections raised.. That merely because the external development charges were determined and directed to be paid by the Directorate of Town and Country Planning, it did not deprive the payment of its intrinsic characteristic, namely, of being a payment made to the Authority.
Page 5 of 11 to 442, 450 & 455/DEL/2024 Dy. CIT IREO Pvt Ltd
The submission of a lack of privity between the assessees and the Authority was to be rejected since section 194C did not contemplate the existence of a contractual relationship between a person who was responsible for paying a sum and the contractor as defined in that provision. The existence of a contract was only envisaged to be a factor pertinent to an arrangement which the contractor had with a specified person. That a statutory obligation to carry out external development could not be doubted since the 1977 Act envisaged the Authority as being an authority charged with undertaking external development works in all areas falling within an urban area and had been constituted as a specialised agency to carry out external development works in colonies and areas. The communication, dated June 19, 2018, of the Directorate of Town and Country Planning evidenced an acknowledgment of the Authority undertaking external development work in and around a colony or area. It had admitted to an arrangement which was in existence up to March 31, 2017 in terms of which the Directorate of Town and Country Planning collected external development charges from colonisers in the form of a bank draft drawn in favour of and sent to the Authority which was an executing agency working for and on behalf of the State Government for which funds were provided to the Authority through the Directorate of Town and Country Planning, and that since receipts on account of external development charges were found to be insufficient, it had formulated a new scheme and for which appropriate budgetary provisions were made for execution of all external development works by it. It was on the promulgation of such scheme that the external development charges with effect from the financial year 2017-18 were deposited directly with the State Government and constituted a part of the consolidated fund of the State. Post the promulgation of that scheme all payments towards external development charges were made through the Directorate of Town and Country Planning and the required funds for execution of development works were thereafter released to the Authority upon sanction being granted by the Finance Department of the State Government. This communication therefore, evidenced that all external development charges were made to the Authority, at least prior to March 31, 2017 pursuant to an understanding that those funds would be utilised towards external development. All the payments having been made to the Authority under the directives of the Directorate of Town and Country Planning, they were Page 6 of 11 to 442, 450 & 455/DEL/2024 Dy. CIT IREO Pvt Ltd directed towards subserving an arrangement existing between the Authority and the State Government for external development works being carried out by the former. Though this arrangement did not stand encapsulated in a formally executed contract or instrument, there was in existence an understanding between the State Government and the Authority for external development work being executed by it and for the funds remitted to it being utilized for such purposes. Therefore, the external development charges were payments made directly to the Authority and prior to the financial year 2017-18. In terms of the provisions of the 1977 Act read with the Rules and the statutory obligations placed upon the Authority, there was in existence an understanding or an arrangement between the Authority and the State Government for the execution of external development works. The existence of a contract was to be construed from the arrangement which existed between the Authority and the State Government and having been duly acknowledged by the Directorate of Town and Country Planning itself, the absence of a written or codified agreement would not be relevant for the applicability of section 194C. That merely because an exercise of quantification was undertaken by the specified person, it would have no bearing on the applicability of section 194C. Not only the provisions of the 1977 Act, but also the forms and bilateral agreements executed by applicants, mandated that all payments of external development charges were to be drawn in favour of the Authority. Although they were routed through the Directorate of Town and Country Planning, those payments undoubtedly were to the account of the Authority. The statute as well as the licence conditions thus placed the assessees under a binding obligation to advance all external development charges payments in favour of the Authority. These qualified the responsibility which section 194C placed upon a payer who made payments to a contractor. The fact that external development charges were determined, computed or were recoverable by the Directorate of Town and Country Planning was wholly inconsequential since section 194C was solely concerned with a payment being made to a contractor who had an arrangement with a specified person. The moment the assessees effected a payment in favour of the Authority in connection with the external development work which was to be executed by it pursuant to the arrangement that existed between the entity and the State Government, the provisions of section 194C stood attracted. That the liability to deduct tax Page 7 of 11 to 442, 450 & 455/DEL/2024 Dy. CIT IREO Pvt Ltd according to the provisions of sections 197 and 197A, stood effaced only if a recipient obtained a certificate of exemption or where a beneficiary produced a certificate which obliged the payer to deduct tax at a rate lower than that prescribed. The Authority had neither obtained certification as contemplated under these provisions nor had obtained a declaration that moneys received by it were exempt from tax. Therefore, the assessees did not stand absolved of the obligation to deduct tax on payments that were being made to the Authority. That the mere constitution of the Authority by a statutory enactment did not make it “Government”. The Authority did not fall within the ambit of clause (1) or clause (3) of section 196. The external development charges payment made to the Authority was a not a payment made to the State, the income having been placed in the hands of the Authority at its disposal. Even according to the Directorate of Town and Country Planning external development charges were made in favour of the Authority till March 31, 2017 and only thereafter the payments were deposited with the Directorate of Town and Country Planning. Even if the Authority discharged functions akin to or similar to governmental obligations or performed activities closely connected with State functions, it would not result in recognising it as “Government” immune from taxation under article 289 of the Constitution of India. That section 196 is not dependent upon a directive to pay. It is only concerned with whether the payment is made to a Government or an authority specified therein. The fact that arrears of external development charges could be recovered as arrears of land revenue was immaterial. Section 10A was merely a mode of recovery of external development charges. Even if that provision were to elevate external development charges to a statutory levy, it would not be determinative of whether the payment fell within the scope of section 196. The amount paid would be exempt from the rigours of tax deduction at source only if it was made to a category of entities specified. That there was no justification to invoke the prerogative writ powers on the issue of show-cause notices since the assessees in the course of proceedings had been afforded adequate opportunities to establish that section 194C would not be attracted and the issue of its applicability also had been raised in the counter affidavits which were filed and the assessees had adequate notice. Therefore, the principles of prejudice were not attracted and it would be inappropriate to interfere with the notices on this ground That the Page 8 of 11 to 442, 450 & 455/DEL/2024 Dy. CIT IREO Pvt Ltd final orders passed under section 201 were to be quashed and set aside. The legal position of penalty be it either under section 221 or 271C was not an inevitable corollary in case of default and the position was made explicit by the second proviso to section 221 and section 273B. The imposition of penalty where a question with respect to taxability had remained unclear or where an assessee had good and sufficient cause not to deposit the tax, was subject to due verification of whether any final orders had been passed against any of the assessees and the scope of a person in default and penalty provisions.”
Following the decision in Puri Construction (supra), the 10. coordinate bench of ITAT Delhi Benches in another case of assessee’s group concern, M/s Ireo Grace Realtech Private Limited in & 28/Del/2025 dated 18.08.2025 has decided the issue in favour of the Revenue as under:
3. Suffice to say, a combine perusal of both the instant case files reveal that the Revenue herein is aggrieved against the CIT(A)’s findings, treating the assessee as not the assessee in default u/s 201(1A) of the Act for not having deducted TDS on external development charges “EDC” payments made to the Haryana Urban Development Authority (HUDA) involving varying sums in. This being the clinching factual position, the assessee could hardly dispute that the hon’ble jurisdictional high court’s landmark decision in M/s Puri Construction Pvt. Ltd. (supra) has already settled the issue in the department’s favour that payment of such “EDC” charges indeed attracts TDS deduction being contractual in nature u/s 194C of the Act. We, thus, find no reason to express our concurrence with the assessee’s vehement contentions supporting the CIT(A)’s lower appellate findings, under challenge. The Revenue succeeds in its identical sole substantive ground under appeal in both these cases in very terms. No other ground or argument has been raised before us. Page 9 of 11 to 442, 450 & 455/DEL/2024 Dy. CIT IREO Pvt Ltd
In view of the discussion as above, we set aside the decision of the CIT(A) and restore the order passed by the assessing officer wherein he has held that the assessee is in default u/s 201(1)/201(1A) of the Act for not having deducted TDS on external development charges “EDC” payments made to the Haryana Urban Development Authority (HUDA).
The grounds of appeal are allowed.
12. As the facts are identical in the other six appeals, the decision in the above case, applies mutatis mutandis to the facts of the other six appeals. The grounds in the above six appeals of revenue is allowed.
In the result, all the captioned 7 appeals of the Revenue in to 442, 450 and 455/DEL/2025 stand allowed.
The order is pronounced in the open court on 03.09.2025.