2016 (4) TMI 1269 - AT - Income Tax

TDS u/s 194C - payments made by the respondent-co-operative society to Shri Lakshman stated to have been paid to acquire lands - whether are in the nature of payment made for any work contract or consideration paid for purchase of sites? - Held that - A perusal of the clauses reveals that it is a case of sale of developed sites of the developer to individual members of the cooperative 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. - Decided against revenue

Summary

Issues Involved:
1. Whether the respondent-co-operative society was required to deduct tax at source under Section 194C of the Income-tax Act on payments made to the developer.
2. Whether the interest levied under Section 201(1A) for non-deduction of tax at source was correctly deleted by the CIT(A).
3. Whether the delay in filing the appeal by the revenue should be condoned.

Issue-wise Detailed Analysis:

1. Requirement to Deduct Tax at Source under Section 194C:
The primary issue revolves around whether the payments made by the respondent-co-operative society to the developer were subject to tax deduction at source under Section 194C of the Income-tax Act, 1961. The revenue contended that the agreement between the society and the developer constituted a "works contract," necessitating tax deduction at source. The CIT(A), however, held that there was no agreement for construction or any activity that could be classified as a works contract. The CIT(A) referenced the decision of the Karnataka High Court in the case of Karnataka State Judicial Department Employees House Building Co-operative Society, which established that if no work was executed by the developer, the provisions of Section 194C would not apply. The Tribunal upheld this view, noting that the agreement and sale deed indicated a sale of developed sites rather than a works contract, thus exempting the society from the obligation to deduct tax at source.

2. Deletion of Interest Levied under Section 201(1A):
The second issue pertains to the deletion of interest levied under Section 201(1A) for non-deduction of tax at source. The revenue argued that the assessee, having defaulted under Section 201(1), was liable for interest payment under Section 201(1A), which is mandatory. The CIT(A) had deleted this interest, aligning with the judgment that no tax deduction was required under Section 194C. Since the Tribunal upheld the CIT(A)'s decision that Section 194C was not applicable, the deletion of interest under Section 201(1A) was also affirmed.

3. Condonation of Delay in Filing the Appeal:
The third issue involved the condonation of a 144-day delay in filing the appeal by the revenue. The delay was attributed to the ITO's bona fide belief that the decision of the Karnataka High Court was accepted on merits and that no further appeal was filed due to the low tax effect. Upon realizing this mistake, steps were taken to file the appeal. The Tribunal, considering the Supreme Court's directive in the case of Collector, Land Acquisition vs. Mst. Khatiji & Others, condoned the delay, emphasizing the need to advance substantive justice. The respondent-co-operative society had no serious objection to this condonation.

Conclusion:
The Tribunal concluded that the payments made by the respondent-co-operative society to the developer were for the purchase of developed sites and not for any works contract. Therefore, the provisions of Section 194C were not applicable, and the society was not required to deduct tax at source. Consequently, the interest levied under Section 201(1A) was also correctly deleted. The Tribunal upheld the CIT(A)'s orders and dismissed the revenue's appeals. The order was pronounced in the open court on April 7, 2016.