2022 (11) TMI 1439 - AT - Income Tax

TDS u/s 194C - Assessee in default u/s 201(1) 201(1 A) for not deducting tax at source on payment made as External Development Charges to Greater Mohali Development Authority (GMADA) - HELD THAT - We find that an identical issue has been decided by the Coordinate Chandigarh Benches in the case of M/s Sukham Infrastructure Pvt Ld. Chandigarh 2018 (6) TMI 1847 - ITAT CHANDIGARH held that GMADA has been authorized to collect the EDC charges as per the policy decision of the Government and not out of free consent of the parties to the contract which has been executed between the assessee and the Govt. and therefore it cannot be said that assessee has paid the EDC charges to GMADA out of any contractual obligations and liability towards GMADA. Though the developer contributes towards the proportionate cost of infrastructure development by way of EDC Charges the work so carried out by the local authority is not in consequence of specific performance of the contract but out of its own obligations and duties towards the public and thus the contract cannot be said to be a work/service contract and thus on both accounts the provisions of section 194C are not attracted. Nothing has been brought on record or to our notice during the course of hearing that the aforesaid findings of the Coordinate Benches have been disturbed by an order of a Higher Court and therefore taking the same into consideration and following the principle of consistency we are of the considered view that the provisions of section 194C are not attracted on payment of EDC charges to GMADA and thus the demand raised u/s 201(1) read with Section 201(1A) of the Act are hereby set aside. Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the assessee was liable to deduct tax under section 194C of the Income Tax Act on payment of External Development Charges (EDC) to Greater Mohali Development Authority (GMADA).
2. Whether the payment made to GMADA was in pursuance of a work/service contract.
3. Whether the assessee can be held as an assessee in default under section 201(1) read with section 201(1A) of the Income Tax Act for non-deduction of tax at source on EDC payments.

Detailed Analysis:

1. Liability to Deduct Tax under Section 194C:
The core issue was whether the assessee was liable to deduct tax under section 194C of the Income Tax Act on the payment of EDC to GMADA. The Tribunal noted that section 194C mandates tax deduction at source for any sum paid for carrying out any work in pursuance of a contract. The Tribunal referred to the agreement between the assessee and the State Government, which stipulated that the assessee would deposit EDC charges as fixed by the State Government. The Tribunal held that the provisions of section 194C were not applicable since there was no contract executed between the assessee and GMADA specifically for the payment of EDC. The agreement was between the assessee and the State Government, and GMADA was merely an authorized body to collect EDC as per the policy decision of the Government.

2. Nature of Payment - Work/Service Contract:
The Tribunal examined whether the payment of EDC constituted a work/service contract. It referred to the agreement and noted that the State Government provided various incentives and concessions to the assessee for infrastructure development. The EDC was a proportionate cost for infrastructure development carried out by the local authority (GMADA) as per the policy formulated by the Government. The Tribunal concluded that the development work was carried out by the local authority out of its obligations and duties towards the public, and not in consequence of a specific performance of a contract with the assessee. Therefore, the payment of EDC did not constitute a work/service contract, and the provisions of section 194C were not attracted.

3. Assessee in Default under Section 201(1) and 201(1A):
The Tribunal addressed whether the assessee could be held as an assessee in default under section 201(1) read with section 201(1A) for non-deduction of TDS on EDC payments. It referred to the decision in the case of Sukham Infrastructure and other similar cases, where it was held that the provisions of section 194C were not applicable to EDC payments. The Tribunal observed that the findings in these cases had not been disturbed by any higher court. Therefore, following the principle of consistency, the Tribunal held that the assessee was not liable to deduct TDS on EDC payments to GMADA and thus could not be held as an assessee in default under section 201(1) read with section 201(1A).

Conclusion:
The Tribunal allowed the appeals filed by the assessee, setting aside the demand raised under section 201(1) read with section 201(1A) of the Income Tax Act. It held that the provisions of section 194C were not applicable to the payment of EDC charges to GMADA, as there was no work/service contract between the assessee and GMADA, and the development work was carried out by the local authority as per its obligations and duties towards the public.