2018 (1) TMI 841 - AT - Income Tax

TDS u/s 194C - liability to deduct tax at source on the payments made to developers/contractors by assessee co-operative society - assessee-in-default - Held that - The mere fact that the contractor/developer were required to layout roads and undertake other activities before the delivery of the completed sites cannot be either determinative of the facts or need to mean that the agreements entered into by the assessee society is a composite contract and amounts to a works contract. Various co-ordinate benches of this Tribunal after examining the same has applied the ratio of the judgment of the Hon ble Karnataka High Court in the case of Karnataka State Judicial Department Employees House Building Co-operative Society Ltd., (2010 (3) TMI 1211 - KARNATAKA HIGH COURT) and have held that there was no requirement for deduction of tax at source u/s 194C of the Act. Uphold the impugned orders of the ld CIT(A) deleting the demands raised by the AO u/s 201(1) and 201(1A) of the Act - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the assessee was required to deduct tax at source under Section 194C of the Income-tax Act, 1961 on payments made to developers/contractors.
2. Whether the assessee was correctly held as an assessee in default under Sections 201(1) and 201(1A) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Requirement to Deduct Tax at Source under Section 194C
The primary issue revolves around whether the payments made by the assessee, a co-operative society, to developers/contractors for the acquisition of land and formation of residential layouts, constituted a "works contract" under Section 194C of the Income-tax Act, 1961, thereby necessitating tax deduction at source.

The Assessing Officer (AO) observed that the agreements between the assessee and M/s Jaya Surya Developers involved activities such as laying of roads, drainage, electrification, etc., which were considered composite work contracts. Consequently, the AO held that the provisions of Section 194C were applicable, and the assessee's failure to deduct tax at source rendered it an assessee in default under Sections 201(1) and 201(1A).

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] concluded that the payments were for the purchase of completed property and not for development work, thus Section 194C was not applicable. The CIT(A) relied on judicial precedents, including the Karnataka High Court's decision in the case of Karnataka State Judicial Department Employees House Building Co-operative Society Ltd., which held that payments for purchase of sites did not necessitate tax deduction at source.

The Tribunal upheld the CIT(A)'s decision, noting that the agreements essentially related to the purchase of land and development of residential sites, and not to a works contract. The Tribunal emphasized that the agreements should be treated as a whole and not in a piecemeal manner. The Tribunal also referenced similar cases where it was held that there was no requirement for tax deduction at source under Section 194C.

Issue 2: Assessee in Default under Sections 201(1) and 201(1A)
The AO's orders under Sections 201(1) and 201(1A) were based on the premise that the assessee failed to deduct tax at source on payments made to developers/contractors, thus making the assessee an assessee in default.

The CIT(A) overturned these orders, stating that the agreements did not constitute a works contract, and therefore, the provisions of Section 194C were not attracted. This decision was supported by judicial precedents that were in favor of the assessee.

The Tribunal concurred with the CIT(A)'s findings, noting that the agreements were for the purchase of sites and did not involve any works contract. The Tribunal cited the Karnataka High Court's decision and other co-ordinate bench decisions that supported the view that there was no requirement for tax deduction at source under Section 194C.

Conclusion:
The Tribunal upheld the CIT(A)'s orders, concluding that the assessee was not required to deduct tax at source under Section 194C, and therefore, was not an assessee in default under Sections 201(1) and 201(1A). The appeals filed by the Revenue were dismissed.