2021 (3) TMI 258 - AT - Income Tax

TDS u/s 194IA - refundable security deposit paid to the land owners - non deduction of TDS - proceedings under section 201(1) and 201(1A) - Transfer u/s 2(47) - Contention of the learned Authorised Representative is that there is no applicability of Section 194-IA of the Act since there was no transfer in terms of Section 2(47)(v) of the Act in relation to the JDA cum General Power of Attorney dt.3.6.2013 - HELD THAT - As carefully gone through the various clauses of JDA cum General Power of Attorney to see whether the consideration received by the assessee is in terms of transfer of immovable property in terms of Section 2(47)(v) of the Act. In the present case, an amount of ₹ 21.85 Crores has been paid to 54 land owners which was shown as interest free Refundable Security Deposit in the JDA cum General Power of Attorney and this security deposit paid by the assessee is recoverable through sale of constructed area of the land owners share which is specified in Clause 15 of the JDA cum General Power of Attorney. After obtaining the consent from the land owners, the assessee shall take appropriate steps to obtain No Objection Certificate, other permissions required for undertaking the Project within 12 months from the date of the JDA. As seen from the above, it is actually mentioned that the assessee is only permitted by the land owners to develop the scheduled property as residential apartment buildings and also mentioned that it cannot be construed as delivery or possession in terms of Section 53 of the T.P. Act r.w.s. 2(47)(v) of the Act. Legal possession of scheduled property are continue to remain with the possession of the land owner. There is a time limit to get the permission from the competent authority which is 12 months from the date of Agreement, thereafter 60 months time to complete the construction of residential apartment buildings form the receipt of the sanction plan, thereafter grace period has been given which show that the time is the essence of the contract. In the Assessment Year under consideration, nothing is brought on record to show that the assessee got approval of the sanctioned plan vis- -vis any construction is started. Being so, the argument of the ld. DR is that there was a transfer of immovable property in the assessment year under consideration is not tenable. This is so, because the transferee is not able to complete any act as mentioned in JDA cum General Power of Attorney. The transferee only made payment of interest free refundable security deposit of ₹ 21.85 Crores to the land owners as per clause No. 15. There was a condition in Clause No. 15 that the security deposit paid by the present assessee to the land owner shall be recovered through sale of the part of the owners constructed area. Thus even if it is advance payment, it is not linked to the transfer of immovable property as enumerated in Section 194-IA of the Act, since the condition laid down in Section 2(47)(v) of the Act was not complied with within the meaning of Section 53A of the T.P. Act, so as to deduct TDS by the assessee on the said refundable security deposit. The assessee cannot be hold as the assessee in default u/s. 201(1) and 201(1A) of the Act. Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Section 194-IA of the Income Tax Act, 1961.
2. Applicability of Section 201(1) of the Income Tax Act, 1961.
3. Applicability of Section 201(1A) of the Income Tax Act, 1961.

Detailed Analysis:

1. Applicability of Section 194-IA of the Income Tax Act, 1961:
The primary issue was whether the refundable security deposits made by the assessee to landowners amounting to ?21,85,00,000 were liable for TDS under Section 194-IA. The assessee contended that the deposits were refundable and not consideration for the transfer of immovable property, thus not attracting TDS provisions. The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)] concluded otherwise, asserting that the refundable security deposits constituted "consideration" for the transfer of immovable property as per Section 194-IA.

The Tribunal examined the Joint Development Agreement (JDA) and found that the agreement permitted the assessee to develop the property but did not transfer possession under Section 53A of the Transfer of Property Act, 1882. The Tribunal concluded that the refundable security deposit did not constitute consideration for the transfer of immovable property and thus did not attract TDS under Section 194-IA.

2. Applicability of Section 201(1) of the Income Tax Act, 1961:
The AO treated the assessee as an "assessee in default" under Section 201(1) for failing to deduct tax at source from the refundable security deposits. The Tribunal noted that Section 201(1) applies only if the sum paid constitutes income in the hands of the recipient and the recipient has not paid the tax directly. The Tribunal found that the refundable security deposit did not constitute income in the hands of the landowners and, therefore, the assessee could not be treated as an "assessee in default."

The Tribunal also highlighted that the primary liability to discharge tax is on the recipient of the income. The Tribunal referred to Supreme Court judgments and CBDT Circulars, which support the proposition that TDS provisions apply only if the amount paid constitutes income chargeable to tax.

3. Applicability of Section 201(1A) of the Income Tax Act, 1961:
The AO levied interest under Section 201(1A) for the alleged default in deducting tax at source. The Tribunal found that since the refundable security deposit did not constitute income, there was no liability to deduct tax at source, and consequently, no interest was leviable under Section 201(1A).

The Tribunal referred to several judicial precedents, including Supreme Court and High Court decisions, which support the view that interest under Section 201(1A) is not applicable if the primary liability to pay tax is on the recipient and not on the deductor.

Conclusion:
The Tribunal concluded that the refundable security deposits paid by the assessee did not constitute consideration for the transfer of immovable property and thus did not attract TDS under Section 194-IA. Consequently, the assessee could not be treated as an "assessee in default" under Section 201(1), and no interest was leviable under Section 201(1A). The appeal of the assessee was allowed.