2024 (1) TMI 113 - AT - Income Tax

TDS u/s 194A - assessee in default u/s 201(1) - non deduction of tax at source on payment of external development charges (EDC) to Haryana Urban Development Authority (HUDA) - HELD THAT - We find that the ld. CIT(A) had granted relief by placing reliance on the decisions of the co-ordinate bench of this tribunal 2019 (9) TMI 39 - ITAT DELHI wherein it was held that the EDC paid to HUDA would not be liable for deduction of tax at source and accordingly the assessee cannot be treated as assessee in default in terms of section 201(1) of the Act and no tax could be recovered from it for non-deduction of tax at source. Consequentially the assessee could not be made liable to pay interest u/s 201(1A) of the Act. Accordingly, the grounds raised by the revenue are dismissed.

Summary

Issues Involved:
1. Whether the assessee was liable to deduct tax at source on External Development Charges (EDC) paid to HUDA u/s 194C.
2. Whether the assessee was liable to deduct TDS on interest paid on EDC/IDC charges to HUDA u/s 194A.

Summary:

Issue 1: Liability to Deduct TDS on EDC u/s 194C

The Revenue argued that the CIT(A) erred in not appreciating that the assessee was liable to deduct tax at source on External Development Charges (EDC) paid to HUDA, as per CBDT's Office Memorandum dated 23.12.2017. The Assessing Officer (AO) held that EDC payments are in the nature of contractual payments covered u/s 194C and thus required TDS deduction. However, the CIT(A) and the ITAT found that the payment to HUDA was not pursuant to any contract between the assessee and HUDA but was levied by the Haryana Government for external development. The ITAT referred to several precedents, including the case of M/s RPS Infrastructure Limited vs. Addl. CIT, where it was held that the assessee was not required to deduct TDS on EDC payments as these were not contractual payments but statutory charges. Consequently, the assessee could not be treated as 'assessee in default' u/s 201(1) and was not liable for interest u/s 201(1A).

Issue 2: Liability to Deduct TDS on Interest Paid on EDC/IDC Charges u/s 194A

The AO also held that the assessee was required to deduct TDS on the interest paid on EDC/IDC charges to HUDA, considering it as a payment covered u/s 194A. The CIT(A) and the ITAT, however, concluded that since the payment to HUDA was actually a payment to the Haryana Government, the provisions of section 196 of the Act applied, which exempts such payments from TDS. Therefore, the assessee was not liable to deduct TDS on the interest component of EDC/IDC charges.

Conclusion:

The ITAT upheld the CIT(A)'s order, granting relief to the assessee by ruling that the EDC paid to HUDA was not liable for TDS deduction, and the assessee could not be treated as 'assessee in default' u/s 201(1). Consequently, no interest u/s 201(1A) was payable. The appeals of the Revenue were dismissed.

Order pronounced in the open court on this 21st day of December, 2023.