2024 (7) TMI 1591 - AT - Income Tax

TDS u/s 194IC - payment made by the assessee to the tenants towards alternate accommodation charges/hardship allowance/rent - HELD THAT - As per the terms of the agreement the assessee agreed to pay a fixed sum per Sq.ft for the temporary alternate accommodation to each of the tenants for the reason that the existing property is to be demolished for re-development. The term consideration is not specifically defined for the purpose of section 194IC and its meaning has to be inferred from the definition of the term specified agreement as extracted above. As per the definition it is the agreement entered into between the owner and the developer allowing the developer to develop the real estate project in consideration of share in the land or building or both in such project with or without payment of part of the consideration in cash. Therefore in our considered view any sum paid under the specified agreement to be treated as a consideration should have been paid as part of a share in the land or building or both including cash payments. In the given case the payment towards alternate accommodation/hardship allowance is in the nature of a compensation paid by the developer towards hardship suffered by the owner / tenant due to dispossession and is not paid as part of a share in the land or building or both. The terms of the agreement in assessee s case makes it clear that the payment is made towards compensation for handing over the vacant possession of the property and towards rent if any payable by the tenants in the alternate accommodation until the completion of the re-development. Therefore we are of the view that the Alternate accommodation charges / rent cannot be treated as a consideration paid as part of a share in the land or building or both under the specified agreement and would not fall within the provisions of section 194IC. No default for non-deduction and non-payment of TDS u/s 194IC. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issue considered in this judgment is whether the payments made by the assessee to the tenants of M/s Dalal Estate Co-operative Housing Society Ltd. towards alternate accommodation charges or hardship allowance are liable for tax deduction at source (TDS) under section 194IC of the Income Tax Act.

ISSUE-WISE DETAILED ANALYSIS

Legal Framework and Precedents:

The relevant legal provisions under consideration are sections 194IC and 45(5A) of the Income Tax Act. Section 194IC mandates TDS on payments made under a specified agreement as defined in section 45(5A). Section 45(5A) deals with capital gains arising from the transfer of a capital asset under a specified agreement.

Court's Interpretation and Reasoning:

The Tribunal analyzed whether the payments made by the assessee qualify as "consideration" under the specified agreement as per section 45(5A). The Tribunal noted that the term "consideration" is not explicitly defined in section 194IC, and its meaning must be inferred from the context of the specified agreement, which involves an agreement between the owner and the developer for the development of a real estate project.

Key Evidence and Findings:

The Tribunal observed that the payments made by the assessee were compensation for hardship faced by the tenants due to the redevelopment project, not as consideration for a share in the land or building. The agreement specified that the payments were for alternate accommodation and hardship allowance, not for transferring any capital asset.

Application of Law to Facts:

The Tribunal concluded that the payments made by the assessee were not part of the consideration for a share in the land or building under the specified agreement. Therefore, these payments do not fall within the ambit of section 194IC, which requires TDS on consideration paid under such agreements.

Treatment of Competing Arguments:

The assessee argued that the payments were not liable for TDS as they were not consideration for the transfer of a capital asset. The Revenue contended that any payment under the specified agreement should attract TDS under section 194IC. The Tribunal sided with the assessee, emphasizing that the payments were compensatory and not consideration under section 45(5A).

Conclusions:

The Tribunal concluded that the payments made by the assessee towards alternate accommodation and hardship allowance do not qualify as consideration under the specified agreement and, therefore, are not subject to TDS under section 194IC.

SIGNIFICANT HOLDINGS

The Tribunal held that the payments made by the assessee for alternate accommodation and hardship allowance are not liable for TDS under section 194IC. The Tribunal emphasized that such payments are compensatory in nature and not part of the consideration for a share in the land or building under the specified agreement.

Core Principles Established:

The Tribunal established that for a payment to attract TDS under section 194IC, it must be part of the consideration for a share in the land or building under the specified agreement. Compensatory payments for hardship or alternate accommodation do not fall within this scope.

Final Determinations on Each Issue:

The Tribunal determined that the assessee is not an assessee in default for non-deduction and non-payment of TDS on the payments made towards alternate accommodation and hardship allowance. Consequently, the appeals for the assessment years 2018-19 and 2019-20 were allowed.