2017 (10) TMI 726 - AT - Income Tax

TDS u/s 194C - Liability to deduct tax at source on payments made to the developers - Held that - As observed by the AO, the agreement/MOU s entered into by the assessee society with the other developers/contractors also contain clauses similar to the above. On appeal, the ld CIT(A) on perusal of the aforesaid clauses of the agreements has arrived at the conclusion that the payments for the purchase of the sites was calculated on sq. ft. area of the property and the amount was paid for the purchases of completed property and not for development work carried out. CIT(A) found that the agreements were only for purchase of sites and does not involve any works contract . In our view, the aforesaid conclusion/finding of the ld CIT(A) cannot be faulted and the same is a correct reading of the scope of the agreements; which has to be treated as a whole and not in piece meal manner. The mere fact that the contractors/developers were required to lay out 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. Thus, in our considered opinion, the case of the assessee is squarely covered by the decisions 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). We, therefore, 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 against revenue

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. Validity of the demands raised under Sections 201(1) and 201(1A) of the Income-tax Act, 1961 for non-deduction of tax at source.

Issue-wise Detailed Analysis:

1. Requirement to Deduct Tax at Source under Section 194C:

The primary issue was whether the assessee, a co-operative society involved in procuring and developing land for residential layouts, was required to deduct tax at source under Section 194C on payments made to developers/contractors. The Assessing Officer (AO) held that the agreements between the assessee and developers/contractors constituted works contracts, thus attracting provisions of Section 194C. The AO noted that the developers did not own the land at the time of agreement and were responsible for various civil works like laying roads, drainage, and electrification as per the assessee's specifications. Consequently, the AO deemed the assessee in default under Sections 201(1) and 201(1A) for not deducting tax at source.

2. Validity of Demands under Sections 201(1) and 201(1A):

Upon appeal, the Commissioner of Income-tax (Appeals) [CIT(A)] overturned the AO's decision, stating that the payments were for the purchase of completed residential sites and not for development work, thus Section 194C was not applicable. The CIT(A) relied on 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 made for the purchase of sites do not constitute a works contract requiring tax deduction at source. The CIT(A) also referenced similar Tribunal decisions in the cases of Kautilya House Building Co-operative Society Ltd., Railway House Building Co-operative Society Ltd., and Telecom Employees Co-operative Housing Society Ltd., which supported the view that such agreements were for the purchase of land and not works contracts.

The Revenue appealed to the Tribunal, arguing that the agreements were composite contracts involving both land acquisition and development, thus falling under Section 194C. The Revenue contended that the CIT(A) erred in relying on the aforementioned decisions and that the agreements clearly indicated a composite works contract.

Tribunal's Findings:

The Tribunal examined the agreements and found that they primarily involved the purchase of developed residential sites, with the developers responsible for procuring land and executing necessary civil works before transferring the completed sites to the assessee. The Tribunal noted that the payments were calculated based on the area of the property and were for the purchase of completed sites, not for the development work per se.

The Tribunal upheld the CIT(A)'s conclusion that the agreements did not constitute works contracts and thus did not attract provisions of Section 194C. The Tribunal reiterated that the agreements should be interpreted as a whole and not in a piecemeal manner. The Tribunal also emphasized that the mere requirement for developers to undertake certain activities before delivering the completed sites did not transform the agreements into works contracts.

The Tribunal found the Revenue's contention that the Karnataka High Court's decision was distinguishable unpersuasive, noting that similar agreements had been previously adjudicated by the Tribunal in favor of the assessee. The Tribunal, therefore, upheld the CIT(A)'s decision to delete the demands raised under Sections 201(1) and 201(1A).

Conclusion:

The Tribunal dismissed the Revenue's appeals for the assessment years 2008-09 to 2014-15, affirming that the assessee was not required to deduct tax at source under Section 194C on payments made to developers/contractors, and upheld the deletion of demands under Sections 201(1) and 201(1A).