2022 (6) TMI 687 - AT - Income Tax

Penalty under Section 271C - non deduction of tax at source as per provisions of Chapter XVII-B towards amount paid as External Development Charges (EDC) to Directorate of Town and Country Planning, Haryana (Haryana Government) (DGTCP) through banking channel favouring Haryana Urban Development Authority (HUDA) - HELD THAT - The issue is no longer res Integra. The identical issue has come up for adjudication before the Co-ordinate Bench of Tribunal in the case of Spaze Tower Pvt. Ltd. 2022 (5) TMI 1344 - ITAT DELHI Thus the assessee has not committed any violation of provision of Chapter XVII B of the Act by making payment towards EDC charges to DGTCP Haryana through HUDA without deduction of TDS. - Decided in favour of assessee.

Summary

Issues involved:
Challenge of penalty under Section 271C of the Income Tax Act for non-deduction of tax at source on payments made as External Development Charges (EDC) to Haryana Urban Development Authority (HUDA).

Analysis:

Issue 1: Challenge of penalty under Section 271C for non-deduction of tax at source on EDC payments:
- The appellant challenged the penalty imposed under Section 271C for not deducting tax at source on payments made as External Development Charges (EDC) to Haryana Urban Development Authority (HUDA).
- The Co-ordinate Bench of the Tribunal in a similar case found that the payment to HUDA is considered a payment to the State Government, exempting it from TDS obligations under Section 196 of the Act.
- Referring to a clarification by the Directorate of Town and Country Planning, Haryana, the Co-ordinate Bench concluded that TDS deduction was not required for payments made to HUDA on behalf of the State Government.
- Another case, Perfect Constech Pvt. Ltd. vs. Additional Commissioner of Income Tax, supported the view that Section 194C provisions do not apply to payments to agencies like HUDA on behalf of the State Government, leading to the cancellation of the penalty under Section 271C.

Issue 2: Justification for cancellation of penalty under Section 271C:
- The Tribunal concurred with the Co-ordinate Bench's findings and held that the penalties imposed for Assessment Years 2014-15 and 2017-18 were not justified as the appellant did not violate the provisions of Chapter XVII B of the Act by paying EDC charges to DGTCP Haryana through HUDA without TDS deduction.
- Consequently, both appeals of the assessee were allowed, and the penalties under Section 271C were canceled.

This judgment highlights the interpretation of TDS obligations on payments made to government agencies like HUDA on behalf of the State Government, emphasizing the exemption from TDS deduction under certain circumstances as clarified by the relevant authorities and supported by previous judicial decisions.