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TMI Blog2022 (11) TMI 1439X X X X Extracts X X X X X X X X Extracts X X X X ..... out of its own obligations and duties towards the public and thus, the contract cannot be said to be a work/service contract and thus, on both accounts, the provisions of section 194C are not attracted. Nothing has been brought on record or to our notice during the course of hearing that the aforesaid findings of the Coordinate Benches have been disturbed by an order of a Higher Court and therefore, taking the same into consideration and following the principle of consistency, we are of the considered view that the provisions of section 194C are not attracted on payment of EDC charges to GMADA and thus, the demand raised u/s 201(1) read with Section 201(1A) of the Act are hereby set aside. Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... ity and for the purposes, the assessee has paid External Development Charges (EDC) of Rs. 2,91,33,000/- to Greater Mohali Area Development Authority (GMADA). During the course of TDS proceedings before the ITO(TDS), Chandigarh, a show cause was issued to the assessee to furnish the details of the payments made to GMADA and compliance with the TDS provisions u/s 194C of the Income Tax Act, 1961 (hereinafter called 'the Act'). 4. In response to the show cause, the assessee submitted that it is not required to deduct tax at source u/s 194C of the Act on payment to GMADA and for the purposes, reference was drawn to the letter received from GMADA wherein it was stated that the provisions of section 194C of the Act are not applicable to EDC payments and, hence, keeping in view the contents of the said letter, TDS was not deducted on payment of EDC charges. The reply so filed by the assessee was considered but not found acceptable to the Assessing Officer (AO). As per the AO, the payment made by the assessee on account of EDC is an advance payment for a work which is in the nature of Civil Work that clearly covered under Service Contract, hence, the assessee was liable to deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Act, and TDS provisions are applicable on EDC payable by the developer to HUDA, therefore I hold that EDC charges paid to GMADA is also liable to deduction of Tax by the developer. Thus, the Assessing Officer (TDS) has rightly held as the appellant in assessee in default under the provision of section 201(1)/201 (1A) of the Act. Therefore, the grounds of appeal raised by the appellant is hereby dismissed." 7. It was submitted that in the context of ground Nos. 1 and ground No. 3.2 taken in assessee's appeal, the provisions of section 194C of the Act are not applicable in the instant case since there is no contract executed by the assessee with GMADA for payment of EDC and secondly even otherwise there is no work / service contract. In this regard, our reference was drawn to the agreement executed by the assessee dated 1.6.2006 with the State Govt. It was submitted that the background of this agreement is that the State Govt with a view to attract investment in Punjab has provided special package of incentives for infrastructure projects provided the fixed capital investment in this projects is more than 100 crores. Under the agreement, it is the responsibility of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examination can be done by the payer within the ambit of section 194C and in support reliance was placed on the decision of Hon'ble Supreme Court in the case of PILCOM Vs. CIT reported in 425 ITR 312 (SC) and a copy of the CBDT Circular No. 12 of 2022 dated 16.6.2022. 11. It was submitted that the arguments taken by the Ld. Senior DR are in the context of whether the EDC charges are in the nature of income in the hands of GMADA or not and the said issue has at all no relevance as to adjudication of whether the provisions of section 194C are applicable or not and as far as the issue of whether EDC charges is in the nature of income saying can be decided while adjudication of mater in the hands of GMADA. It was accordingly submitted that the orders so passed by the Ld. CIT(A) NFAC be set aside and the necessarily relief be provided to the assessee. 12. Per contra, the Ld. Sr. DR relied on the orders of the lower authorities and it was further submitted that where the EDC charges is in the nature of income has been under challenge in the case of GMADA before the Tribunal and a copy of the submissions made therein were submitted during the course of hearing. 13. We have heard th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to the present litigation/appeals. Whether the EDC charges received by the GMADA would constitute income at the hands of the GMADA is an important issue which has been strongly contested by the GMADA and even by other such authorities in other appeals, but, no specific or conclusive findings, arrived at in any of such cases either by the Tribunal or any higher authority, has been brought into our knowledge. Hence, at this stage in this case of the assessee due to lack of the adequate facts and evidences and at the back of GMADA, neither it is appropriate nor possible to give any conclusive finding as to whether the receipts of the GMADA on account of EDC charges from various developers would constitute taxable income of GMADA or not? However, after hearing the Ld. representatives of the parties at length, we are of the view that these payments made by the assessee would not attract the provisions of sections 194C and 194A of the Act on other grounds also. Hence, we proceed to discuss and adjudicate the issues in the following paras of this order. 10. Firstly, to see the nature of EDC charges paid by the assessee to the GMADA, whether the said payments are made on account of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of Industries under Industrial Policy 2003, by setting up of information Technology Parks projects in 125 acre of land at Mohali with an investment of about Rs. 952 crore within a period of 3 years, effective from 29.03.2006. (ii) The said project shall have to be fully implemented and brought into commercial production within the said stipulated period (iii) The company shall develop the Industrial Estate first and housing and commercial projects subsequently. Before developing or disposing off the residential and commercial pockets in any manner, the company shall not only first develop industrial pockets but also dispose off atleast 50% of the industrial plots to industrial units which will be set up in the industrial pocket and the entire project shall come up with proposed investment level in stipulated period. (iv) The project of Information Technology Park shall be further subject to the provision of the guidelines notified by Department of Industries & Commerce. Some of relevant provision shall be:- a. A minimum of 60% of area will have to be developed as an Industrial Pocket, a maximum of 30% of area may be developed as residential pocket and 10% of area ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... park is not put up / developed in accordance with the sanctioned plan within the prescribed time period. (iv) The Government of Punjab has agreed to provide following reliefs and concessions to the company for implementation of aforesaid project:- a) As per the Industrial Policy 2003 exemption will be granted on 100% stamp duty and registration lee on sale / transfer of built up space of the units or land inside the project area. Such exemption shall extend to the project area upto first sale of developed area / plot / built up space to any party by them or to any of its affiliate. There shall be no stamp duly on lease instrument of units located in the project area. Such exemption shall remain operative till the completion of the entire project as per the agreement. b) State Government shall acquire land as per provision of the Land Acquisition Act to the extent of 10% of the total area of the project, if requested by the company. c) The land use change in the area falling under the control of the Punjab Periphery Control Act shall be allowed without any charges levied by the Housing and Urban Development Department in accordance with the draft master layout plan of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company to connect the project area to the State Transport Network. The State Government shall also allow them to operate their own public transport system within the project area and also for connecting the project area to the main unban center nearest to the project area subject to the fulfillment of required terms and conditions in this regard. m) The State Government shall not allow hazardous industry as defined under Factories Act within 500 metres of the project area and industrial plots within the industrial part shall also not have any hazardous industry. n) Pollution Control Board shall grant NOC and consent to operate to the Green Category Industry to be located in the Industrial Park in 30 days on fulfillment of all the required terms and conditions. o) No State Agency shall erect any barrier or create hindrance in various connectivities which shall be allowed to the project except on the ground of major law and order problem or National Security considerations. p) The Department of Industries shall be the single Nodal Agency for facilitating the project and getting clearance etc. required for the unit for the project and the project area and will also get ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the policy decision of the Govt. and not out of the free consent of the parties to the contract. Under such circumstances, the GMADA being not a party to the contract, the aforesaid contract can not be enforced against the assessee by the GMADA in its own rights. 12. We have come across a decision of the Hon'ble Punjab & Haryana High Court dated 16 December, 2016 in the own cases of the assessee bearing CWP No. 5213 of 2015 (O&M) & CWP No. 5620 of 2015 (O&M) styled as M/s Sukhm Infrastructures Pvt. Ltd. vs. State of Punjab &Ors. wherein the assessee had challenged the very action of the Govt. in levying the EDC charges on the ground that as per clause (iv) (j) of the agreement, the assessee's project was exempt from Punjab Apartment & Property Regulation Act, 1996 (PAPR Act). The Hon'ble High Court though held that the assessee was exempt from PAPR Act, yet, the assessee was liable to pay proportionate cost of infrastructure development which included EDC charges out of its contractual liability with the State Govt. However, it was established that the GMADA has no authority to assume the role of State Govt. to deny the concessions to the assessee by invoking Para 6 of the agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment which included exemption of 100% of stamp duty and registration fee etc., acquisition of land to the extent of 10% of the total area of project by the state government if requested by the assessee, change of land user free of cost, permission to dig tube wells, permission to construct high rise buildings up to to 45 meters etc., concession in work contract tax on construction material, FAR allowability of 2 for industrial and commercial purposes, exemption of the industrial park from PAPR Act, 50% exemption form electricity duty for five years, permission to the company / assessee to connect the project area to the state transport network and to operate its own public transport system within the project area and further commitment of the state government not to allow hazardous industry with 500 meters of the project area, NOC from the Pollution Control Board and consent to operate to the Green Category Industry within the period of 30 days and the state government's commitment not to erect any barrier or create hindrance in various connectivities. However thee clauses (i) and (q) are seemed to be relevant for the adjudication of the issue. Clause (i) provides that the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even if the contactor does not pay the EDC charges that does not absolve the government from carrying out the development works relating to the connectivity of the project. The government has also issued notifications from time to time so as to give concessions to the developer / promoters regarding External Development charges and also to formulate a policy regarding utilization of the EDC charges not only to provide infrastructure along with the approved project but also for the overall development of the area in general. 16. The State government vide its notification No. 17/17/20015HG2/P.F/1817 dated 22.6.2010, has prescribed the rates, time and manner of deposit of EDC charges wherein the EDC charges have been explained as under:- "3) External Development Charges (EDC) are the charges for utilization and repair/ maintenance/ strengthing of existing infrastructure proposed infrastructure and License/ Permission fee is the fee for granting permission for the projects. The External Development Charges and Licence fee shall be utilized by the concerned Local Planning and Urban Development Authorities for providing infrastructure. In case the concerned Authority feels that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment authority within sector grid, provision shall be made for the treated sewer to shall fall into that sewer, However for stand alone projects where no major sewer lines are laid or there is no provision to lay such lines in near future by the Local Government /special Development Authority. The promoter shall construct STP on its own cost. The licensee will also provide for the cost of outfall of the treated water into a proper outflow drain etc., as the case may be at its own cost. This condition should be mentioned in the license or exemption to Mega Projects by the Competent Authority. No connection charges if any will be charged for the developer for the main sewer, however the user charges for flow of treated or untreated water from the project to the STP or disposal are not included in the EDC. 2. The EDC can be utilized for up gradation of Electric grid Station of 66kv and above if required for providing adequate power supply to the project. However, where the provision of electricity is made through Partial load, its expenditure shall be covered under EDC. Where any installation below 66kv or part of the project which caters to the needs of the project only will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facilities in the periphery of approved projects and within the local planning area limits. 3. EDC collected from all the projects will not only be used for up gradation of infrastructure as explained above but for the overall development of the local planning area as per the policy. Such action program should be prepared in such a manner that the first priority should be given for the provision of infrastructure around approved projects and other city level infrastructure should be considered as second priority. The action program should be approved by the concerned development authority. "Promoter may submit suggestions regarding the works to be undertaken out of EDC around his project; However the committee constituted to prepare & scrutinize the Action Plan for the utilization of EDC should finalize the priorities after considering the suggestions of promoter." 4. In case of areas falling within municipal limits, where Local government has already prepared any Action Plan for the provision and upgradation of existing infrastructure, there should be no need to prepare a fresh Action Plan for the utilization of EDC Local Government may constitute its own advisory committ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Govt. also clearly reveal that though, in lieu of the benefits, concessions, incentives given by the government to the promoter for the purpose of development of infrastructure, the proportionate cost at fixed rates is got deposited by the government from the promoter for external development work, yet, the development is carried out by the local authority out of its own obligations/duties. The entire discussion can be summed up in the manner that though the promoter contributes towards the proportionate cost of infrastructure development, however, the works are not carried out by the local authority in consequence of specific performance of the agreement/contract but out of its own obligations and duties towards the public. In view of this, since the agreement cannot be said to be a work / service contract, hence, the provisions of section 194C will not be attracted in this case." 15. In the aforesaid decision, the Coordinate Benches have held that GMADA has been authorized to collect the EDC charges as per the policy decision of the Government and not out of free consent of the parties to the contract which has been executed between the assessee and the Govt. and therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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