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TMI Blog2024 (2) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... where a beneficiary produces a certificate which obliges the payer to deduct tax at a rate lower than that prescribed. HSVP had obtained no certification as contemplated in terms of the aforenoted provisions nor had it obtained a declaration that moneys received by it were exempt from tax. In view of the aforesaid, it is apparent that the writ petitioners did not stand absolved of the obligation to deduct tax on payments that were being made to HSVP. Section 196 frees sums payable to the Government, RBI or a corporation established by or under a Central Act from the obligation of tax being collected at source. Undisputedly, HSVP would neither fall within the ambit of clause (1) or clause (3) of Section 196. The mere fact that HSVP has been constituted under a statutory enactment does not make it the Government . Even if it were discharging functions akin to or similar to governmental obligations or performing activities closely connected with State functions, the same would not result in us recognising HSVP as the Government. This issue, in our considered opinion, stands conclusively answered against the writ petitioners by Adityapur Industrial Area[ 2006 (5) TMI 61 - SUPREME COUR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XVII-B and which according to them placed an obligation on the petitioners to deduct tax. This aspect of criticality could not have been left to supposition or for the writ petitioners grappling to understand and discern an obligation to deduct tax flowing from any one of the more than the fifty sections comprised in Chapter XVII-B. A Show Cause Notice fundamentally must apprise the noticee of the case that it is called upon to answer, the context in which an explanation is sought and the charge that it has to answer. The notice thus cannot leave the assessee grappling with or trying to discern the provision which it is supposed to have infringed. In the absence of requisite particulars, the Show Cause Notice would be liable to be quashed on the ground of being wholly vague. Assessee in Default u/s 201 - Levy of penalties by virtue of Sections 221 and 271C - Pursuant to the interim orders that were made on these writ petitions, while the respondents were permitted to continue further in terms of the show cause notices impugned herein, orders if passed against the petitioner were not to be given effect to. We have not been apprised of the status of those proceedings nor have the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, Advs. Mr. Piyush Kaushik, Adv., Mr. Pratyush Raj Ms. Riddhi Jain, Advs. Mr. Satyen Sethi Mr. Arta Trana Panda, Advs. Mr. Ved Jain, Mr. Nischay Kantoor Mr. Soniya Dodeja, Advs. Mr. Salil Kapoor, Ms. Ananya Kapoor, Mr. Utkarsh Kumar Gupta, Mr. Tarun Chanana Mr. Sumit Lalchandani, Advs. Mr. Kamal Kant Jha, Sr. PC with Mr. Avinash Singh, Adv. for UOI. Mr. Tapas Ram Mishra, Adv. Mr. Kapil Goel Mr. Sandeep Goel, Advs. For the Respondents Through: Mr. Aseem Chawla, SSC with Ms. Pratishtha Chaudhary, Mr. Aditya Gupta Mr. Navin Rohila, Advs. Mr. Zoheb Hossain, SSC with Mr. Sanjeev Menon, JSC., Mr. Sanjay Kumar, Ms. Easha Ms. Hemlata Rawat, Advs. Ms. Bakshi Vinita, SPC for R-1/ UOI. Mr. Puneet Rai, Mr. Ashvini, Kumar, Mr. Rishabh Nangia, Advs. for Income Tax. Ms. Shivang Jain Ms. Swati Tiwari, Advs. for R-2. Mr. Asheesh Jain, CGSC with Mr. Gaurav Jain, Adv. for R-1. Mr. Ravi Prakash, CGSC with Ms. Usha Jamnal, Adv. for Resp./UOI. Mr. Sunil Agarwal, Sr. SC with Mr. Shivansh Pandya, Mr. Utkarsh Tiwari, Advs., Mr. Sumit Batra, Mr. Manish Khurana, Ms. Priyanka Jindal, Advs. Ms. Akanksha Kaul, Ms. Versha Singh, Advs. for UOI. Mr. Vipul Agrawal, SSC with Mr. Gibran Naushad Ms. Sakshi Shairwal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi Anr. National Faceless Assessment Centre, Dy Commissioner of Income Tax Circle 73(1) JUDGMENT YASHWANT VARMA, J. 1. This batch of writ petitions assail the action initiated by the respondents predicated upon a purported failure on the part of the writ petitioners to deduct tax on payments made to the Haryana Shahari Vikas Pradhikaran [HSVP] (earlier known as the Haryana Urban Development Authority, for short HUDA ) under Section 194C of the Income Tax Act, 1961 [The Act]. The respondents assert that the External Development Charges [EDC] which were paid by the writ petitioners to HSVP albeit on the directions of the Director General, Department of Town and Country Planning [DTCP], Haryana, a department functioning under the Government of Haryana, would clearly fall within the ambit of Section 194C of the Act and as a consequence of default, the petitioners are liable to be proceeded under Section 201 as also to answer why penalty be not levied in terms of Section 271C of the Act. 2. We at the outset deem it appropriate to note and observe that we have heard learned counsels for respective sides solely on the question of whether the payment of EDC would fall within the ambit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice dated 12.03.2021 issued by the Respondent being illegal, arbitrary and not legally sustainable in the eyes of law; B. Issuance of a writ, order and/or directions in the nature of certiorari, prohibition, mandamus or any other appropriate writ, order or direction staying the operation of the impugned show cause notice dated 12.03.2021 issued by the Respondent. C. Issuance of a writ, order and/or directions in the nature of certiorari, prohibition, mandamus or any other appropriate writ, order or direction staying all consequential proceedings, that may be initiated pursuant to the impugned notice under challenge issued under section 201(1)/201(1A) by the Respondent in the case of Petitioner for FY 2013-14. D. Grant an ad-interim ex-parte stay in terms of prayers (a), (b) and (c) above; E. Issuance of a writ in the nature of mandamus or any other writ, order or direction, as deemed fit and proper in the facts and circumstances of the present case. It is further prayed that during the pendency of the present writ petition, the further proceeding before the Respondent may kindly be stayed in the interest of justice and equity. 6. Natureville Promoters is stated to be engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- F. No. 370133/372017-TPL Government of India Ministry of Finance Department of Revenue (Central Board of Direct Taxes) TPL Division ******* New Delhi, 23rd December, 2017 OFFICE MEMORANDUM Sub: Recommendations for relief from applicability of TDS provisions on External Development Charges (EDC) payable to Directorate of Town Country Planning (DTCP) State Government of Haryana-regarding. Kindly refer to your letter dated 21st November, 2017 addressed to the Finance Secretary, along with the enclosures on the captioned subject. 2. In this regard it is submitted that provisions of non-deduction of tax under Section 196 of the Income-tax Act, 1961, is applicable to the Government and to the other authorities as mentioned under the Section. Accordingly, External Development Charges (EDC) if paid to Government of Haryana would be exempt from TDS provisions. However, in the instant case, it appears that the developer has made the payment in the nature of External Development Charges (EDC) not to the Government but to HUDA [Haryana Urban Development Authority) which is a development authority of State Government of Haryana and is a taxable entity under the income-tax Act, 1961. Hence, T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hom licences have been granted under Act No.8 of 1975 and the persons to whom permission for change of Land use have been granted under Act No. 41 of 1963, in the shape of bank draft drawn in favour of CA, HSVP and sent the same to CA, HSVP. 4. As the receipt on account of EDC was not sufficient to carry out the all development works under EDC for the urban estate as per approved development plans, therefore, to meet out the shortfall, a new scheme Swaran Jayanti Haryana Urban Infrastructure Development Scheme (renamed as Mangal Nagar Vikas Yojana was approved by the State Govt. and appropriate budget provision for execution of development works has been made in the said scheme. From Financial Year 2017-18, the receipts on account of EDC is being deposited in the consolidated fund of the State under Major Receipt Head 0217 receipts and all license / CLU holders have also been directed vide order dated 12.05.2017 that payment of EDC in respect of license/ CLU granted by TCP Deptt. May be made online through e-payment gateway or in shape of demand drafts favouring Director, Town Country Planning, Haryana. Required funds for execution of development works are released to HSVP after gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions forming part of this batch. It is this interim order which has continued on all the writ petitions forming part of this batch. 12. The sequence of events insofar as RPS Infrastructure is concerned follow a similar chronology. A notice under Section 201 and Section 201(1A) of the Act came to be issued against that writ petitioner on 16 December 2020. The charge in that notice was identical to that laid against Natureville Promoters, namely, the liability to deduct tax on EDC payments made to HSVP. 13. Responding to the aforesaid notice, RSP Infrastructure took the position that TDS was not liable to be deducted and prayed for the proceedings being dropped. Ultimately and by an order dated 12 March 2021, the Income Tax Department issued a final notice holding that HSVP was a taxable entity and consequently there was an evident failure on the part of RSP Infrastructure to deduct tax in accordance with the provisions made in Chapter XVII-B of the Act. 14. It becomes pertinent to note that the present litigation stems from the stand taken by the Income Tax Department that tax was liable to be deducted by virtue of the provisions made in Section 194C. It would further appear from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. The Revenue in its counter-affidavit has sought to elaborate on the aforesaid reasons by contending that the external development charges payment is akin to rent. However, we are not impressed with this submission. Firstly, such an understanding is not borne out from the recorded reasons and, secondly, the Department cannot by way of a counter-affidavit supplement the recorded reasons by introducing such legal submissions. The source of the power in this case, as sought to be argued, is not discernible. 27. If the Assessing Officer harboured a reason to believe that the payment of external development charges requires deduction of tax at source under the provisions of the Income-tax Act, it ought to have disclosed the basis for such a view. The entire reasoning disclosed in the recorded reasons, for initiating the proceedings is completely silent on this aspect. It merely states that Since, external development charges has income character, therefore it should have been subjected to tax deducted at source by assessee . The Assessing Officer has further proceeded to observe since the assessee is a development authority of State Government of Haryana and is a taxable entity, dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereof is reproduced herein below (page 218 of 406 ITR): The definition of rent as contained in the Explanation is a very wide definition. The Explanation states that rent means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land. The High Court has read the relevant clauses of the lease deed and has rightly come to the conclusion that payment which is to be made as annual rent is rent within the meaning of section 194-1, we do not find any infirmity in the aforesaid conclusion of the High Court. The High Court has rightly held that tax deducted at source shall be deducted on the payment of the lease rent to the Greater Noida as per section 194-1. Reliance on circular dated January 30, 1995 has been placed by the Noida/Greater Noida. A perusal of the circular dated January 30, 1995 indicate that the query which has been answered in the above circular is Whether requirement of deduction of Income-tax at source under section 194-1 applies in case of payment by way of rent to the Government, statutory authorities referred to in section 10(20A) and local authorities whose income under the head Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax Appellate Tribunal [ITAT] while dealing with penalty proceedings. However, insofar as RPS Infrastructure is concerned, it appears to have been placed on notice with respect to a levy of penalty under Section 271C for Financial Years [FY] 2013-14, 2014-15 and 2015-16. While dealing with the aforesaid issue the Additional Commissioner of Income Tax in terms of an order made on 15 January 2018 took the following stand:- 4.1. HUDA was constituted under Haryana Urban Development Authority Act, 1977. The functions of HUDA are: a. To promote and secure development of urban areas with the power to acquire. sell and dispose off property, both movable and immovable. b. To acquire develop and dispose off land for residential. Industrial. commercial and institutional purposes. c. To make available developed land to Haryana Housing board and other bodies for providing houses to Economically Weaker Sections of the society, and d. To undertake building works and other engineering works. 4.1.1 HUDA is developer of urban areas. It develops urban infrastructure. It is doing business of development of large real estate projects. During survey of HUDA, statement of Sh. Ram Kumar. Sr. AO. HUD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ana Development and Regulation of Urban Area Act. 1975 (hereafter HDRUA). Definition of EDW is given in section 2(g) of this Act It is as follows: External Development works include water supply. sewerage, drains. necessary provisions of treatment and disposal of sewage, sullage and storm water, roads, electrical works. solid waste management and disposal slaughter houses, colleges, hospitals, stadium/sports complex. fire stations grid sub-stations etc and any other work which the directory may specify to the executed in the periphery of or outside colony/area for the benefit of the colony/area 4.2.2 HUDA charges EDC as per section 3(3)(a)(ii) of HDRUA, which reads as under: To pay proportionate development charges if the external development works as defined in clause (g) of Section 2 are to be carried out by the Government or any other local authority The proportion in which and the time within which such payment is to be made, shall be determined by the Director 4.2.3 HUDA charges EDC for EDWs by issuing letters/circulars which are documented from time to time: Sr.No. Subject/ Description Dispatch No. Date of Issue a Fixation of development charges of released land and cases of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guarantee required = Rs. 0.25 X Lakhs iv) The demand drafts of EDC amounts are drawn in favour of the Chief Administrator, HUDA though routed through the Director General Town and Country Planning, Sector 18, Chandigarh. This state of affairs as for as the EDC is concerned is stated by HUDA in the Notes to The Accounts Forming Part of The Balance Sheet As on 31.03.2016 filed with the return of income. It reads as under: 2(i) Other liabilities also include external developmental charges received through DGTCP Department Haryana for execution of various EDC works. The expenditure against which have been booked in Development Work in Progress. Enhancement compensation and Land cost. (iv) This establish the fact that the land is owned and developed by HUDA which receives EDC as return/income on the money invested in the EDWs. There is specific quid pro quo for EDC. EDC would never be returnable and would never be returned because it is a consideration paid by EDW users. 4.3.3 EDC is worked out for a particular urban estate on the basis of the cost of external development services such as master water supply. Master Sewage, Master Roaos, Master Storm Water Drainage, Master Horticulture. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this section since service means doing any work. It further states at para (i) that the provisions of section 194C shall apply to all types of contracts for carrying out any work including transport contracts, service contracts. The relevant portion of Circular No. 681 of CBDT dated 8/3/94 is as under: ..... ....... 3. Section 194C was introduced with effect from 1st April, 1972. Shortly after its introduction, the Board Issued Circulars No. 86, dated 29th May, 1972 (F.No. 275/9/72-ITJ), No. 93, dated 26 September, 1972 (F.No. 275/100/72-ITJ), and No. 108, dated 20 March, 1973 (F.No. 131(9)/73- TPL), in this regard. 4. Some of the issues raised in the above-mentioned circulars need to be reviewed in the light of the judgment dated March 23, 1993, delivered by the Supreme Court of India in Civil Appeal No. 2860(NT) of 1979 Associated Cement Co. Ltd. Vs. CIT 1993] 201 ITR 435. 5. The Supreme Court has held that ... there is nothing in the sub-.section which could make us hold that the contract to carry out a work or the contract to supply labour to carry out a work should be confined to works contract . Their Lordships have further held that Any work means; any work and not a work c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Master Sewage, Master Roads. Master Storm Water Drainage Master Horticulture. Master Community building and other services is determined on the basis of a price index of a particular year in respect of a particular urban estate. The cost is determined by the Engineering Wing of HUDA keeping in view the requirement of development plan of an urban estate. EDC is charged from the sectors floated by HUDA or the license granted by the Town Country Planning Department to the developers. EDC is charged from colonizers for using the developed urban infrastructure in urban estates wherein they are allowed to establish their commercial set ups. The EDC is arising out of an agreement which is in the nature of service contract wherein colonizers pay EDC to HUDA is rendering a service to colonizers for which EDC is paid EDC is charged for development work received by HUOA from private builders and the work carried out is civil work in nature for providing amenities. The work is for creating/maintaining and strengthening of infrastructure created for urban areas in order to make it suitable for urban habitations. EOWs enhance value of property and the value additions fetch higher price from pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed form and pay for it such fee and conversion charges as may be prescribed: [xxx]; Provided that if the conversion charges have already been paid under the provisions of the Punjab Scheduled Roads and Controlled Areas Restriction of Unregulated Development Act, 1963 (41 of 1963), no such charges shall be payable under this section [Provided further that owner may enter into an agreement jointly or severally with a developer for pooling of land for grant of licence [Provided further that in case of migration of licence, the colonizer shall pay the outstanding renewal fee with interest accrued upto the date of payment. However, the external development charges including interest paid thereon for the area under migration shall be adjusted in the licence and the colonizer shall not be liable to deposit the unpaid interest amount on external development charges and infrastructure development charges of the existing project. The conversion charges, licence fee, infrastructure development charges already paid shall be adjusted in case the amount to be paid for migration at the current rate is more than the earlier paid in case of existing project [Provided further that for such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in clause (g) of section 2 are to be carried out by the Government or any other local authority. The proportion in which and the time within which, such payment is to be made, shall be determined by the Director. (iii) the responsibility for the maintenance and upkeep of all roads, open spaces, public park and public health services for a period of five years from the date of issue of the completion certificate unless earlier relieved of this responsibility and thereupon to transfer all such roads, open spaces, public parks and public health services free of cost to the Government or the local authority, as the case may be; (iv) to construct at his own cost, or get constructed by any other institution or individual at its cost, schools, hospitals, community centres and other community buildings on the lands set apart for this purpose, in a period as may be specified, and failing which the land shall vest with the Government after such specified period, free of cost, in which case the Government shall be at liberty to transfer such land to any person or institution including a local authority, for the said purposes, on such terms and conditions, as it may deem fit: Provided that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :] Provided that the Director, having regard to the amenities which exist or are proposed to be provided in the locality, is of the opinion that it is not necessary or possible to provide one or more such amenities, may exempt the licensee from providing such amenities either wholly or in part [Provided further that the applicant shall have an option to mortgage a part of the land for which licence has been granted or being granted in lieu of submission of bank guarantee against cost of internal development works and external development works.] (b) refuse to grant a licence, by means of speaking order, after affording the applicant an opportunity of being heard. (4) The license so granted shall be valid for a period of 44 [five years], and will be renewable from time to time for a period of [two years], on payment of prescribed fee: [Provided that in the licensed colony permitted as a special project by the Government, the license shall be valid for a maximum period of five years and shall be renewable for a period of as decided by the Government.] (5) Each colony may comprise of one or more licences with contiguous land pockets. (6) After the coloniser has laid out the colony in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be appointed by the government in this behalf. (4) The colonizer shall in turn be entitled to pass on the {infrastructure development charges} paid by him to the plot holder. (5) The amount of {infrastructure development charges} if not paid within the prescribed period shall be recoverable as arrears of land revenue. [(6) The amount of infrastructure development charges so deposited by the colonizer shall constitute a fund called the Fund, for stimulating socio-economic growth and development of major infrastructure projects for the benefit of the State of Haryana (hereinafter referred to as the Fund)]. [(7) The Fund shall be collected and managed by the Director and passed on for the purpose of its further utilisation to the Board to be constituted by the Government for this purpose.] (8) The amount of infrastructure development charges {and infrastructure augmentation charges} deposited by the colonizers, loans and grants from the Central/State Government or the local authority, or loans and grant from national/international financial institutions and any other money from such source as the state Government may decided, shall be credited to the fund. [(9) The Fund shall be uti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of concessions to a public infrastructure agency in accordance with the provisions of this Act, the rules and the bye-laws made there under; (v) assist in determining the level and structuring of investments of the Government and public bodies into infrastructure projects with private participation including holding the investment or part thereof; (vi) create a special purpose vehicle for implementation of any infrastructure project in co-ordination with the Government or public infrastructure agencies; and (vii) administer the Fund and projects under this Act. (3) The Board shall not play any role in the infrastructure projects undertaken by the Government exclusively through its budgetary provisions. (4) In order to carry out its functions consistent with the provisions of this Act, the Board shall have the powers to do all or any of the following, namely:- (i) acquire, hold, develop or construct such property, both movable and immovable, as the Board may deem necessary for the performance of any of its activities related to the development of infrastructure sectors or infrastructure projects; (ii) advise or recommend to the Government acquisition of land under the Land Acquisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncellation the coloniser shall be given an opportunity of being heard. [(2) After cancellation of the licence, the Director may himself, carry out or cause to be carried out, the development works in the colony and recover such charges as the Director may have to incur on the said development works from the colonizer and the plot-holders in the manner prescribed as arrears of land revenue. (3) The liability of the colonizer for payment of such charges shall not exceed the amount the colonizer has actually recovered from the plot-holders less the amount actually spent on such developments works, and that of the plot-holders shall not exceed the amount which they would have to pay to the colonizer towards the expenses of the said development works under the terms of the agreement of sale or transfer entered into between them: Provided that Director may, recover from the plot holders with their consent, an amount in excess of what may be admissible under the aforesaid terms of agreement of sale or transfer. (4) Notwithstanding anything contained in this Act after the colony has been fully developed under sub-section (2), the Director may, with a view to enabling the colonizer, to tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch authorized officer within a period of seven days, the Director or such authorized officer may pass an order requiring him to restore such land or building to its original state or to bring it in conformity with the provisions of this Act or the rules framed there-under, as the case may be, within a further period of seven day. (3) If the order made under sub-section (2) is not carried out within a specified period, the Director, or any other officer authorized in writing by him in this behalf may, himself at the expiry of the specified period, take such measures, as may appear necessary to give effect to the order and the cost of such measure shall, if effect to the order and the cost of such measure shall, if not paid on demand being made to him, be recoverable from such person as arrears of land revenue: Provided that even before the expiry of the period mentioned in the order under subsection (2), if the Director or such authorized officer is satisfied that instead of stopping the construction, the person continues with the contravention, the Director or such authorized officer may himself take such measures, as may appear necessary, to give effect to the order and the cost o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he colony, in particular the sources of wholesome water supply arrangement and site for disposal and treatment of storm and sullage water; (vii) plans showing the cross-sections of the proposed roads indicating in particular the width of the proposed carriage ways cycle tracks and footpaths, green verges, position of electric poles and of any other works connected with such roads; (viii) plans as required under sub-clause (vii) indicating, in addition the position of sewers, storm water channels, water supply and any other public health services; (ix) detailed specifications and designs of road works shown under sub-clause (vii) and estimated costs thereof; (x) detailed specifications and designs of sewerage, storm, water and water supply schemes with estimated costs of each; (xi) detailed specification and designs for disposal and treatment of storm and sullage water and estimated costs of works; (xii) detailed specification and designs for electric supply including street lighting. (2) The triplicate plans mentioned in clause (e) of sub-rule (1) shall be clear and legible A0 prints with one set mounted on cloth. (3) If the applicant wants to be exempted from providing any one or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grant licence in [form LC II], if (a) it does not conform to the inquirements of rule 3,4, and 5 and 8; (b) the plants and designs of the development works submitted with the application are not technically sound and workable; or (c) the estimated expenditure on water-supply mains or extramural and outfall sewers is not commensurate with the size of the colony. 10. Applicant to be called upon to fulfill certain conditions for grant of licence [Section 3 (3)]. ( 1) If after scrutiny for the plans and other necessary inquiries which the Director may deem fit, he is satisfied that the application is not for the grant of licence, he shall before granting licence, call upon the applicant to fulfill conditions laid down in rule 11 within a period of thirty days from the date of the service of notice in form LC-III: Provided that on an application within the aforesaid period, for the extension of time limit, the Director, if satisfied of the reasons given therein extend such time up to thirty days: [Provided further that on the request of the applicant, for the extension of time limit for submission of Bank guarantees under clause (a) of sub-rule (1) of rule 11, the Director, if satisfied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other institution or individual at its cost, schools, hospitals, community centers and other community buildings on the land set apart for this purpose, within a period of four years from the date of grant of licence extendable by the Director for another period of two years, for reasons to be recorded in writing, failing which the land shall vest with the Government after such specified period, free of cost, in which case the Government shall be at liberty to transfer such land to any person or institution including a local authority, for the said purposes, on such terms and conditions, as it may deem fit; Provided that a show cause notice and opportunity for hearing shall be given before vesting the land in the Government;] (f) undertake to permit the Director or any other officer authorized by him to inspect the execution of the layout and the development works in the colony and to carry out all directions issued by him for ensuring due compliance of the execution of the layout and development works in accordance with the licence granted. (g) pay such development charges including the cost of development of State/ National Highways, Transport, Irrigation and Power facilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RM LC-IV-D [See Rule 11(1)(h)] Bilateral Agreement by owner of land intending to set up a Commercial Colony This agreement made on_____ day of___ between Shri/M/s____s/o Shri_____resident of____(hereinafter called the owner ) of the one part and the Governor of Haryana, acting through the Director, Town and Country Planning, Haryana (hereinafter referred to as the Director ) of the other part. Whereas in additional to agreement executed in pursuance of the provisions of rule-11 of the Haryana Development and Regulation of Urban Areas Rules, 1976 (hereinafter referred to as the Rules ) and the conditions laid down therein for grant of licence, the owner shall enter into a bilateral agreement with the Director for carrying out and completion of the development works in accordance with the licence finally granted for setting up of a Commercial colony on the land measuring ____acres _____falling in the revenue estate of village___ district_____. AND WHEREAS the bilateral agreement mutually agreed upon and executed between the parties shall be binding on the owner:- NOW THIS DEED OF BILATERAL AGREEMENT WITNESSETH AS FOLLOWS: 1. In consideration of the Director agreeing to grant licence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statutory taxes. In case, the net profit exceeds 15% after completion of the project period, surplus amount shall be deposited, within two months in the State Government Treasury by the Owner. (vii) The owner shall submit the certificate to the Director within thirty days of the full and final completion of the project from a Chartered Accountant that the overall net profits (after making provisions for the payment of taxes) have not exceeded 15% of the total project cost of the scheme. (viii) In case Haryana Urban Development Authority executes external development works before final payment of external development charges, the Director, shall be empowered to call upon the owner to pay the balance amount of external development charges in lumpsum even before the completion of licence period and the owner shall be bound to make the payment within the period so specified. (a) Enhanced compensation on land cost, if any, shall be payable extra as decided by Director from time to time. (b) The owner shall arrange the electric connection from the outside source for electrification of their colony from Haryana Vidhyut Parsaran Nigam. If the owner fails to seek electric connection from Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e execution of the development works in accordance with the licence granted. (j) That without prejudice to anything contained in this agreement, all provisions contained in the Act and the Rules shall be binding on the owner. (k) That the owner shall make his own arrangement for disposal of sewerage till the external sewerage system is provided by Haryana Urban Development Authority and the same is made functional. 2. Provided always and it is hereby agreed that if the owner commits any breach of the terms and conditions of this bilateral agreement or violate any provisions of the Act or the Rules, then and in any such cases notwithstanding the waiver of any previous clause or right, the Director, may cancel the licence granted to the owner. 3. Upon cancellation of the licence under clause 2 above, action shall be taken as provided in the Haryana Development and Regulation of Urban Areas Act, 1975 and the Haryana Development and Regulation of Urban Areas Rules, 1976, as amended up to date, the bank guarantee in that event shall stand forfeited in favour of the Director. 4. The Stamp duty and registration charges on this deed shall be borne by the owner. 5. After the layout plans an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mills Ltd. vs. Commissioner of Income Tax 2001 SCC OnLine Cal 851: 14. Now it brings us to the issue whether the royalty payable by the assessee in pursuance of the order dated April 30, 1979, is a statutory liability. To consider this issue first we would like to refer to some observations, decisions, relevant to the issue. 15. In the case of CIT v. Gorelal Dubey, [1998] 232 ITR 246 the issue before the Madhya Pradesh High Court was whether royalty is a tax. Following the decision of their Lordships in India Cement Ltd. v. State of Tamil Nadu, [1991] 188 ITR 690 (SC), the Madhya Pradesh High Court has taken the view that royalty is a tax. The Madhya Pradesh High Court has observed at page 248 as under: In paragraph 31 (at page 707 of 188 ITR) of the judgment, their Lordships, after referring to the views expressed by the Rajasthan, Punjab, Gujarat and Orissa High Courts that the royalty cannot be said to be a tax because this is something which is being paid in lieu of minerals extracted, in paragraph 34 (at page 707 of 188 ITR), concluded by saying that the royalty is a tax and thus the decisions of the High Courts cannot hold good. 16. When the royalty is treated as a tax that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conferred to the nature of liability that cannot be changed unless otherwise warranted under the provisions of the Act. In the case of contractual liability, if the liability is disputed that cannot be recovered as land revenue or to enforce the terms of the agreement, for that one has to approach the court. If it is a statutory liability like royalty in this case that royalty liability which is fixed by the Government can be recovered as land revenue without approaching the court. In view of the above, according to Mr. Jain, the payment of EDC is liable to be viewed as a payment to the Government of Haryana itself and consequently being exempted in terms of Section 196 of the Act. 27. While reiterating the submissions addressed by Mr. Jain, Mr. Agarwal appearing in Natureville Promoters additionally addressed the following submissions. It was firstly contended that Section 196 of the Act is liable to be read alongside Article 289 of the Constitution and thus the Court declaring that payments made to HSVP would clearly be exempt from TDS. Mr. Agarwal took us through the LC- I, II, III, IV, IV-D and V formats and submitted that the application by a developer is made to the DTCP and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constructed by any other institution or individual at its cost, schools, hospitals, community centers and other community buildings on the land set apart for this purpose, within a period of four years from the date of grant of licence extendable by the Director for another period of two years, for reasons to be recorded in writing, failing which the land shall vest with the Government after such specified period, free of cost, in which case the Government shall be at liberty to transfer such land to any person or institution including a local authority, for the said purposes, on such terms and conditions, as it may deem fit; Provided that a show cause notice and opportunity for hearing shall be given before vesting the land in the Government;] (f) undertake to permit the Director or any other officer authorized by him to inspect the execution of the layout and the development works in the colony and to carry out all directions issued by him for ensuring due compliance of the execution of the layout and development works in accordance with the licence granted. (g) pay such development charges including the cost of development of State/National Highways, Transport, Irrigation and Po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven if the owner were to seek condonation of delay in the payment of EDC, permission in that respect is to be obtained from the Director. It was further submitted that the Bank Guarantee equivalent to 25% of EDC is made out in favour of the Governor of Haryana. Mr. Agarwal further contended that the LC-V format would unerringly point towards the substance of the agreement being one between the owner and the DTCP. 29. It was pointed out that although the demand drafts representing EDC liability were drawn in the name of HSVP, they were physically furnished to the DTCP, Haryana. According to learned counsel when the contract is viewed in its entirety, it would be apparent that the owner is under no contractual or other obligation towards HSVP. It was submitted that while EDC payments may be forwarded to the HSVP, the said authority is not empowered in law to take any steps against the owner in case of default. 30. It was then submitted that the communications issued by the DTCP and HSVP would themselves establish that the payments made to HSVP would fall within the ambit of Section 196. Our attention was specifically drawn to the Memo dated 06 October 2017 in which the DTCP had discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to Mr. Agarwal merely because the sum is routed to the HSVP through the DTCP, the same would be insufficient to attract the provisions of Section 194C. 34. It was further contended by Mr. Agarwal that in some of the cases the respondents had also sought to invoke Section 194I of the Act. According to learned counsel, Section 194I on its plain reading would be wholly inapplicable. Learned counsel pointed out that the said provision is concerned with income earned by way of rent. According to learned counsel undisputedly the land over which the development is to be undertaken belonged to the petitioner and, therefore, there was no question of an aspect of rent arising in connection therewith. It was submitted that in any case since the land neither vested in HSVP nor was it taken on rent from that authority, Section 194I would clearly not stand attracted. In any event according to Mr. Agarwal this issue stands concluded in favour of the petitioners in light of the decision of the Court rendered in DLF Homes Panchkula. 35. Insofar as the OM dated 23 December 2017 is concerned, Mr. Agarwal submitted that the same incorrectly proceeds on the basis that EDC is an amount payable to HSV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such debatable issue, the assessee could not be declared as an assessee in default under Section 192 read with Section 201 of the Income Tax Act. Further, the Apex Court pointed out that since the foreign company-assessees therein had paid the differential tax and the interest and had further undertook not to claim refund for the amount paid, the Supreme Court held that the orders passed under Section 201(1) and 201(1A) could not be upheld. Applying the decision of the Apex Court to the case on hand, which we had already narrated in the preceding paragraph, with the debate on the status of the assessee existing at least till 2000 and the assessee not having any information as regards the order passed by the Advance Ruling Authority, we have no hesitation in accepting the plea of the assessee that the assessee herein could not be declared as an assessee in default for the purpose of interest under Section 201(1A) of the Income Tax Act. It may be of relevance to note herein that the assessee had deducted tax at 2%. The foreign company had paid tax under Section 44BBB at 4.8% and sought for a refund. Taking note of the decision of the Apex Court reported in (2009) 312 ITR 225 (CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onate EDC as per rate, schedule, terms and conditions contained in the Agreement. 6. When we examine the question as to whether TDS on payment of EDC to HUDA was not to be deducted by assessee because levy is made by DTCP having control over the EDC and not HUDA as contended by the ld. AR for the assessee in the light of the aforesaid undisputed facts, we are of the considered view that the assessee has no liability to deduct TDS in respect of the payment made to a Government Department, DTCP in this case, u/s 196 of the Act as the payment was made to HUDA on behalf of DTCP only xxxx xxxx xxxx 9. We are of the considered view that when payment of EDC has been made by the assessee in accordance with licence granted by the DTCP, the payment made to HUDA was not made in pursuance of any work contract or under statutory obligation meaning thereby that when the assessee has no privity of contract with HUDA rather the assessee has privity of contract with DTCP, a Government Department of Haryana, as per Agreement (supra) and the HUDA has merely received the payment for and on behalf of DTCP, the assessee was not required to deduct the TDS. (II) Satya Developers Pvt. Ltd. Vs Joint Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laughter houses, colleges, hospitals, stadium/sports complex, fire stations, grid sub-stations etc. and/or any other work which the Director may specify to be executed in the periphery of or outside colony/area for the benefit of the colony/area. 2- As per Section 3(3)(ii), license holder has to pay proportionate development charges if the external development works as defined in clause (g) of section 2 are to be carried out by the Government or any other local authority. The proportion in which and the time within which, such payment is to be made, shall be determined by the Director. 3. Presently, external development works in the periphery of or outside colony/area for the benefit of the colony/area are being executed by Haryana Shahari Vikas Pradhikaran thereafter HSVP) which is the Development Authority or state Govt. Earlier upto 31.03.2017, Department of Town 8t Country Planning used to collect the external development charges from the colonizer to whom licences have been granted under Act No. 8 of 1975 and the persons to whom permission for change of land use have been granted under Act No. 41 of 1963, in the shape of bank draft drawn in favour of CA, HSVP and send the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re against which have been booked in Development Work in Progress, Enhancement compensation and Land cost. Undisputedly, the payment of EDC was issued in the name of Chief Administrator, HUDA. It is also not in dispute that HUDA has shown EDC as current liability in the balance sheet, but in the Notes to the Accounts Forming part of the Balance Sheet, it has been shown that EDC has been received for execution of various external development works and as and when the development works are carried out, the EDC s liabilities are reduced accordingly. It is also not in dispute that HUDA is engaged in acquiring land, developing it and finally handing it over for a price. It is also not in dispute that EDC is fixed by HUDA from time to time. However, the fact of the matter remains that payment has been made to HUDA through DTCP which is a Government Department and the same is not in pursuance to any contract between the assessee and HUDA. Thus, the payment of EDC is not for carrying out any specific work to be done by HUDA for and on behalf of the assessee but rather DTCP which is a Government Department which levies these charges for carrying out external development and engages the serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpowers Parliament to make a law imposing a tax on income earned only from trade or business of any kind carried by or on behalf of the State. It does not authorise Parliament to impose a tax on the income of a State if such income is not earned in the manner contemplated by clause (2) of Article 289. This, to our mind, does not answer the question which arises for our consideration in this appeal. Clause (2) of Article 289 presupposes that the income sought to be taxed by the Union is the income of the State, but the question to be answered at the threshold is whether in terms of clause (1) of Article 289, the income of the appellant Authority is the income of the State. Having regard to the provisions of the Bihar Industrial Area Development Authority Act, 1974, particularly Section 17 thereof, we have no manner of doubt that the income of the appellant Authority constituted under the said Act is its own income and that the appellant Authority manages its own funds. It has its own assets and liabilities. It can sue or be sued in its own name. Even though, it does not carry on any trade or business within the contemplation of clause (2) of Article 289, it still is an authority con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 was not the income of the State of Andhra Pradesh within the meaning of Article 289(1) of the Constitution and hence exempted from Union taxation. This Court considered the scheme of Article 289 and observed as follows: (SCR p. 25) The scheme of Article 289 appears to be that ordinarily, the income derived by a State both from governmental and non-governmental or commercial activities shall be immune from income tax levied by the Union, provided, of course, the income in question can be said to be the income of the State. This general proposition flows from clause (1). Clause (2) then provides an exception and authorises the Union to impose a tax in respect of the income derived by the Government of a State from trade or business carried on by it, or on its behalf; that is to say, the income from trade or business carried on by the Government of a State or on its behalf which would not have been taxable under clause (1), can be taxed, provided a law is made by Parliament in that behalf. If clause (1) had stood by itself, it may not have been easy to include within its purview income derived by a State from commercial activities, but since clause (2), in terms, empowers Parliament ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn is so firmly rooted in our notions derived from common law that it is hardly necessary to deal with it elaborately; and so, prima facie, the income derived by the appellant from its trading activity cannot be claimed by the State which is one of the shareholders of the corporation. xxxx xxxx xxxx 17. Considerable reliance was placed on the principles laid down in the aforesaid decision by learned counsel appearing for the Union of India. He submitted that having regard to the provisions of the Act under which the appellant Authority is established, the same conclusion may be reached. In particular, emphasising the fact that as in A.P. SRTC case [(1964) 7 SCR 17 : AIR 1964 SC 1486] so in the instant case as well, Section 17 of the Act provides that upon dissolution of the appellant Authority, the properties, funds and dues realisable by the Authority along with its liabilities shall devolve upon the State Government. Impliedly, therefore, such properties, funds and dues vest in the Authority till its dissolution, and only thereafter it vests in the State Government. He also referred to various other provisions of the Act and submitted that there was nothing in the Act which attem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State Government. 39. According to learned counsel, the statutory scheme in the context of which Adityapur Industrial Area came to be rendered, is similar to that which underlies the 1977 Act. Mr. Hossain laid emphasis on the right of HSVP to manage its own funds, its right to independently own assets, as well as the right to sue/ be sued in its own name. According to learned counsel, all of the above would tend to establish and evidence the conferral of a distinct legal personality upon HSVP. It was additionally pointed out that in terms of the 1977 Act in case HSVP were to be dissolved, its assets, funds and liabilities would devolve upon the State Government. According to learned counsel, all of the above places HSVP in a position identical to Adityapur Industrial Area. In view of the above, according to Mr. Hossain, the submission that the income of HSVP would be exempt by virtue of Article 289 of the Constitution deserves outright rejection. 40. Mr. Hossain also submitted that while considering the applicability of the provisions of the 1977 Act, the nature of functions that may be performed or discharged by HSVP is wholly irrelevant. According to learned counsel taxabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that in many States the local bodies were not working properly and the timely elections were not being held and the nominated bodies were continuing for long periods. Elections had been irregular and many times unnecessarily delayed or postponed and the elected bodies had been superseded or suspended without adequate justification at the whims and fancies of the State authorities. These views were expressed by the then Minister of State for Urban Development while introducing the Constitution Amendment Bill before Parliament and thus the new provisions were added in the Constitution with a view to restore the rightful place in political governance for local bodies. It was considered necessary to provide a constitutional status to such bodies and to ensure regular and fair conduct of elections. In the Statement of Objects and Reasons in the Constitution Amendment Bill relating to urban local bodies, it was stated . 28. The constitutional provisions as contained in Part IX-A delineate that the Constitution itself provided for constitution of Municipalities, duration of Municipalities, powers of Authorities and responsibilities of the Municipalities. The Municipalities are created a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constitution of Municipality as contemplated by clause (1) of Article 243-Q. No other interpretation of the proviso conforms to the constitution scheme. 30. A Constitution Bench of this Court had noticed the principles of statutory interpretation of a proviso in S. Sundaram Pillai v. V.R. Pattabiraman [S. Sundaram Pillai v. V.R. Pattabiraman, (1985) 1 SCC 591]. The following has been laid down by this Court in paras 37 to 43: (SCC pp. 609-10) 37. In short, generally speaking, a proviso is intended to limit the enacted provision so as to except something which would have otherwise been within it or in some measure to modify the enacting clause. Sometimes a proviso may be embedded in the main provision and becomes an integral part of it so as to amount to a substantive provision itself. 38. Apart from the authorities referred to above, this Court has in a long course of decisions explained and adumbrated the various shades, aspects and elements of a proviso. In State of Rajasthan v. Leela Jain [State of Rajasthan v. Leela Jain, AIR 1965 SC 1296] , the following observations were made: (AIR p. 1300, para 14) 14. So far as a general principle of construction of a proviso is concerned, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases have arisen in which this Court has held that despite the fact that a provision is called proviso, it is really a separate provision and the so-called proviso has substantially altered the main section. 43. We need not multiply authorities after authorities on this point because the legal position seems to be clearly and manifestly well established. To sum up, a proviso may serve four different purposes: (1) qualifying or excepting certain provisions from the main enactment; (2) it may entirely change the very concept of the intendment of the enactment by insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable; (3) it may be so embedded in the Act itself as to become an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself; and (4) it may be used merely to act as an optional addenda to the enactment with the sole object of explaining the real intendment of the statutory provision. 31. Applying the rules of interpretation as laid down by this Court, it is clear that the proviso is an exception to the constitutional provisions which provide that there shall be constituted in every Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstituted under the Bihar Industrial Area Development Authority Act, 1974 to provide for planned development of industrial area, for promotion of industries and matters appurtenant thereto. The appellant Authority is a body corporate having perpetual succession and a common seal with power to acquire, hold and dispose of properties, both movable and immovable, to contract, and by the said name sue or be sued. The Authority consists of a Chairman, a Managing Director and five other Directors appointed by the State Government. The Authority is responsible for the planned development of the industrial area including preparation of the master plan of the area and promotion of industries in the area and other amenities incidental thereto. The Authority has its own establishment for which it is authorised to frame regulations with prior approval of the State Government. The State Government is authorised to entrust the Authority from time to time with any work connected with planned development, or maintenance of the industrial area and its amenities and matters connected thereto. Section 7 of the Act obliges the Authority to maintain its own fund to which shall be credited monies receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order held that in view of the fact that Section 10(20-A) was omitted and an Explanation was added to Section 10(20) enumerating the local authorities contemplated by Section 10(20), the appellant Authority could not claim any benefit under those provisions after 1-4-2003. It further held that the exemption under Article 289(1) was also not available to the appellant Authority as it was a distinct legal entity, and its income could not be said to be the income of the State so as to be exempt from Union taxation. The said decision of the High Court is impugned in this appeal. 38. The Court further held that the Explanation under Section 10(20) provides an exhaustive definition and the tests laid down by this Court in an earlier case i.e. Union of India v. R.C. Jain [Union of India v. R.C. Jain, (1981) 2 SCC 308 : 1981 SCC (L S) 323] , are no longer applicable. In para 35 the following was stated: ( Agricultural Produce Market Committee case [Agricultural Produce Market Committee v. CIT, (2008) 9 SCC 434] , SCC p. 451) 35. One more aspect needs to be mentioned. In R.C. Jain [Union of India v. R.C. Jain, (1981) 2 SCC 308 : 1981 SCC (L S) 323] the test of like nature was adopted as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g repugnant in the subject or context . The definition given of the local authority under Section 3(31) does not now govern the field in view of the express omission of the expression all other authority . This Court has already in Agricultural Produce Market Committee [Agricultural Produce Market Committee v. CIT, (2008) 9 SCC 434] held that the definition under Section 3(31) of the General Clauses Act is now no more applicable to interpret local authority under Section 10(20) of the IT Act. Before we proceed further it shall be useful to notice certain well-settled principles of statutory interpretation of fiscal statutes. 45. This Court in A.V. Fernandez v. State of Kerala [A.V. Fernandez v. State of Kerala, AIR 1957 SC 657] laid down the following: (AIR p. 661, para 29) 29. It is no doubt true that in construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. If the Revenue satisfies the court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icipal or a local fund and Cantonment Boards as defined under Section 3 of the Cantonments Act, 1924. 12.3. The exemption under clause (20) of Section 10 would, therefore, not be available to Agricultural Marketing Societies and Agricultural Marketing Boards, etc., despite the fact that they may be deemed to be treated as local authorities under any other Central or State Legislation. Exemption under this clause would not be available to port trusts also. 12.4. This amendment will take effect from 1-4-2003 and will, accordingly, apply in relation to Assessment Year 2003-2004 and subsequent assessment years. 48. Further paras 13.1 to 13.4 of the Explanatory Notes contained heading: Income of certain Housing Boards, etc. to become taxable on deletion of clause (20-A), are as stated below: 13.1. Under the existing provisions contained in clause (20-A) of Section 10, income of the Housing Boards or other statutory authorities set up for the purpose of dealing with or satisfying the need for housing accommodations or for the purpose of planning, development or improvement of cities, towns and villages is exempt from payment of income tax. 13.2. Through the Finance Act, 2002, clause (20- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso useful to notice that this Court laid down in State of Gujarat v. Essar Oil Ltd. [State of Gujarat v. Essar Oil Ltd., (2012) 3 SCC 522 : (2012) 2 SCC (Civ) 182] that a person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. It is useful to extract para 88 which is to the following effect: (SCC p. 547) 88. This Court in Novopan case [Novopan India Ltd. v. CCE, 1994 Supp (3) SCC 606] , held that the principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee, does not apply to the construction of an exception or an exempting provision, as the same have to be construed strictly. Further this Court also held that a person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision and in case of doubt or ambiguity, benefit of it must go to the State. 52. For interpreting an explanation this Court in S. Sundaram Pillai v. V.R. Pattabiraman [S. Sundaram Pillai v. V.R. Pattabiraman, (1985) 1 SCC 591], laid down in paras 47 and 53 as follows: (SCC pp. 611 613) 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein. Therefore, we do not find any merit in the submission advanced on behalf of the assessee. 54. It is also relevant to notice that this Court in Gujarat Industrial Development Corpn. v. CIT [Gujarat Industrial Development Corpn. v. CIT, (1997) 7 SCC 17], after considering the provisions of Section 10(20-A) of the IT Act held that Gujarat Industrial Development Corporation is entitled for exemption under Section 10(20-A). The Gujarat Industrial Development Corporation was held to be entitled for exemption under Section 10(20-A) at the time when the provision was in existence in the statute book and after its deletion from the statute book the exemption is no more available. Now, reverting back to Section 10(20) as amended by the Finance Act, 2002, the same has also come for consideration before different High Courts. A Division Bench of the Allahabad High Court in Krishi Utpadan Mandi Samiti v. Union of India [Krishi Utpadan Mandi Samiti v. Union of India, 2004 SCC OnLine All 2152 : (2004) 267 ITR 460] stated the following: (SCC OnLine All paras 7-10) 7. A bare perusal of the Explanation to Section 10(20) shows that now only four entities are local authorities for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even if an entity constitutes a local authority for purposes of the General Clauses Act, 1897, or for purposes of any other enactment for that matter, it would not be so construed for purposes of Section 10(20) of the Act unless it answers the description of one of those entities enumerated in the Explanation. Mrs Ahlawat did not make any attempt to bring her case under clauses (i), (ii) and (iv) of the Explanation and, in our opinion, rightly so because the appellant Committee cannot by any process of reasoning be construed as a Panchayat as referred to in clause (d) of Article 243 of the Constitution of India, a municipality in terms of clause (e) of Article 243-P of the Constitution of India or a Cantonment Board as defined under Section 3 of the Cantonments Act, 1924. What she argued was that looking to the nature of the functions enjoined upon the appellant Committee, it must be deemed to be a Municipal Committee within the meaning of that expression in clause (iii) of the Explanation. We regret our inability to accept that submission. We say so for two distinct reasons. Firstly, because the expression Municipal Committee appears in a taxing statute and must, therefore, be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the EDC payments were ultimately placed under a receipt head of the DTCP, the same does not detract from the payment having been made directly to HSVP. According to Mr. Hossain how that payment is ultimately accounted for in the books of HSVP and DTCP is an issue which is of little relevance or significance insofar as Section 194C is concerned. 45. Mr. Hossain also questioned the correctness of the arguments and which were addressed on the basis of the judgment of the Supreme Court in New Delhi Municipal Council. It was his submission that the arguments addressed on this score were thoroughly misconceived since this is clearly not a case where properties of the State were being sought to be taxed. In fact, according to learned counsel, the decision of the Supreme Court is a resounding negation of the arguments addressed on the anvil of Article 289 of the Constitution. 46. It was then submitted that a reading of the provisions of the 1977 Act would clearly point towards statutory obligations placed upon HSVP to carry out external development work in accordance with directives that may be issued by the DTCP and the Government of Haryana. According to learned counsel, the aforesaid wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was the responsibility of the appellant to transport the goods (cement) of the company; and how to accomplish this task of transportation was a matter exclusively within the domain of the appellant. Hence, hiring the services of truck operators/owners for this purpose could have only been under a contract between the appellant and the said truck operators/owners. Whether such a contract was reduced into writing or not carries hardly any relevance. In the given scenario and set up, the said truck operators/owners answered to the description of sub-contractor for carrying out the whole or part of the work undertaken by the contractor (i.e. the appellant) for the purpose of Section 194-C(2) of the Act. 15.2. The suggestions on behalf of the appellant that the said truck operators/owners were not bound to supply the trucks as per the need of the appellant nor the freight payable to them was pre- determined, in our view, carry no meaning at all. Needless to observe that if a particular truck was not engaged, there existed no contract but, when any truck got engaged for the purpose of execution of the work undertaken by the appellant and freight charges were payable to its operator/own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The contract of the company, for transportation of its goods, had only been with the appellant and it was the appellant who hired the services of the trucks. The payment made by the appellant to such a truck operator/owner was clearly a payment made to a sub-contractor. 15.4. Though the decision of this Court in Palam Gas Service [Palam Gas Service v. CIT, (2017) 7 SCC 613 : (2017) 394 ITR 300] essentially relates to the interpretation of Section 40(a)(i-a) of the Act and while the relevant aspects concerning the said provision shall be examined in the next question but, for the present purpose, the facts of that case could be usefully noticed, for being akin to the facts of the present case and being of apposite illustration. Therein, the assessee was engaged in the business of purchase and sale of LPG cylinders whose main contract for carriage of LPG cylinders was with Indian Oil Corporation, Baddi wherefor, the assessee received freight payments from the principal. The assessee got the transportation of LPG done through three persons to whom he made the freight payments. The assessing officer held that the assessee had entered into a sub-contract with the said three persons wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly note from the initial orders passed on these writ petitions, that an objection to their maintainability in the face of an alternative remedy does not appear to have been raised or addressed in the first instance. In any case and since parties have addressed submissions at great length on the merits of the questions which arise and the jurisdictional challenge that stands raised, we find no justification to accept the objection as is raised. 48. As was clarified by us in the prefatory parts of this judgment, we propose to decide and rule upon the applicability of Section 194C of the Act principally and leave it open for the writ petitioners as well as the respondents to proceed further in respect of notices that may have been issued referable to Sections 201 and Section 271C of the Act in accordance with the present judgment. We shall also while examining the challenge which stands raised deal with an additional ground which has been urged in some of the writ petitions and which had questioned the validity of the show cause notices not even referring to the appropriate provision comprised in Chapter XVII-B which was sought to be invoked and thus asserting that those notices are l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or proposed to be divided into plots for residential, commercial, industrial development or for the establishment of a cyber-city, cyber-park, integrated commercial complexes or for construction of flats in a group housing project or for creation of a low density eco-friendly colony. Section 3(3)(a)(ii) casts an obligation upon an owner/ applicant to pay proportionate development charges if its external development work is to be carried out by the Government or any other local authority. The aforesaid statutory obligation as placed is again reiterated in Rule 11(1)(c) and which requires the applicant to submit an undertaking agreeing to pay proportionate development charges if activities comprised in external development are to be constructed, developed and undertaken by the Government or other local authority. The aforesaid obligation again finds specific mention in Form LC IV-D, which is the bilateral agreement that the applicant has to execute with the DTCP. Clause 1(ii) of Form LC IV-D stipulates that the proportionate EDC is to be paid to HSVP through the DTCP within 30 days from the date of grant of the licence or in ten equal six monthly instalments as per the schedule presc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land; (d) expenditure for such other purposes as the State Government may direct or permit. (3) The authority shall keep its fund in any Scheduled Bank. (4) The authority may invest any portion of its fund in such securities or in such other manner as may be prescribed. (5) The income resulting from investments mentioned in sub- section (4) and proceeds of the sale of the same shall be credited to the fund of the authority. 54. Apart from the above, Section 22 of the 1977 Act recognizes the power of the State Government to provide grants, advances and loans to the HSVP as it may consider necessary to enable it to discharge its functions under the Act. Section 22 reads as follows: 22. Power of State Government to make grants, advances and loans to authority - The State Government may make such grants, advances and loans to the authority as the State Government may deem necessary, for the performance of the functions under this Act and all grants, loans and advances so made shall be on such terms and conditions, as the State Government may determine. 55. Section 30 then places HSVP under a binding obligation to carry out such directions as may be issued to it from time to time by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject matter of the present batch were payments made directly to HSVP and prior to FY 2017-18. 58. As we read the communication of 19 June 2018, it becomes manifest that all payments were made to HSVP albeit under the directives of the DTCP. Those payments clearly appear to be directed towards subserving an arrangement existing between HSVP and the Government of Haryana for external development work being carried out by the former. While it is true that this arrangement does not stand encapsulated in a formally executed contract or instrument, there clearly appears to be in existence an understanding between the State Government and HSVP for external development work being executed by it and for the funds remitted to it being utilized for the said purposes. It is in the aforesaid context that the decision of the Supreme Court in Shree Chaudhary Transport assumes significance. 59. As is manifest from the passages of that decision extracted hereinabove, Section 194C was explained to embody an obligation on the person responsible to make a payment to a sub-contractor being liable to deduct tax at source. The Supreme Court held that an underlying contract which could otherwise be di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inent to an arrangement which the contractor may have with a specified person. Thus merely because EDC is determined and directed to be paid by the DTCP, the same does not deprive the payment of its intrinsic characteristic, namely, of being a payment made to HSVP. 63. In our considered opinion the fact that EDC is determined, computed or is recoverable by the DTCP is wholly inconsequential since Section 194C is solely concerned with a payment being made to a contractor who has an arrangement with a specified person. Merely because an exercise of quantification is undertaken by the specified person, the same would have no bearing on the applicability of Section 194C. We would thus be of the opinion that the moment the petitioners effected a payment in favour of HSVP in connection with the external development work which was to be executed by it pursuant to the arrangement that existed between the said entity and the State Government, the provisions of Section 194C stood attracted. 64. It is also pertinent to note that Chapter XVII-B, and more particularly Section 190 thereof, commences with a non-obstante clause and thus places a responsibility upon a person effecting a payment whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (i) a residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India. (2) Where the person responsible for paying any such sum chargeable under this Act, [(other than salary)] to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application [in such form and manner to the Assessing Officer, to determine in such manner, as may be prescribed], the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable: [* * *] (3) Subject to rules made under sub-section (5), any person entitled to receive any interest or other sum on which income tax has to be deducted under sub-section (1) may make an application in the prescribed form to the Assessing Officer for the grant of a certificate authorising him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constituted by the CBDT, [ F. No 500/122/99 dated 16-12-1999] [ HPC Report 2003 ] and the Report of the Committee on the Taxation of E- Commerce [ E-Commerce Report 2016 ], which proposed an equalisation levy on specified transactions. He then went on to rely on certain judgments to state that even if the OECD Commentary could be relied upon, it being a rule of international law contrary to domestic law, to the extent it was contrary to Explanations 2 and 4 of Section 9(1)(vi) of the Income Tax Act, it must give way to domestic law. Referring to the doctrine of first sale/principle of exhaustion, he cited a number of judgments in order to show that under Section 14(b)(ii) of the Copyright Act, this doctrine cannot be said to apply insofar as distributors are concerned. 28. The learned Additional Solicitor General finally concluded his arguments by stating that the judgments which deal with computer software under sales tax law and excise law have no relevance to income tax law, as the laws relating to indirect taxes are fundamentally different from the laws relating to direct taxes, since they must follow the drill of the chargeability under the Income Tax Act, which is different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under any provision of this Act. 5. Scope of total income. ( 1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year; or (c) accrues or arises to him outside India during such year: Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of Section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India. (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1. Income accruing or arising outside India shall not be deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendering of any services in connection with the activities referred to in [ Substituted by the Finance Act, 2001 (14 of 2001), Section 4(ii), for sub-clauses (i) to (v) (w.e.f. 1-4-2002).] [sub-clauses (i) to (iv), (iv-a) and (v)]. [ Substituted by the Finance Act, 2000 (10 of 2000), Section 4, for Explanation 3 (w.e.f. 1-4-2001). Explanation 3 before substitution, stood as under: Explanation 3. For the purposes of this clause, the expression computer software shall have the meaning assigned to it in clause (b) of the Explanation to Section 80-HHE. ] Explanation 3. For the purposes of this clause, computer software means any computer program recorded on any disc, tape, perforated media or other information storage device and includes any such program or any customised electronic data. [ Inserted by the Finance Act, 2012 (23 of 2012), Section 4(b) (w.r.e.f. 1-6-1976).] Explanation 4. For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the mediu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. *** [Inserted by the Finance Act, 2017, Section 39 (w.e.f. 1-4- 2018).] Explanation 4. For the removal of doubts, it is hereby declared that where any term used in an agreement entered into under sub-section (1) is defined under the said agreement, the said term shall have the same meaning as assigned to it in the agreement; and where the term is not defined in the said agreement, but defined in the Act, it shall have the same meaning as assigned to it in the Act and explanation, if any, given to it by the Central Government. *** 195. Other sums. ( 1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in Section 194-LB or Section 194-LC) or Section 194-LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries ) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on the sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax if such payee (i) has furnished his return of income under Section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed: Provided further that no penalty shall be charged under Section 221 from such person, unless the assessing officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax. 30. The scheme of the Income Tax Act, insofar as the question raised before us is concerned, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2004) 10 SCC 1] , which held : (SCC pp. 25 27, paras 21 28) 21. The provisions of Sections 4 and 5 of the Act are expressly made subject to the provisions of this Act , which would include Section 90 of the Act. As to what would happen in the event of a conflict between the provision of the Income Tax Act and a notification issued under Section 90, is no longer res integra. *** 28. A survey of the aforesaid cases makes it clear that the judicial consensus in India has been that Section 90 is specifically intended to enable and empower the Central Government to issue a notification for implementation of the terms of a Double Taxation Avoidance Agreement. When that happens, the provisions of such an agreement, with respect to cases to which they apply, would operate even if inconsistent with the provisions of the Income Tax Act. We approve of the reasoning in the decisions which we have noticed. If it was not the intention of the legislature to make a departure from the general principle of chargeability to tax under Section 4 and the general principle of ascertainment of total income under Section 5 of the Act, then there was no purpose in making those sections subject to the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n certain cases. ( 1) Notwithstanding anything contained in [* * *] Section 194 [* **], [or Section 194-EE] no deduction of tax shall be made under any of the said sections in the case of an individual, who is resident in India, if such individual furnishes to the person responsible for paying any income of the nature referred to in [** *] Section 194, [* * *], or as the case may be, Section 194- EE] a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that [the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil. (1-A) Notwithstanding anything contained in [Section 192-A or Section 193 or Section 194-A [or Section 194-D] or Section 194-DA [or Section 194-I]] or Section 194-K, no deduction of tax shall be made under [any] of the said sections in the case of a person (not being a company or a firm), if such person furnishes to the person responsible for paying any income of the nature referred to in Section [Section 192-A or Section 193 or Section 194-A [or Section 194-D] or [or Section 194-I]] or Section 194-K, as the case may be, a declara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -F) Notwithstanding anything contained in this Chapter, no deduction of tax shall be made, or deduction of tax shall be made at such lower rate, from such payment to such person or class of persons, including institution, association or body or class of institutions, associations or bodies, as may be notified by the Central Government in the Official Gazette, in this behalf.] (2) The person responsible for paying any income of the nature referred to in sub-section (1) or sub-section (1-A)] [or sub- section (1-C)] shall deliver or cause to be delivered to the [Principal Chief Commissioner or Chief Commissioner] or [Principal Commissioner or Commissioner] one copy of the declaration referred to in sub-section (1) [or sub-section (1- A)] [or sub-section (1-C)] on or before the seventh day of the month next following the month in which the declaration is furnished to him. 67. The liability to deduct tax as would be evident from the aforenoted provisions, stands effaced only if a recipient obtains a certificate of exemption or where a beneficiary produces a certificate which obliges the payer to deduct tax at a rate lower than that prescribed. HSVP had obtained no certification as conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. Dealing more specifically with the case of a statutory corporation, it took note of the judgment in A.P. SRTC v. ITO (1964) 7 SCR 17 and observed thus: - 14. In A.P. SRTC v. ITO [(1964) 7 SCR 17 : AIR 1964 SC 1486] the question arose as to whether the income derived from trading activity by the Andhra Pradesh Road Transport Corporation established under the Road Transport Corporation Act, 1950 was not the income of the State of Andhra Pradesh within the meaning of Article 289(1) of the Constitution and hence exempted from Union taxation. This Court considered the scheme of Article 289 and observed as follows: (SCR p. 25) The scheme of Article 289 appears to be that ordinarily, the income derived by a State both from governmental and non-governmental or commercial activities shall be immune from income tax levied by the Union, provided, of course, the income in question can be said to be the income of the State. This general proposition flows from clause (1). Clause (2) then provides an exception and authorises the Union to impose a tax in respect of the income derived by the Government of a State from trade or business carried on by it, or on its behalf; that is to say, the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f EDC could be recovered as arrears of land revenue is also wholly immaterial. Section 10A is merely a mode of recovery of EDC. Even if that provision were to elevate EDC to a statutory levy, the same would not be determinative of whether the payment falls within the scope of Section 196. The applicability of Section 196 is not liable to be answered on the basis of whether the amount has a statutory hue. The amount paid would be exempt from the rigours of TDS only if it is made to a category of entities specified therein. 72. Ultimately, the question which warrants consideration is whether EDC was a payment to the State. This must necessarily be answered in the negative bearing in mind the undisputed fact that the income was placed in the hands and at the disposal of HSVP. We note that undisputedly at least till 31 March 2017 all EDC payments even as per the DTCP were being made out in favour of HSVP. It is only thereafter that EDC was deposited with the DTCP. This too leads us to the irresistible conclusion that the payments made to HSVP would not fall within Section 196. 73. We also bear in mind the unambiguous legislative command of Section 194C which places the payer under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the foregoing discussion and for reasons set out hereinabove, we find ourselves unable to concur with the view taken by the Tribunal in Santur, Satya, Perfect Constech and Spaze Tower. Those decisions have proceeded on the basis of a contractual obligation between the petitioner and HSVP being a prerequisite. They have additionally based their decision on the fact that HSVP was undertaking external development work on the directives of the DTCP. These, for reasons recorded hereinabove, were factors wholly irrelevant for the purposes of considering the applicability of Section 194C. 75. That only leaves to consider some of the supplemental questions which were raised and which included the Show Cause Notices not specifically adverting to the specific provision contained in Chapter XVIIB and in terms of which the petitioners were held liable to deduct tax. We, in this regard, also bear in consideration the two earlier rounds of litigation when in the first instance the respondents had sought to hold the petitioners liable to deduct tax under Section 194 in the case of BPTP and subsequently under Section 194I as is evident from the judgment rendered in DLF Homes Panchkula. 76. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ict compliance with the forms of judicial procedure may not be insisted upon. He is however under a duty to give the person against whom an enquiry is held an opportunity to set up his version or defence and an opportunity to correct or to controvert any evidence in the possession of the authority which is sought to be relied upon to his prejudice. For that purpose the person against whom in enquiry is held must be informed of the case he is called upon to meet, and the evidence in support thereof. The rule that a party to whose prejudice an order is intended to be passed is entitled to a hearing applies alike to judicial tribunals and bodies of persons invested with authority to adjudicate upon matters involving civil consequences. It is one of the fundamental rules of our constitutional set-up that every citizen is protected against exercise of arbitrary authority by the State or its officers. Duty to act judicially would therefore arise from the very nature of the function intended to be performed : it need not be shown to be super-added. If there is power to decide and determine to the prejudice of a person, duty to act judicially is implicit in the exercise of such power. If t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the case against him. If these conditions are not satisfied, the person cannot be said to have been granted any reasonable opportunity of being heard. 79. The reliance which is placed by Mr. Hossain on the decisions in Isha Beevi v. Tax Recovery Officer (1976) 1 SCC 70 and Commissioner of Income- Tax vs. Rajinder Nath 1971 SCC OnLine Del 254 is clearly misconceived. We note that in Isha Beevi, the writ petitioner had sought the issuance of a writ of prohibition seeking quashing of notices that were impugned. It was in the aforesaid context and the prerequisites of a writ of prohibition that the Supreme Court observed that the mere mentioning of a wrong provision would not justify the issuance of that prerogative writ and more so where the writ petitioner had failed to establish a total absence of jurisdiction. 80. Insofar as Rajinder Nath is concerned, the principal question which arose in that case was whether the Appellate Assistant Commissioner while considering an appeal could substitute Section 153(3)(ii) in place of Section 147(a) of the Act. It was in the aforesaid context that the Supreme Court observed as follows: - We are of the opinion that the contention is not well-f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopting or invoking that precept at the stage of a show cause notice especially where the noticee is left to fathom which of the more than fifty variable obligations it is alleged to have violated. 82. However, while this may have conceivably been a valid ground to interdict some of the impugned show cause notices, we find no justification to invoke our prerogative writ powers on this score since the petitioners have, in the course of these proceedings, been afforded more than an ample and adequate opportunity to establish why Section 194C would not be attracted and have been heard at great length on the questions which were raised. The applicability of Section 194C also appears to have been expressly raised in the counter affidavits which were filed and thus placing the petitioners on adequate notice. In any case and in view of the above, we are of the firm opinion that the principles of prejudice would not stand attracted. It would thus be inappropriate at this late stage of the day to interfere with the show cause notices on this ground. 83. That only leaves us to deal with the issue of the petitioners having been treated as an assessee in default in terms of Section 201 and ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al payment. 94. Section 273-B states that notwithstanding anything contained in Section 271-C, no penalty shall be imposed on the person or the assessee for failure to deduct tax at source if such person or the assessee proves that there was a reasonable cause for the said failure. Therefore, the liability to levy of penalty can be fastened only on the person who does not have good and sufficient reason for not deducting tax at source. Only those persons will be liable to penalty who do not have good and sufficient reason for not deducting the tax. The burden, of course, is on the person to prove such good and sufficient reason. 95. In each of the 104 cases before us, we find that non-deduction of tax at source took place on account of controversial addition. The concept of aggregation or consolidation of the entire income chargeable under the head Salaries being exigible to deduction of tax at source under Section 192 was a nascent issue. It has not been considered by this Court before. Further, in most of these cases, the tax deductor assessee has not claimed deduction under Section 40(a)(iii) in computation of its business income. This is one more reason for not imposing penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 271-C of the Income Tax Act. 59. A similar principle was also advanced in the context of Section 192 of the IT Act in CIT v. Eli Lilly Co. (India) (P) Ltd. [CIT v. Eli Lilly Co. (India) (P) Ltd., (2009) 15 SCC 1] : (SCC p. 30, paras 98-100) 98. In our view, therefore, the tax deductor assessee [the respondent(s)] were duty-bound to deduct tax at source under Section 192(1) from the home salary/special allowance(s) paid abroad by the foreign company, particularly when no work stood performed for the foreign company and the total remuneration stood paid only on account of services rendered in India during the period in question. 99. As stated above, in this matter, we have before us 104 civil appeals. We are directing the AO to examine each case to ascertain whether the assessee employee (the recipient) has paid the tax due on the home salary/special allowance(s) received from the foreign company. In case taxes due on home salary/special allowance(s) stands paid off then the AO shall not proceed under Section 201(1). In cases where the tax has not been paid, the AO shall proceed under Section 201(1) to recover the shortfall in the payment of tax. 100. Similarly, in each of the 104 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho does not have good and sufficient reason for not deducting tax at source. Only those persons will be liable to penalty who do not have good and sufficient reason for not deducting the tax. The burden, of course, is on the person to prove such good and sufficient reason. 95. In each of the 104 cases before us, we find that non- deduction of tax at source took place on account of controversial addition. The concept of aggregation or consolidation of the entire income chargeable under the head Salaries being exigible to deduction of tax at source under Section 192 was a nascent issue. 96. The tax deductor assessee was under a genuine and bona fide belief that it was not under any obligation to deduct tax at source from the home salary paid by the foreign company/HO and, consequently, we are of the view that in none of the 104 cases penalty was leviable under Section 271-C as the respondent in each case has discharged its burden of showing reasonable cause for failure to deduct tax at source. 66. We find some parallels between the facts of the present case and the situation in Eli Lilly Co. [CIT v. Eli Lilly Co. (India) (P) Ltd., (2009) 15 SCC 1] The liability of an airline to deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal held that no interest under Section 201(1A) was leviable on the assessee and, therefore, the Tribunal deleted the levy of tax and interest under Section 201/201(1A) of the said Act. 9. While we are not inclined to disturb the finding of the Income Tax Appellate Tribunal that the assessee had acted in a bona fide manner, we do not agree with the conclusion of the Income Tax Appellate Tribunal that the assessee cannot be regarded as being as an assessee in default in respect of the short deduction. It is important to remember that the question of good and sufficient reasons only arises when one considers the proviso to Section 201(1) of the said Act. That proviso has been specifically introduced to negate the possibility of imposition of penalty under Section 221 if the Assessing Officer is satisfied that the person liable had good and sufficient reasons to not deduct and pay the tax in question. Thus, the proviso is to be applied only to the question of penalty. It would not absolve the assessee insofar as his being considered as an assessee in default for the purposes of Section 201(1) of the said Act. Therefore, this finding of the Tribunal is set aside. Consequently, ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full opportunity to the assessee to produce documents in this regard. The appeals are allowed to the extent indicated above. 87. We are accordingly of the opinion that while the challenge as raised in the writ petition must fail, subject to due verification of the issues flagged in para 82 and 83 above as well as the scope of a person in default and penalty provisions as noticed above, the respondents may revive the proceedings presently pending and conclude the same in light of the observations made hereinabove. 88. Accordingly, we negative the challenge raised in these writ petitions insofar as the invocation of Section 194C of the Act is concerned and hold that EDC payments would be covered thereunder. For reasons recorded in the body of this judgment, we also turn down the challenge to the Clarification issued by the Central Board of Direct Taxes dated 23 December 2017. 89. We dispose of those writ petitions where final orders under Section 201 may not have been made by according liberty to the respondents to revive the pending show cause notice proceedings and conclude the same in accordance with law bearing in mind the observations appearing hereinabove. The proceedings on t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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