Full Text
HIGH COURT OF DELHI
Date of Decision: 24.03.2023 85+ W.P.(C) 4351/2021
DLF HOMES PANCHKULA PVT LTD ..... Petitioner
78+ W.P.(C) 3790/2021 EXPERION DEVELOPERS PVT LTD. ..... Petitioner
AND
84+ W.P.(C) 4328/2021 DLF HOME DEVELOPERS LTD ..... Petitioner
AND
95+ W.P.(C) 4862/2022, CM Nos.14584 &14585/2022
EXPERION DEVELOPERS PVT LTD ..... Petitioner
AND
98+ W.P.(C) 6282/2022 & CM No.18941/2022 DLF HOMES PANCHKULA PVT LTD ..... Petitioner
AND
99+ W.P.(C) 6308/2022& CM No.18996/2022 DLF HOME DEVELOPERS LTD ..... Petitioner
AND
100+ W.P.(C) 6311/2022& CM No.19004/2022 DLF LTD ..... Petitioner
AND
104+ W.P.(C) 6693/2022& CM Nos.20330/2022 & 20331/2022
M/S S.N. REALTORS PVT. LTD ..... Petitioner
107+ W.P.(C) 6738/2022, CM Nos.20456/2022, 20457/2022 &
672/2023 EMAAR INDIA LIMITED ..... Petitioner
AND
108+ W.P.(C) 6742/2022& CM Nos.20463/2022 & 20464/2022
M/S SS GROUP PVT. LTD. ..... Petitioner
M/S SS GROUP PVT. LTD. ..... Petitioner
112+ W.P.(C) 9236/2022& CM No.27678/2022 M/S SWIFTRANS INTERNATIONAL PVT. LTD...... Petitioner
Ms. Kavita Jha, Mr. Vaibhav Kulkarni, Mr. Anant Mann & Mr. Himanshu Aggarwal, Advs. in item nos.78,84,85,95, 98,99 & 100.
Mr. Yuvraj Singh & Mr. Chetan Kumar Shukla, Advs. in item nos.104, 108,111 & 112.
Mr. Salil Kapoor, Ms. Ananya Kapoor, Mr. Utkarsh Kumar Gupta, Mr. Sumit Lalchandani& Mr. Sanat Kapoor, Advs. in item no.107.
Counsel for the Respondents:
Mr. Sunil Agarwal, Mr. Shivansh B. Pandya & Mr. Utkarsh Tiwari, Advs. in item nos.84,85,98,99 & 100.
Mr. Shailendera Singh, Ms. Dacchita Shahi & Mr. Akash Saxena, Advs. in item no.84.
Mr. Abhishek Khanna & Mr. N.K. Aggarwal, Advs. in item no.104.
Ms. Aakanksha Kaul, Adv. for UOI in item no.112.
Mr. Puneet Rai, Mr. Ashvini Kumar & Ms. Madhavi Shukla, Advs. in item no.107.
Mr. Zoheb Hossain & Mr. Sanjeev Menon, Advs. in item nos.108, 111&112.
Mr. Niraj Kumar, Adv. in item nos.108 & 111.
HON'BLE MR. JUSTICE AMIT MAHAJAN VIBHU BAKHRU, J. (Oral)
JUDGMENT
1. The petitioners in these petitions impugn orders passed under Section 201(1)/201(1A) of the Income Tax Act, 1961 (hereafter ‘the Act’), whereby demands of Tax Deducted at Source (hereafter ‘TDS’) were raised by the Assessing Officer (hereafter ‘the AO’) against the respective petitioners (assessees) on the premise that they were liable to withhold tax (TDS) on External Development Charges (also referred to as ‘EDC’ in short) paid to Haryana Urban Development Authority (hereafter ‘HUDA’). EDC was paid by the petitioners pursuant to the respective agreements entered into by the petitioners with the State Government of Haryana (through Director General, Town & Country Planning).
2. The petitioners are engaged in real estate development. The learned counsels appearing for the parties state that the impugned orders passed in these petitions are similar in material aspects, inasmuch as the AO has held that the petitioners were liable to deduct tax at the rate of 10% per annum on the aforesaid EDC under Section 194-I of the Act.
3. The principal question to be addressed is whether the petitioners were required to deduct TDS under Section 194-I of the Act on EDC paid to HUDA.
4. For the purpose of addressing the controversy, we refer to the facts obtaining in W.P.(C) No.4351/2021 and treat the said petition as the lead matter. The learned counsels appearing for the parties agree that the decision of this case will be dispositive of other petitions as well. W.P.(C) No.4351/2021
5. The petitioner in W.P.(C) No.4351/2021 (hereafter referred to as ‘the petitioner’) is a company incorporated in India and is engaged in the business of developing real estate. The petitioner had applied to the Director General, Town & Country Planning for grant of licenses for setting up an IT Park in village Begampur Khatola, Sector-74, Gurgaon-Manesar Urban Complex, Sector-108, District Gurgaon as well as a Group Housing Colony in village Maidawas, Sector-63, Gurgaon-Manesar Urban Complex, District Gurgaon.
5. In terms of Rule 111 of the Haryana Development and Regulation of Urban Areas Rules, 1976 (hereafter ‘HDRUA Rules’), the petitioner entered into an agreement dated 18.10.2011 with the State Government of Haryana acting through the Director General, Town & Country Planning for setting up an IT Park in village Begampur Khatola, Sector-74, Gurgaon-Manesar Urban Complex, Sector-108, District Gurgaon. Thereafter on 20.12.2012, the petitioner entered into another agreement for setting up the Group Housing Colony at village Maidawas, Sector-63, Gurgaon-Manesar Urban Complex, District Gurgaon. 1Clauses (a), (c) (g) and (h) of Rule 11 are set out below:
11. Conditions required to be fulfilled by applicant (a) furnish to the Director either a bank guarantee equal to twenty-five percent of the estimated cost of the development works or mortgage a part of the licenced land, as determined by the Director and enter into an agreement in form LC-IV for carrying out and completion of development works in accordance with the licence finally granted: xxxx xxxx xxxxx
(c) undertake to pay proportionate development charges if the main lines of roads, drainage, sewerage, water supply and electricity are to be laid out and constructed 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; xxxx xxxx xxxxx (g) pay such development charges including the cost of development of State/National Highways, Transport, Irrigation and Power facilities as determined by Director (given in the {Schedule-A} to these rules); and [Haryana] (h) execute bilateral agreement in Form LC-IV-A for group housing colony, in Form LC-IV-B for plotted colony, in Form LC-IV-C for industrial colony and in Form LC-IV-D for commercial colony. (h) execute bilateral agreement in Form LC-IV-A for group housing colony, in Form LC-IV-B for plotted colony, in Form LC-IV-C for industrial colony and in Form LC-IV-D for commercial colony.
6. The aforementioned agreements required the petitioner to comply with the requirements of Haryana Development and Regulation of Urban Areas Act, 1975 (hereafter ‘HDRUA Act’) and HDRUA Rules and pay a proportionate development charges as and when required and as determined by the Director General Town and Country Planning.
7. The respondents issued four show cause notices dated 20.02.2021, 22.03.2021, 24.03.2021 and 25.03.2021 calling upon the petitioner to show cause, inter alia, as to why the petitioner may not be treated as an ‘assessee in default’ in respect of TDS deductible in terms of Sections 194C[2] /194J of the Act on the amount of EDC paid Section 194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to—
(i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family;
(ii) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein. (2) Where any sum referred to in sub-section (1) is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source—
(i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or
(ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice. to HUDA.
8. The petitioner responded to the said show cause notices, inter alia, contending that the EDC were paid pursuant to the statutory obligations under the HDRUA Act and the Rules made thereunder. Payment of EDC is one of the conditions for obtaining license from Director General, Town & Country Planning for developing land. The petitioner claimed that the said payments were, in fact, payments of charges to the State Government of Haryana and therefore, the petitioner had no obligation to deduct TDS.
9. The petitioner also referred to various other provisions of the Act relating to withholding of TDS and submitted that none of the Sections (that is, Section 192 to 194LB) of the Act were applicable. The petitioner specifically submitted that “Section 194C/ 194J are not (4) No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. (5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed thirty thousand rupees: Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds seventy five thousand rupees, the person responsible for paying such sums referred to in sub-section (1) shall be liable to deduct income-tax under this section. (6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, where such contractor owns ten or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with his Permanent Account Number, to the person paying or crediting such sum. (7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such form and within such time as may be prescribed. applicable as there is no contractual obligation to use the services of the other party to carry on any development work on behalf of the developer”.
10. The AO was not satisfied with the petitioner’s reply to the show-cause notices and passed an order dated 30.03.2021, which is impugned herein. Although, the AO did not mention that Sections 194C/194J of the Act were inapplicable, he held that the EDC were in the nature of ‘rent’ and therefore, TDS was liable to be deducted under Section 194-I[3] of the Act at the rate of 10% of the amount paid/credited. The AO quantified the demand at ₹12,27,91,027/- [₹6,46,78,089/- under Section 201(1) of the Act and ₹5,81,12,938/under Section 201(1A) of the Act].
11. As stated above, the reasoning of the AO that the petitioner was liable to withhold TDS on the payments of EDC rested on the finding
3 Section 194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, 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 or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of– (e) two per cent for the use of any machinery or plant or equipment; and (b) ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (Including factory building) or furniture or fittings: Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed one hundred and eighty thousand rupees: Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section. that such payments are in the nature of rent and therefore, the petitioner was liable to deduct TDS at the rate of 10% under Section 194-I of the Act. Paragraph 6 of the impugned order, which sets out the aforesaid reasoning, reads as under:
12. The learned counsel appearing for the respondents readily admitted that Section 194-I of the Act is not applicable and the payment of EDC cannot be construed as rent attracting the obligation to deduct TDS at the rate of 10% on the said payment. However, they earnestly contended that since the AO has the jurisdiction to determine whether TDS is payable or not, the impugned order be set aside and the matter be remanded to the AO. According to them, the AO has erroneously mentioned that TDS was required to be deducted under Section 194-I of the Act instead of Section 194C of the Act. It is contended that merely mentioning an incorrect provision is a curable defect; it does not affect the substratum of the impugned order or renders it vulnerable to challenge.
13. We do not find any merit in the contention that the substratum of the impugned order is correct, and the AO has merely referred to a wrong provision of law.
14. The question as to the nature of EDC payment was squarely one of the issues that was required to be addressed by the AO. He had concluded that the same was ‘rent’ as it was in nature of an arrangement to use land. It is not open for the respondents to now contend that EDC charges are payment made to a contractor under a contract and not ‘rent’ under an arrangement to use land.
15. As noted above, it was specifically contended on behalf of the petitioner that provisions of Sections 194C/194J of the Act did not apply. The AO did not allude to the said provisions, which requires a resident person paying any amount to a contractor to deduct TDS; according to the AO, the nature of the EDC is rent. As stated above, the AO has reasoned that the agreement between the petitioner and the State Government of Haryana (license under the HDRUA Act and the HDRUA Rules made thereunder) would be covered under the expression, “any other agreement or arrangement for use of land”.
16. As noted above, it is conceded by the learned counsel appearing for the respondents that the view of the AO is patently erroneous.
17. It is also relevant to refer to the decision of the Coordinate Bench of this Court in BPTP Ltd. v. Principal Commissioner of Income Tax, (Central)-III[4]. The controversy in the said petition related to the reopening of the assessments under Section 147 of the Act. The reasons that prompted the AO to initiate proceedings for reopening of assessment was that the assessee had not deducted TDS from payment of EDC, and therefore, the same was not allowable as expenditure by virtue of Section 40(a)(ia) of the Act. The fact that the assessee had not deducted TDS from EDC payments was set up as a reason to believe that the assessee’s income for the relevant assessment year had escaped assessment.
18. This Court faulted the reasoning of the AO for initiating the reassessment proceedings as the fundamental premise that tax was required to be withheld from EDC payment was found to be unsustainable.
19. It is relevant to note that in BPTP Ltd’s case[5], the Revenue sought to sustain the initiation of reassessment proceedings by contending that TDS on EDC was required to be withheld under Section 194 of the Act, which related to TDS on dividends. However, during the course of the proceedings, it was also contended by the Revenue that EDC was in the nature of rent. This Court found the said contentions unmerited.
20. The relevant extract from the decision in BPTP Ltd’s case[6] is set out below:
21. In the present case, the Revenue does not seek to support the decision of the AO that EDC are ‘rent’ or in the nature of ‘rent’. Thus, concededly, the fundamental reasoning on which the impugned order rests is fundamentally flawed.
22. The contention that the AO has merely referred to a wrong Section of the Act and therefore, the said reference may be ignored is also without merit. As noticed above, the AO has not only held that TDS was liable to be deducted under Section 194-I of the Act, he has also proceeded to analyse the said Section and hold that EDC are in the nature of rent. He has, in addition, also applied the rate of TDS at the rate of 10% for assessing the petitioner’s liability.
23. The reasoning of the AO for finding that the petitioner was obliged to deduct TDS is important. The determination of the nature of payment is vital for ascertaining whether there was any obligation on the part of the petitioner to deduct and deposit TDS on EDC. The Revenue appears to be approaching the issue from quite the reverse direction; it has for an inexplicable reason, concluded that assessees ought to deduct TDS from EDC and now seeks to find provisions of law to sustain the said conclusion. In BPTP’s case (supra), the AO had initiated reassessment proceedings on the ground that assessee was required to deduct TDS under Section 1947 of the Act; apparently, on
7 Section 194. Dividends.– The principal officer of an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, shall, before making any payment in cash or before issuing any cheque or warrant in respect of any dividend or before making any distribution or payment to a shareholder, who is resident in India, of any dividend within the meaning of sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) or subclause (e) of clause (22) of section 2, deduct from the amount of such dividend, income-tax at the rates in force: Provided that no such deduction shall be made in the case of a shareholder, being an individual, if— (a) the dividend is paid by the company by an account payee cheque; and (b) the amount of such dividend or, as the case may be, the aggregate of the amounts of such dividend distributed or paid or likely to be distributed or paid during the financial year by the company to the shareholder, does not exceed two thousand five hundred rupees: Provided further that the provisions of this section shall not apply to such income credited or paid to— the premise that EDC is dividend. However, before the court, it was argued on behalf of the Revenue that EDC is rent and therefore TDS was required to be deducted from payment of EDC. In the present case, the AO has proceeded on the basis that EDC is rent but the Revenue contends that it is a payment to contractor attracting the provisions of TDS under Section 194C of the Act.
24. It is apparent from the above, that the approach of the Revenue is flawed. We reject the contention that the findings of the AO regarding the nature of EDC charges as well at the provisions referred by him for determining the petitioner’s liability are not material.
25. Accordingly, for the reasons stated above, the order impugned in W.P.(C) No.4351/2021 is set aside and the said petition is allowed.
26. As already observed at the outset; it is common ground that the decision in W.P.(C) No.4351/2021 would be dispositive of other petitions as well. This is because the orders impugned therein are also founded on finding that the petitioners in these petitions were required (a) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), in respect of any shares owned by it or in which it has full beneficial interest; (b) the General Insurance Corporation of India (hereafter in this proviso referred to as the Corporation) or to any of the four companies (hereafter in this proviso referred to as such company), formed by virtue of the schemes framed under sub-section (1) of section 16 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972), in respect of any shares owned by the Corporation or such company or in which the Corporation or such company has full beneficial interest;
(c) any other insurer in respect of any shares owned by it or in which it has full beneficial interest: Provided also that no such deduction shall be made in respect of any dividends referred to in section 115-O. to deduct TDS from EDC under Section 194-I of the Act.
27. Consequently, the above captioned petitions are allowed and the orders passed by the AO raising a demand under Section 201(1) and Section 201(1A) of the Act, which are impugned in these petitions, are set aside. All pending applications are also disposed of.
VIBHU BAKHRU, J AMIT MAHAJAN, J MARCH 24, 2023 ‘gsr’