Fact that Developer required to Layout Roads and undertake other activities before Delivery of Completed Sites would not make Agreement a “Works Contract”: ITAT [Read Order]

The Bangalore bench of ITAT in the case of The Income-tax Officer vs. M/s REMCO (BHEL) House Building ruled that the fact that developer required to layout roads and undertake other activities before delivery of completed sites would not make Agreement a “Works Contract”.

The bench comprising Jason P Boaz, Accountant member and Laliet Kumar, Judicial member were held so while handling the bunch of appeals filed by Revenue directed against the impugned order of Commissioner of Income-Tax (A).

In instant appeal, the Assessee is co-operative society engaged in the business of finding suitable lands and forming a residential layout for allotment of residential sites to its members. During the proceedings, the AO called for information under section 133(6) of the Income-tax Act, 1961 regarding the details of payments made to developers/contractors and tax deducted thereon.

AO noticed that Assessee had entered into certain agreements with the developers called M/s Lion Estates and Properties for carrying out the above activities and had failed to deduct tax at source on payments made to these parties which were in the nature of composite work contracts.

According to the AO, the aforesaid work carried out by the developer/contractor on behalf of the assessee, is in the nature of works contract and therefore the provisions of Sec. 194C of the Act was attracted but failed to deduct tax. Subsequently, he treated the assessee as assessee-in-default under section 201(1) of the Act and also charged the consequential interest u/s 201(1A) of the Act.

Being aggrieved with the AO’s action, Assessee carried the matter before CIT (A) who allowed the appeal and declared that Assessee was not liable to deduct tax at source on the payments it made to developers/contractors as the provisions of sec. 194C of the Act were not attracted.

Further aggrieved, the Revenue approached ITAT and reiterated the activities of the assessee are in the nature of composite works contract. On counterpart, the Assessee relied on CIT (A) order and relied on tribunal’s decision in Kautilya House Building Co-operative Society Ltd (ii) Karnataka Legislature Secretariat Employees Housing Co-op Society Ltd., and Lokseva Housing Co-operative Society Ltd.

Tribunal after hearing the rival contentions held that there is nothing therein that shows the assessee is liable to deduct tax at source on payments made to the developers in the years under appeal.

The Tribunal bench observed that “various co-ordinate benches of this Tribunal after examining the same has applied the ratio of the judgment of the Karnataka High Court in the case of Karnataka State Judicial Department Employees House Building Co-operative Society Ltd., and have held that there was no requirement for deduction of tax at source u/s 194C of the Act”.

While following the certain cases cited by Assessee, the Tribunal upheld the impugned orders of the CIT(A) deleting the demands raised by the AO u/s 201(1) and 201(1A) of the Act.