No TDS was required to be deducted from Payment EDC made to HUDA: Delhi HC Allows Appeal [Read Order]

The Delhi  High Court  has held that TDS was required to be deducted from external development charges [EDC] payment made to Haryana Urban Development Authority [HUDA]

Swiftrans International Pvt. Ltd, the petitioner has filed the present petition under Article 226 of the Constitution of India impugning an order date 13.02.2025 as corrected in terms of the corrigendum dated 20.02.2025 [impugned order] passed under Section 260(1A) read with Section 201(1) and 201(1A) of the Income Tax Act 1961 [Act] in respect of assessment year [AY] 2016-17. The petitioner also impugns a demand notice dated 13.02.2025 [impugned notice].

It is the petitioner’s case that the impugned order is barred by limitation as it has been passed beyond the period prescribed under Section 201(3) of the Act. However, the Revenue counters the said contention and states that the said order has been passed pursuant to liberty granted by this court in terms of an order dated 21.03.2024 passed by this court captioned Swiftrans International Pvt. Ltd. v. Income Tax Officer Ward.

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The limited question to be addressed is whether the time prescribed for issuing the impugned order under Section 260(1A)/201(1)/201(1A) of the Act had expired and if so, whether the period of limitation as stipulated in Section 201(3) of the Act is inapplicable.

The petitioner is a company engaged in the business of real estate development and had made certain payments (or booked a liability) on account of the external development charges [EDC] payable to Haryana Urban Development Authority [HUDA] during the financial year [FY] 2015-16 relevant to AY 2016-17. The petitioner had paid EDC without deducting any tax at source [TDS] inter alia on the assumption that no TDS was required to be deducted on account of the payments of EDC.

The petitioner had reasoned that it was liable to pay EDC made pursuant to condition imposed by the Director Town & Country Planning, State of Haryana and not pursuant to any contract. Additionally, the petitioner assumed that although the payments of EDC were made to HUDA, the same were, essentially, the payments made to the State Government for external development of the area where the petitioner’s real estate projects were located. Thus, no TDS was required to be deducted from such payments.

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The Assessing Officer [AO] issued various show cause notices under Section 201(1)/201(1A) of the Act calling upon the petitioner to show cause why it should not be treated as an assessee-in-default on account of not deducting TDS under Section 194-I of the Act in respect of EDC paid to HUDA. The petitioner responded to the said notices disputing that it is liable to deduct any TDS on EDC paid to HUDA. However, the AO did not accept the petitioner’s contention and passed an order dated 16.03.2023 in respect of AY 2016-17 holding the petitioner to be an ‘assessee-in-default’.

Thereafter, on 31.10.2023, the AO issued an order imposing penalty under Section 271C of the Act. However, in the meanwhile, in M/s DLF Panchkula Homes Pvt. Ltd. v. ACIT and Other Connected Matters: Neutral Citation 2023:DHC:2401-DB, this Court had set aside similar notices issued under Section 201(1)/201(1A) of the Act, inter alia, on the ground that payments of EDC could not be construed as payment of ‘rent’ and therefore, Section 194-I of the Act is inapplicable for such payments.

The Court also rejected the AO’s contention that the AO had merely mentioned a wrong Section on the said notices/orders in view of the finding that the show cause notices as well as the orders issued thereafter had elaborate reasons as to the nature of EDC to support the view that it was payment in the nature of lease rent. The said reasoning was central to the subject matter of the controversy and had AO’s conclusion that the nature of payment of EDC was, essentially, lease rents. Thus, this was not a case of merely mentioning an incorrect Section, but was founded on an erroneous decision that the payments of EDC charges were akin to payment of lease rent.

It is material to note that the Revenue preferred a Special Leave Petition [SLP] against the decision in DLF Panchkula Homes Pvt. Ltd. v. ACIT bearing W.P.(C) 56540/2022 (supra) [SLP (C) Diary Number 2630/2024], which was dismissed by an order dated 23.02.2024.

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Notwithstanding that the decisions of this Court in DLF Panchkula Homes Pvt. Ltd. v. ACIT (supra), the AO passed an order dated 31.10.2023 under Section 271C of the Act for AY 2016-17 imposing penalty for nondeduction of TDS under Section 194-I of the Act, on the payment of EDC.

The petitioner, being aggrieved by the said order, filed a writ petition [being W.P.(C) 1615/2024 captioned Swiftrans International Pvt. Ltd. v. Income Tax Officer Ward 77 4 New Delhi & Ors] in this Court impugning the order dated 16.03.2023 passed under Section 201(1)/201(1A) of the Act and an order dated 31.10.2023 passed under Section 271C of the Act. This Court allowed the said petition by an order dated 21.03.2024.

Thereafter, the AO issued a notice dated 25.06.2024 calling upon the petitioner to explain why it should not be treated as an assessee-in-default for failure to deduct TDS under Section 194C of the Act in respect of the payments made during FY 2015-16 relevant to AY 2016-17. The petitioner responded to the said notice, inter alia, contending that the same was beyond the period of limitation as prescribed and not in accordance with law. However, the petitioner’s contention was rejected in terms of the impugned order. According to the Revenue, the limitation as prescribed under Section 201(3) of the Act was not applicable by virtue of Section 153(6)(i) of the Act as the impugned order was passed to give effect to the order dated 21.03.2024 passed by this Court in W.P.(C) 1615/2023 captioned Swiftrans International Pvt. Ltd. v. Income Tax Officer Ward 77 4 New Delhi & Ors.

A division Justice Vibhu Bakhru and Justice Tejas Karia had allowed the writ petition and had set aside the orders passed under Section 201(1) and 201(1A) of the Act as well as an order imposing penalty under Section 271C of the Act, which was premised on the allegation that the petitioner had failed to deduct TDS under Section 194-I of the Act in respect of payments of EDC to HUDA.

The Court had also clarified that respondents were not precluded to proceed further in accordance with law as well as the observations made by this Court in Puri Constructions Private Limited v. Additional Commissioner of Income Tax and Ors.: 2024 SCC OnLine Del 939. It is clear from the above that the liberty granted to the Revenue to proceed further was qualified by the expression “in accordance with law”.

Further held that “Nothing stated in the order dated 21.03.2024 could be construed as absolving the AO from the rigors of Section 201(3) of the Act. The provisions of Section 153(6)(i) of the Act would have little application as nothing stated in the order dated 21.03.2024 could be construed as a finding or direction to issue the impugned order.”

To Read the full text of the Order CLICK HERE

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