In a major relief to DLF Homes Panchkula Private Limited, the Delhi High Court quashed penal action for failure to deduct TDS on External Development Charges (EDC) paid to Haryana Urban Development Authority.
The petitioner has laid a challenge to the order dated 28.11.2022 passed under Section 271C of the Income Tax Act, 1961. Besides this, challenge is also laid to the demand notice of even date, i.e., 28.11.2022 issued under Section 156 of the Income Tax Act.
It is not in dispute that insofar as the merits of the matter are concerned, i.e., whether the petitioner could be treated as an assessee-indefault under Section 201/201(1A) of the Income Tax Act for its failure to deduct withholding tax qua External Development Charges (EDC) paid to the Haryana Urban Development Authority [ “HUDA”], the coordinate bench has ruled in favour of the petitioner.
The term “External Development Charges” (EDC) refers to the charges that are paid by real estate builders to the municipal authorities for the creation and maintenance of civic facilities that are included in a real estate project. As per the guidelines set by the Real Estate (Regulation and Development) Act (RERA), 2016.
EDC is utilised for the development of essential infrastructure such as roads, water and electricity supply, drainage and sewage systems, waste management, landscaping, and other similar projects that benefit the entire project. Although the civic authorities determine the charges, the ultimate responsibility of payment lies with the homebuyer, as the developer generally transfers the cost to them. EDC is calculated based on the size of the project and can add up to 15-20 percent of the total project cost for the homebuyers.
A Division Bench comprising Justice Rajiv Shakdher and Justice Girish Kathpalia observed that “Given this circumstance, according to us, the same result should follow vis-a-vis the penalty order and the demand notice assailed in the instant writ petition. Accordingly, the aforementioned penalty order and demand notice are quashed.”
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