The Income Tax Appellate Tribunal (ITAT), Bangalore Bench ruled that the TDS is not applicable on refundable security deposits made with landowners.
The assessee, M/s.Prestige Estates Projects Ltd. is an Indian Company engaged in the business of real estate development. In the course of its business, the assessee entered into joint development agreements with 54 parties. The said agreement had been entered in respect of 11 acres of land located in Ranga Reddy district of Andhra Pradesh. As per the agreement, the assessee agreed to construct and deliver a share of the total built-up area (31.66%) along with car parking spaces, terrace areas, private areas, and all other built-up areas to the landowners in consideration of 68.34% of the land being conveyed to it by the landowner.
In terms of the agreement, a sum aggregating to Rs.21,85,00,000 had been paid by the assessee to the land owners as interest free ‘refundable security deposit’.
This deposit is refundable to the assessee after 18 months of commencement of the construction. As per the Agreement, the security deposit paid by the assessee is recoverable through the sale of constructed area of the landowners. The Agreement also recognizes that any deficit shall be made good by the landowners.
The Assessing Officer issued a notice whereby the assessee was provided an opportunity to show cause why proceedings under section 201(1) and 201(1A) should not be initiated in respect of payments made under the development agreement entered by the assessee.
The assessee contended that the amount paid to landowners are in the nature of refundable security deposit and therefore cannot be characterized as consideration for transfer of immovable property attracting provisions of section 194IA.
The issue raised in this case was the CIT(A) has erred in concurring with the learned AO and concluding that refundable security deposits made with landowners amounting to Rs. 21,85,00,000/- are liable for TDS under section 194-IA of the Act.
The coram headed by the Vice President, N.V.Vasudevan held that even if it is an advance payment, it is not linked to the transfer of immovable property as enumerated in Section 194-IA of the Act, since the condition laid down in Section 2(47)(v) of the Act was not complied with within the meaning of Section 53A of the T.P. Act, so as to deduct TDS by the assessee on the said refundable security deposit. The assessee cannot be held as the assessee in default under sections 201(1) and 201(1A) of the Act.