This appeal was filed by Spaze Tower Pvt. Ltd. (the appellant) against the order dated 07.05.2019 passed by the Commissioner of Income Tax (Appeals)-XXXI, New Delhi, for the assessment year 2014-15. The case was heard by the Income Tax Appellate Tribunal (ITAT), Delhi Bench “G”, through video conferencing.
The appellant, Spaze Tower Pvt. Ltd., with TAN/PAN: AACCK8088R, is assessed to TDS and had filed its quarterly TDS returns for the year under reference. A survey under section 133A of the Income Tax Act, 1961, was carried out at the premises of Haryana Urban Development Authority (HUDA). During the survey, it was observed that HUDA received payments from various parties on account of External Development Charges (EDC). The appellant had paid an amount of Rs. 3,07,23,000/- as EDC to HUDA during the year under consideration.
A notice under section 201/201(1A) of the Act dated 19.05.2017 was issued to the appellant by the Assessing Officer, requiring an explanation for the non-deduction of TDS on EDC payments made to HUDA. The appellant submitted a detailed response stating that TDS provisions were not applicable to payments made to HUDA. However, a show-cause notice dated 18.01.2018 was issued by the Joint Commissioner of Income Tax (JCIT), alleging a default in the provisions of the Act for not deducting TDS on EDC payments to HUDA for FY 2013-14. The appellant contended that no work or service was performed by HUDA in pursuance of any contract, and there was no contractor-contractee relationship. Despite this, the JCIT levied a penalty under Section 271C of the Act amounting to Rs. 6,14,460/-.
The appellant contended that the payment to HUDA was essentially a payment to the State Government, which is exempt from TDS obligations under Section 196 of the Act. The appellant relied on a clarification issued by the Directorate of Town and Country Planning, Haryana (Haryana Government) dated 19.06.2018, which stated that no TDS was required to be deducted on EDC payments made to the government for external development works.
The tribunal considered the arguments and judicial precedents presented by the appellant. The ITAT noted the clarification from the Directorate of Town and Country Planning, Haryana, which clarified that payments for EDC made to the government did not require TDS deduction. The tribunal also referred to a similar case decided by the Co-ordinate Bench in Perfect Constech Pvt. Ltd. vs. Additional Commissioner of Income Tax (ITA No. 6907/Del/2019), where it was held that Section 194C provisions are not applicable to payments made to agencies like HUDA on behalf of the State Government.
The ITAT found merit in the appellant’s plea and ruled that the penalty imposed under Section 271C of the Act was unsustainable. The tribunal quashed the penalty order, stating that the non-deduction of TDS on EDC payments to HUDA did not constitute a default under Section 194C of the Act.
The appeal of Spaze Tower Pvt. Ltd. was allowed, with the tribunal ruling that the penalty order under Section 271C was invalid due to the non-applicability of TDS provisions on EDC payments to HUDA. This decision reinforces the necessity of clear statutory guidelines for TDS obligations on payments to government agencies.
Order pronounced in open court on 26/05/2022.
Sd/-
(Kul Bharat)
Judicial Member
Sd/-
(Pradip Kumar Kedia)
Accountant Member
Dated: 26/05/2022
Copy forwarded to:
Assistant Registrar
ITAT, New Delhi
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