Splendor Landbase Ltd. vs Addl. CIT, Range-77 – TDS Penalty Case on EDC Payment – ITA 6329/DEL/2019

Case Analysis: Splendor Landbase Ltd. vs Addl. CIT, Range-77, New Delhi – ITA 6329/DEL/2019

Case Number: ITA 6329/DEL/2019

Appellant: Splendor Landbase Ltd., New Delhi

Respondent: Additional Commissioner of Income Tax, Range-77, New Delhi

Assessment Year: 2014-15

Order Type: Final Tribunal Order

Date of Order: 10th June 2022

Pronounced on: 10th June 2022

Case Filed On: 26th July 2019

Background of the Case

The case of Splendor Landbase Ltd. vs Addl. CIT, Range-77, New Delhi, pertains to the assessment year 2014-15. The appellant, Splendor Landbase Ltd., filed an appeal challenging the imposition of a penalty under Section 271C of the Income Tax Act, 1961, for the non-deduction of tax at source (TDS) on payments made towards External Development Charges (EDC) to the Directorate of Town and Country Planning (DGTCP), Haryana, through Haryana Urban Development Authority (HUDA).

The penalty was imposed by the Assessing Officer (AO) based on the belief that the appellant had violated the provisions of Chapter XVII-B of the Income Tax Act by failing to deduct TDS on the EDC payments.

Why the Case Was Filed

The central issue in this case was the imposition of a penalty under Section 271C for not deducting TDS on payments made to HUDA for EDC. The appellant contended that the payment was made to a government body, and as such, was exempt from TDS under Section 196 of the Income Tax Act. The appellant challenged the penalty imposed by the AO, leading to the filing of this appeal.

Key Legal Issue

The legal question revolved around whether Splendor Landbase Ltd. was liable to deduct TDS on payments made to HUDA for EDC under the provisions of Section 194C of the Income Tax Act. The appellant argued that such payments were made to the state government through its agency, HUDA, and hence, should be exempt from TDS under Section 196.

Tribunal Proceedings

The appeal was heard by the Delhi Bench “G” of the Income Tax Appellate Tribunal (ITAT), consisting of Shri Saktijit Dey, Judicial Member, and Shri Pradip Kumar Kedia, Accountant Member. The hearing took place on 2nd June 2022, and the order was pronounced on 10th June 2022.

During the proceedings, the appellant, represented by Shri Lalit Mohan, Adv., argued that the payment to HUDA was, in essence, a payment to the State Government, and therefore, exempt from TDS obligations. The appellant relied on a clarification issued by the Directorate of Town and Country Planning, Haryana, which explicitly stated that no TDS was required on EDC payments made to the government.

The respondent, represented by Shri Abhishek Kumar, Sr. DR, contended that the appellant was liable to deduct TDS under Section 194C of the Income Tax Act and that the penalty imposed under Section 271C was justified.

Tribunal’s Decision

The tribunal examined the facts of the case, the relevant provisions of the Income Tax Act, and the clarification issued by the Haryana government. The tribunal also considered similar cases, such as the case of Spaze Tower Pvt. Ltd. vs. JCIT, New Delhi and Perfect Constech Pvt. Ltd. vs. Additional Commissioner of Income Tax, where it was held that payments made to government agencies like HUDA, on behalf of the state government, were not subject to TDS under Section 194C.

The tribunal noted that the appellant’s contention was supported by the clarification issued by the Haryana government, which explicitly stated that no TDS was to be deducted on EDC payments made to the government for External Development Works (EDW). Based on this, the tribunal concluded that the imposition of the penalty under Section 271C was not justified, as the appellant had not violated the provisions of Chapter XVII-B of the Income Tax Act.

Final Judgment

In light of the findings, the tribunal allowed the appeal filed by Splendor Landbase Ltd. and canceled the penalty of Rs. 25,37,820/- imposed under Section 271C of the Income Tax Act for the assessment year 2014-15. The tribunal emphasized that the appellant was not in default for non-deduction of TDS on the EDC payments made to HUDA.

The order was pronounced in the open court on 10th June 2022 by the tribunal bench comprising Shri Saktijit Dey, Judicial Member, and Shri Pradip Kumar Kedia, Accountant Member.

Conclusion

This case highlights the importance of understanding the applicability of TDS provisions, especially when dealing with payments to government bodies. The tribunal’s decision underscores that payments made to government agencies like HUDA for specific development charges may be exempt from TDS under certain circumstances, as clarified by the relevant government authorities.

The ruling in favor of Splendor Landbase Ltd. provides clarity on the treatment of such payments and reinforces the principle that penalties under Section 271C should only be imposed when there is a clear violation of the provisions of Chapter XVII-B of the Income Tax Act. The decision serves as a reference point for similar cases, where the applicability of TDS on payments to government agencies is in question.

The tribunal’s thorough examination of the facts and reliance on previous rulings ensures that the judgment is well-founded, providing a fair outcome for the appellant while also setting a precedent for future cases.

Splendor Landbase Ltd. vs Addl. CIT, Range-77 – TDS Penalty Case on EDC Payment – ITA 6329/DEL/2019