Delhi High Court Quashes TDS Demand Against DLF Home Developers On External Development Charges Paid To HUDA

The Delhi High Court has quashed a tax demand against DLF Home Developers for failure to deduct tax at source (TDS) on external development charges paid to the Haryana Urban Development Authority (HUDA), holding that the demand was contrary to the law laid down in its earlier judgment.

The division bench of Justices Dinesh Mehta and Aditi Choudhary quashed the assessment order dated March 22, 2023, and a subsequent order dated August 31, 2026, rejecting the company's rectification application under Section 154 of the Income Tax Act, 1961.

The Assessing Officer had treated DLF Home Developers as an assessee-in-default under Sections 201(1) and 201(1A) of the Act for allegedly failing to deduct TDS under Section 194I on external development charges paid to HUDA for the financial year 2015-16.

The company challenged the assessment after the Delhi High Court, in DLF Homes Panchkula (P.) Ltd. v. Joint Commissioner of Income Tax (OSD), had held on March 24, 2023, that DLF and similarly situated assessees could not be treated as assessees-in-default under Section 194I in respect of such payments. The Supreme Court subsequently affirmed that judgment on February 23, 2024.

Despite the earlier ruling, the AO rejected DLF's rectification application, reasoning that the High Court's judgment had been delivered after the original assessment order and therefore did not fall within the scope of Section 154.

Senior Advocate Kavita Jha appearing for DLF argued that the rejection was contrary to law. Relying on the Supreme Court's judgment in ACIT v. Saurashtra Kutch Stock Exchange Ltd., she submitted that non-consideration of a decision of the jurisdictional High Court or the Supreme Court could constitute a mistake apparent from the record warranting rectification.

The company's counsel also relied on a Central Board of Direct Taxes (CBDT) circular dated November 17, 1971, to contend that a subsequent judicial decision could constitute a mistake apparent from the record.

The Income Tax Department opposed the plea, arguing that the case did not fall within the parameters of Section 154 and that DLF should have approached the appellate authority.

The High Court noted that the Department's counsel was unable to dispute the legal position on the merits—that DLF could not be treated as an assessee-in-default for failure to deduct TDS under Section 194I on external development charges paid to HUDA, in view of the earlier ruling.

The court, however, left open the question of whether a subsequent judgment could constitute a mistake apparent from the record warranting rectification. It observed that paragraph 41 of the Supreme Court's decision in Saurashtra Kutch Stock Exchange referred to the Gujarat High Court's ruling in Suhrid Geigy Ltd. v. Commissioner of Surtax and did not amount to a specific approval of that view by the Supreme Court.

Nevertheless, the Court held that both the original assessment order and the order rejecting the rectification application were contrary to the law laid down in the earlier judgment.

Observing that requiring DLF to approach the appellate authority would be a redundant formality, the Court allowed the writ petition and quashed both orders.

For Petitioner: Senior Advocate Kavita Jha, Advocates Vaibhav Kulkarni, and Akash Shukla, 

For Respondent: Puneet Rai, SSC; Advocate Ashvini Kumar JSC, Advocates Nancy Jain,Aryan Mittal