ITAT Delhi Sets Aside ₹1.53 Crore EDC TDS Demand Against DLF Homes

The Delhi Income Tax Appellate Tribunal has set aside an appellate order upholding a ₹1.53 crore tax demand against DLF Homes Panchkula Private Limited over External Development Charges.

The tribunal sent the matter back to the Assessing Officer to verify whether Haryana Urban Development Authority (HUDA/HSVP) had met the conditions under the Income Tax Act that could protect the developer from being treated as an assessee-in-default.

If those conditions are fulfilled, DLF Homes cannot be saddled with liability for the tax or related interest, the tribunal ruled.

It observed, “We deem it fit to set aside the impugned order and remand the matter back to the file of AO for verifying whether the conditions mentioned in the first proviso to section 201(1) of the Act have been fulfilled or not. In case, the said conditions have been fulfilled, then the assessee cannot be saddled with any liability u/s 201(1)/201(1A) of the Act.”

A coram of Judicial Member Raj Kumar Chauhan and Accountant Member S. Rifaur Rahman was hearing the company's appeal against the order upholding the demand.

DLF Homes is engaged in real estate development and held a licence from Haryana's Town and Country Planning Department to develop a colony in Panchkula.

During the 2016-17 financial year, the company paid External Development Charges of about ₹39.73 crore in the name of HUDA/HSVP. The payments were made on the directions of the Town and Country Planning Department without deduction of tax at source.

The Assessing Officer initiated proceedings on the ground that tax should have been deducted under Section 194C of the Income Tax Act. This provision requires tax to be deducted at source from certain payments made to contractors.

Relying, among other things, on the Delhi High court's ruling in Puri Construction Private Limited, the Assessing Officer held that the External Development Charges paid to HUDA attracted tax deduction under Section 194C.

DLF Homes was consequently treated as an assessee-in-default for failing to deduct tax. The Assessing Officer raised a tax demand of about ₹79.45 lakh and charged interest of about ₹73.66 lakh. The total demand came to about ₹1.53 crore.

The appellate authority upheld the Assessing Officer's order.

Before the tribunal, DLF Homes relied on earlier decisions of Delhi benches in M3M India Private Limited and Deputy Gothwal Constructions Private Limited. The Revenue relied on Puri Construction Private Limited.

The tribunal noted that the issue of tax deduction on External Development Charges paid to HUDA had been considered by its coordinate Bench in M3M India. It also examined the company's separate contention under the first proviso to Section 201(1).

DLF Homes argued that HUDA had been furnishing its income tax returns. It submitted that the authority would have offered the relevant receipts in its profit and loss account so that its income could be assessed.

The tribunal referred to the earlier decision in Deputy Gothwal Constructions. It noted that this alternative submission had “considerable persuasive value”.

Under the first proviso to Section 201(1), a person who fails to deduct tax may not be treated as an assessee-in-default if the recipient has filed its income-tax return, taken the relevant amount into account while computing its income, and paid the tax due on that income. The person claiming this protection must also furnish the prescribed certificate from an accountant.

The tribunal did not make a final finding on whether these conditions had been fulfilled in HUDA's case. Instead, it directed the Assessing Officer to verify the position.

It therefore set aside the appellate order and remanded the matter to the Assessing Officer. If the conditions under the first proviso to Section 201(1) are found to have been fulfilled, DLF Homes cannot be saddled with liability under Section 201(1) or the related interest under Section 201(1A).

Section 201(1) deals with the consequences of failing to deduct or pay tax at source. Section 201(1A) provides for interest in such cases.

The appeal was allowed on these terms.

For Assessee: R.S. Singhvi, CA and Satyajeet Goyal, CA

For Revenue: Sudeep Dabas, CIT-DR