AO can’t Change Nature of Payment to Alter TDS Provision During Appeals: HC

Case Details: DLF Homes Panchkula Pvt Ltd. v. JCIT - [2023] 149 taxmann.com 176 (Delhi)

Judiciary and Counsel Details

• • Vibhu Bakhru & Amit Mahajan, JJ.
  • Ms Kavita Jha, Vaibhav Kulkarni, Anant Mann, Himanshu Agarwal, Yuvraj Singh, Chetan Kumar Shukla, Salil Kapoor, Ms Ananya Kapoor, Utkarsh Kumar Gupta, Sumit Lalchandani & Sanat Kapoor, Advs. for the Petitioner.
  • Sunil Agarwal, Shivansh B. Pandya, Utkarsh Tiwari, Shailendera Singh, Ms Dacchita Shahi, Akash Saxena, Abhishek Khanna, N.K. Aggarwal, Ms Aakanksha Kaul, Puneet Rai, Ashvini Kumar, Ms Madhavi Shukla, Zoheb Hossain, Sanjeev Menon & Niraj Kumar, Advs. for the Respondent.

Facts of the Case

Assessee was a company incorporated in India and engaged in the business of developing real estate. During the relevant assessment year, the assessee entered into an agreement with the State Government of Haryana for setting up the Group Housing Colony in Gurgaon District. As per the agreement, assessee was required to pay External Development Charges (EDC) to Haryana Urban Development Authority (HUDA).

During the proceedings, the Assessing Officer (AO) demonstrated that said payments were in nature of rent, and the tax must have been deducted under section 194-I. Unsatisfied by the assessee’s response, the AO treated the assessee as “assessee-in-default” and quantified the demand under section 201(1) and section 201(1A).

Aggrieved by the order, the assessee filed a writ petition to the Delhi High Court wherein the counsel appearing for the department contended to withhold the tax under section 194C instead of 194I.

High Court Held

The High Court held that the department counsel readily admitted that Section 194-I was not applicable and the payment of EDC cannot be construed as rent attracting the obligation to deduct TDS at the rate of 10% on the said payment. According to him, the AO had erroneously mentioned that TDS was required to be deducted under Section 194-I instead of Section 194C.

The question as to the nature of EDC payment was squarely one of the issues that were required to be addressed by the AO. He had concluded that the same was ‘rent’ as it was in nature of an arrangement to use land. It is not open for the revenue to now contend that EDC charges are payments made to a contractor under a contract and not ‘rent’ under an arrangement to use land.

Revenue does not seek to support the decision of the AO that the charges are ‘rent’ or in the nature of ‘rent’. The fundamental reasoning on which the impugned order rests is fundamentally flawed.

The revenue appears to be approaching the issue from quite the reverse direction; it has, for an inexplicable reason, concluded that assessees ought to deduct tax and now seeks to find provisions of law to sustain the said conclusion. Thus, the order of AO was liable to be set aside.