Development rights accrual and TDS on land procurement payments turn on contingent approvals and principal-to-principal dealings.

Income from a development arrangement did not accrue where the developer's right to develop remained contingent on obtaining statutory approvals and a licence, the land continued as raw land, and no development had commenced; the addition for alleged transfer of development rights was therefore unsustainable. Payment to a consolidator for procuring land was not commission or brokerage because the consolidator acted on a principal-to-principal basis, not as an agent, so section 194H did not apply and the related disallowance under section 40(a)(ia) could not stand.

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Issues: (i) Whether consideration stated in a development agreement had accrued as income during the year when the developer's right to develop was contingent on obtaining statutory approvals and licence. (ii) Whether payment to the consolidator for procurement of land attracted disallowance for failure to deduct tax at source under section 194H of the Income-tax Act, 1961, and consequential disallowance under section 40(a)(ia) of the Income-tax Act, 1961.

Issue (i): Whether consideration stated in a development agreement had accrued as income during the year when the developer's right to develop was contingent on obtaining statutory approvals and licence.

Analysis: The agreement did not create an enforceable development right until the requisite licence and approvals were granted. The right to develop remained contingent, the land continued as raw land, and no development activity had commenced during the relevant year. The interest-free deposit was also not shown to be part of sale consideration for an accrued transfer of development rights.

Conclusion: The addition on account of accrued income from transfer of development rights was not sustainable and was decided in favour of the assessee.

Issue (ii): Whether payment to the consolidator for procurement of land attracted disallowance for failure to deduct tax at source under section 194H of the Income-tax Act, 1961, and consequential disallowance under section 40(a)(ia) of the Income-tax Act, 1961.

Analysis: The consolidator acted on a principal-to-principal basis and not as an agent rendering brokerage or commission services. In the absence of an agency relationship, section 194H was inapplicable, and the related disallowance could not stand.

Conclusion: The disallowance under section 40(a)(ia) was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The Revenue's appeal failed, while the assessee obtained relief on its cross appeal, resulting in overall relief to the assessee.

Ratio Decidendi: Income from a development arrangement does not accrue until contingent development rights are fructified by the requisite statutory approvals, and payments to a party acting on a principal-to-principal basis do not attract section 194H.

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