TDS on development charges and delay interest fails where no work contract exists and statutory exemption applies.

External Development Charges paid to GMADA were held outside section 194C because the charges arose from a statutory and policy framework, not from any separate work or service contract with the payer; the authority was discharging its own public development obligations, so no tax deduction at source was required on the EDC payments. Interest paid for delayed EDC was also not subject to TDS under section 194A because GMADA was treated as a corporation established under a State Act and covered by the relevant exemption notification. Accordingly, the demand under sections 201(1) and 201(1A) could not be sustained.

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Issues: Whether tax was deductible at source on External Development Charges and interest on delayed payment of such charges paid to GMADA, so as to attract section 194C and section 194A of the Income-tax Act, 1961 and consequentially sustain demand under section 201(1) and section 201(1A).

Analysis: The payment of External Development Charges arose from an arrangement with the State Government and not from any separate contract with GMADA. The development authority was collecting the charges under a statutory and policy framework, and the external development works were carried out by the authority in discharge of its own public obligations, not as performance of a work or service contract for the assessee. The agreement and the notifications showed only a contribution towards proportionate infrastructure cost linked to governmental development activity, which was held not to create a contract attracting section 194C. As regards interest on delayed payment of EDC, GMADA was held to be a corporation established under a State Act and therefore covered by the Central Government notification issued under section 194A(3)(iii)(f), with the result that no TDS was deductible on such interest.

Conclusion: The assessee was not liable to deduct tax at source on the EDC payments or on the interest paid for delayed EDC, and the demand raised under section 201(1) and section 201(1A) could not be sustained.

Ratio Decidendi: A statutory development authority collecting infrastructure charges under a governmental policy, without a separate work or service contract with the payer, does not attract section 194C, and interest paid to a corporation established by a State Act falls within the section 194A exemption notification.

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