2018 (2) TMI 272 - AT - Income Tax

Tribunal rules in favor of assessee in tax dispute, payments not for works contracts.

The Income-tax Officer, TDS Ward-3 (1), Bengaluru Versus M/s REMCO (BHEL) House Building Co-operative Society Ltd.

The Tribunal upheld the CIT(A)'s decision, ruling in favor of the assessee and dismissing the Revenue's appeals. It was held that the payments made were ... TDS u/s 194C - payments made to developer by the co-operative society - activity of identifying suitable lands and forming a residential layout for allotment of residential sites to its members - tds liability - Held that:- From the agreement/MOU’s it is seen that the assessee society has entrusted the procurement of 100 acres of land at Adigare Kallahalli Village, Sarjapur, Anekal Taluk and development of residential layout thereon with the conditions to execute civil works such as roads, common amenities, drainage, electrification, plan approval, conversion of lands from agriculture to non-agriculture status, etc., to the developer. However, the fact remains that the agreements essentially and basically relate to the purchase of land development and purchase of residential sites from the developer/contractors. Respectfully following the ratio of the decision of the Hon’ble Karnataka High Court in the case of Karnataka State Judicial Departmental Employees House Building Society Ltd. [2010 (3) TMI 1211 - KARNATAKA HIGH COURT] it is held that there was no requirement for deduction of tax at source u/s 194C - Decided in favour of assessee Issues Involved:1. Applicability of Section 194C of the Income-tax Act, 1961.2. Liability of the assessee to deduct tax at source on payments made to developers/contractors.3. Validity of the orders passed under Section 201(1) and 201(1A) of the Income-tax Act, 1961.4. Interpretation and application of agreements/MOUs between the assessee and developers/contractors.5. Reliance on judicial precedents and applicability to the current case.Detailed Analysis:1. Applicability of Section 194C of the Income-tax Act, 1961:The core issue revolves around whether the payments made by the assessee to developers/contractors fall under the purview of 'works contract' as defined under Section 194C of the Income-tax Act, 1961. The Assessing Officer (AO) held that the activities carried out by the developers/contractors, including civil work for laying roads, drainage, and electrification, constituted a composite works contract, thereby attracting the provisions of Section 194C. Consequently, the AO deemed the assessee as an 'assessee in default' for failing to deduct tax at source on these payments.2. Liability of the Assessee to Deduct Tax at Source on Payments Made to Developers/Contractors:The AO's orders under Section 201(1) and 201(1A) of the Act for the assessment years 2007-08 to 2012-13 held the assessee liable for non-deduction of tax at source on payments made to developers/contractors. However, the Commissioner of Income-tax (Appeals) [CIT(A)] overturned these orders, concluding that the provisions of Section 194C were not applicable to the payments made by the assessee, as they were essentially for the purchase of completed residential sites and not for the development work.3. Validity of the Orders Passed under Section 201(1) and 201(1A) of the Income-tax Act, 1961:The CIT(A) allowed the appeals filed by the assessee, holding that the payments made were for the purchase of completed property and not for any 'works contract.' This conclusion was based on the interpretation that the agreements were for the purchase of sites and did not involve any works contract, thereby negating the applicability of Section 194C. The Tribunal upheld the CIT(A)'s decision, finding no merit in the Revenue's contention that the agreements constituted composite contracts.4. Interpretation and Application of Agreements/MOUs between the Assessee and Developers/Contractors:The Tribunal examined the agreements/MOUs between the assessee and M/s Lion Estates and Properties. These agreements outlined the procurement of land and the development of residential layouts, including civil works. However, the Tribunal concurred with the CIT(A) that the payments were calculated on a per square foot basis and were for the purchase of completed residential sites. The Tribunal emphasized that the agreements should be treated as a whole and not in a piecemeal manner, and the mere inclusion of development activities did not convert the agreements into works contracts.5. Reliance on Judicial Precedents and Applicability to the Current Case:The Tribunal relied on several judicial precedents, including the decision of the Karnataka High Court in the case of Karnataka State Judicial Department Employees House Building Co-operative Society Ltd., which held that agreements for the purchase of sites, even if paid in installments, did not require the purchaser to deduct tax at source. The Tribunal also referred to similar decisions by co-ordinate benches in cases like Kautilya House Building Cooperative Society Ltd. and others, which supported the view that such agreements were not works contracts.In conclusion, the Tribunal upheld the CIT(A)'s orders, dismissing the Revenue's appeals and confirming that the assessee was not liable to deduct tax at source under Section 194C. The Tribunal found that the agreements were for the purchase of completed residential sites and not for works contracts, aligning with the judicial precedents cited.