TDS penalty on External Development Charges deleted where payment was treated as government development work and no default was proved.

Penalty under section 271C for alleged non-deduction of tax at source on External Development Charges paid to a Haryana development authority was held unsustainable. The Tribunal treated the payment as one made in substance to the Government for development works undertaken for the State, and followed its earlier decision on identical facts as well as the coordinate Bench view that such payments did not trigger the TDS obligation relied on in the penalty proceedings. As no TDS default was established, the statutory foundation for penalty failed and the penalty was deleted in favour of the assessee.

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Issues: Whether penalty under section 271C for non-deduction of tax at source on payment of External Development Charges to the Haryana development authority was sustainable.

Analysis: The payment was made towards External Development Charges for development works undertaken for the State Government through the development authority. The Tribunal followed its earlier decision on identical facts and the coordinate Bench view that such payments, being in substance payments to the Government for development works, did not attract the TDS obligation invoked in the penalty proceedings. In the absence of a default under the TDS provisions, the foundation for penalty under section 271C failed.

Conclusion: The penalty was not sustainable and was directed to be deleted, in favour of the assessee.

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