2022 (12) TMI 282 - AT - Income Tax

Tribunal rules EDC payments not subject to section 43B, in favor of assessee

Vipul Ltd. Versus DCIT Circle-26 (1),

Vipul Ltd. Versus DCIT Circle-26 (1), - TMI Issues Involved:1. Whether the addition of Rs.1,61,70,056/- for External Development Charges (EDC) under section 43B was justified.2. The nature of EDC and its classification under tax laws.3. Applicability of section 43B to EDC payments.Detailed Analysis:1. Addition of Rs.1,61,70,056/- for External Development Charges (EDC) under section 43B:The assessee contested the addition made by the Assessing Officer (AO) and confirmed by the CIT(A), arguing that EDC should not be covered under section 43B. The assessee's representative highlighted that the EDC paid to Haryana Urban Development Authority (HUDA) is not in the nature of tax, duty, cess, or fee, and thus, should not attract the provisions of section 43B. The representative cited various judgments, including CIT vs. McDowell & Co. Ltd. and Tamil Nadu Minerals Ltd. vs. JCIT, to support their argument.2. Nature of EDC and its Classification under Tax Laws:The representative argued that EDC is a charge paid to the development authority for obtaining the right to develop specific land and for utilities like sewage and street lighting. It was emphasized that EDC is a user charge and not a statutory levy. The distinction between taxes, duties, cess, and fees under section 43B and EDC was elaborated, showing that EDC is a contractual payment for services provided by HUDA and not a compulsory exaction by the state.The analysis table presented by the assessee compared the characteristics of taxes, duties, cess, and fees with EDC, concluding that EDC does not fall under the categories mentioned in section 43B.3. Applicability of Section 43B to EDC Payments:The tribunal examined the provisions of section 43B, which mandates the allowance of certain deductions only on actual payment. The assessee argued that EDC, being a contractual payment, does not fall within the ambit of section 43B. The tribunal referred to the decision in CIT vs. McDowell & Co. Ltd., which clarified that terms like 'tax', 'duty', 'cess', or 'fee' in section 43B must denote compulsory exactions authorized by law, not contractual payments.The tribunal also considered the Hon'ble Madras High Court's judgment in Tamil Nadu Minerals Ltd. vs. JCIT, which held that nomination charges paid by the assessee for quarrying rights were not covered under section 43B as they were contractual payments.Conclusion:Upon careful consideration, the tribunal concluded that EDC paid by the assessee to HUDA is a contractual payment for services and not a statutory levy. Therefore, section 43B does not apply to EDC payments. The tribunal held that the AO and CIT(A) erred in treating EDC as falling under section 43B and disallowing the deduction. Consequently, the appeal filed by the assessee was allowed, and the addition of Rs.1,61,70,056/- was deleted.Order:The appeal filed by the assessee is allowed. The order was pronounced in the open court on 29.09.2022.