TDS on statutory development charges was not required where the authority acted only as a State executing agency.

External development charges paid to a governmental development authority through the town and country planning department were held to be a statutory charge, not a contractual payment to a private recipient. On that basis, the Tribunal applied the view that payments made to an authority acting only as an executing agency for the State do not attract tax deduction at source under Chapter XVII-B. The payer was therefore not treatable as an assessee in default, and the demand under section 201(1) with consequential interest under section 201(1A) was unsustainable.

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Issues: Whether the assessee was liable to deduct tax at source on payment of external development charges made to the Haryana development authority through the town and country planning department, and whether demand under section 201(1) together with interest under section 201(1A) of the Income-tax Act, 1961 was sustainable.

Analysis: The payment was held to be a statutory charge paid to the State machinery for external development works and not a contractual payment to a private recipient. The Tribunal followed the coordinate bench view that such payments to the development authority on behalf of the State Government do not attract the TDS obligation under the relevant provisions of Chapter XVII-B. It also relied on the principle that where the recipient acts only as an executing agency for the Government, the payer is not to be treated as an assessee in default for non-deduction of tax at source.

Conclusion: The demand raised under section 201(1) and the consequential interest under section 201(1A) were not justified, and the assessee succeeded.

Final Conclusion: The liability to deduct tax at source did not arise on the impugned external development charge payments, so the demand and interest were unsustainable.

Ratio Decidendi: Payments made as statutory development charges to a governmental authority or its executing agency, where the authority acts on behalf of the State, do not constitute payments attracting TDS under Chapter XVII-B of the Income-tax Act, 1961.

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