External development charges paid to HUDA not subject to TDS under section 194A, revenue appeal dismissed

The ITAT Delhi dismissed the revenue's appeal regarding TDS liability under section 194A. The assessee was not held in default under section 201(1) for non-deduction of tax at source on external development charges paid to HUDA. The CIT(A) had granted relief based on a coordinate bench decision holding that EDC payments to HUDA are not subject to TDS requirements. Consequently, the assessee was not liable for tax recovery or interest under section 201(1A) for non-deduction of tax at source.

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Issues Involved:
1. Whether the assessee was liable to deduct tax at source on External Development Charges (EDC) paid to HUDA u/s 194C.
2. Whether the assessee was liable to deduct TDS on interest paid on EDC/IDC charges to HUDA u/s 194A.

Summary:

Issue 1: Liability to Deduct TDS on EDC u/s 194C

The Revenue argued that the CIT(A) erred in not appreciating that the assessee was liable to deduct tax at source on External Development Charges (EDC) paid to HUDA, as per CBDT's Office Memorandum dated 23.12.2017. The Assessing Officer (AO) held that EDC payments are in the nature of contractual payments covered u/s 194C and thus required TDS deduction. However, the CIT(A) and the ITAT found that the payment to HUDA was not pursuant to any contract between the assessee and HUDA but was levied by the Haryana Government for external development. The ITAT referred to several precedents, including the case of M/s RPS Infrastructure Limited vs. Addl. CIT, where it was held that the assessee was not required to deduct TDS on EDC payments as these were not contractual payments but statutory charges. Consequently, the assessee could not be treated as 'assessee in default' u/s 201(1) and was not liable for interest u/s 201(1A).

Issue 2: Liability to Deduct TDS on Interest Paid on EDC/IDC Charges u/s 194A

The AO also held that the assessee was required to deduct TDS on the interest paid on EDC/IDC charges to HUDA, considering it as a payment covered u/s 194A. The CIT(A) and the ITAT, however, concluded that since the payment to HUDA was actually a payment to the Haryana Government, the provisions of section 196 of the Act applied, which exempts such payments from TDS. Therefore, the assessee was not liable to deduct TDS on the interest component of EDC/IDC charges.

Conclusion:

The ITAT upheld the CIT(A)'s order, granting relief to the assessee by ruling that the EDC paid to HUDA was not liable for TDS deduction, and the assessee could not be treated as 'assessee in default' u/s 201(1). Consequently, no interest u/s 201(1A) was payable. The appeals of the Revenue were dismissed.

Order pronounced in the open court on this 21st day of December, 2023.

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