2025 (12) TMI 1807 - AT - Income Tax

TDS Liability on development charges may be avoided if the payee filed a return, paid tax and produced the prescribed certificate.

Whether payment of External Development Charges attracted TDS as contractor payments under section 194C and whether the payer qualifies for relief under ... Assessee-in-default u/s 201(1) r/w section 201(1A) - default for not deducting tax at source u/s 194C on External Development Charges (EDC) amount paid by the appellant to the Directorate of Town and Country Planning (DTCP), Haryana. HELD THAT:- The Tribunal observed that although the appellate order below was ex parte and the facts were not fully adjudicated, the assessee's alternative submission - supported by authorities and the statutory proviso (inserted w.e.f. 01.07.2012) - warranted verification whether the payee had (i) furnished return of income under section 139, (ii) taken the relevant sum into account in that return, and (iii) paid tax on the income so declared, together with the prescribed accountant's certificate. Relying on the legal effect of the proviso and the persuasive value of the cited decisions, the Tribunal held that the impugned order could not be sustained without the AO first verifying fulfillment of these conditions; if they are satisfied, the assessee cannot be saddled with liability u/s 201(1)/201(1A). Accordingly the Tribunal set aside the impugned order and remanded the matter to the AO for that limited verification. [Paras 4] Final Conclusion: The Tribunal allowed the appeal for statistical purposes, set aside the impugned order and remanded the matter to the Assessing Officer to verify compliance with the first proviso to section 201(1); if the conditions are met the assessee shall not be held liable under section 201(1)/201(1A). Issues: Whether the assessee was liable to be treated as an assessee-in-default under section 201(1) read with section 201(1A) of the Income-tax Act, 1961 for non-deduction of tax at source under section 194C on payment of External Development Charges (EDC), or whether the assessee is entitled to relief under the proviso to section 201(1).Analysis: The question requires assessment of (i) whether payment of EDC to HUDA/DTCP attracted the provisions of section 194C as a contractor/sub-contractor payment or whether HUDA acted only as a collecting agency and (ii) whether the conditions of the first proviso to section 201(1) are satisfied so as to relieve the payer from default. The proceedings below were ex parte and factual findings regarding the license holders and the nature of receipts are not recorded at the lower level. Reliance on authorities applying the proviso to section 201(1) and on Supreme Court precedent regarding non-liability where the payee has returned and paid tax on the sums has persuasive application. The Tribunal therefore directed remand to enable the Assessing Officer to verify whether the payee had furnished return, taken the amount into account in computing income, paid tax thereon, and produced the prescribed certificate, as required by the proviso to section 201(1).Conclusion: The impugned ex parte confirmation of default is set aside and the matter is remitted to the Assessing Officer to verify compliance with the conditions of the first proviso to section 201(1) of the Income-tax Act, 1961; if those conditions are fulfilled, the assessee shall not be held liable under sections 201(1) / 201(1A). This result is in favour of the assessee.