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 the proviso to section 201(1) were the central issues; the Tribunal held that factual determination on whether the authority acted as a contractor or mere collecting agency and whether the payees had returned and paid tax is outcome-determinative and remitted the matter to the Assessing Officer for verification. The ex parte confirmation of assessee in default was set aside; if the AO verifies that the payee furnished returns, included the sums in income, paid tax and produced the prescribed certificate, the payer will not be held liable under the default provisions.

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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.

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