TDS orders set aside on EDC payments to HUDA under Section 201, revenue granted liberty with limitation requirements

Delhi HC set aside orders under Section 201(1) and 201(1A) regarding TDS non-deduction on EDC payments to HUDA. Revenue was granted liberty to proceed further "in accordance with law" following Puri Constructions precedent requiring TDS deduction under Section 194C. However, HC clarified this liberty did not absolve AO from Section 201(3) limitation requirements. Court held Section 153(6)(i) provisions inapplicable as no specific finding or direction was given to issue the impugned order. Decision favored assessee on limitation grounds.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court were:

• Whether the impugned order passed under Section 260(1A) read with Sections 201(1) and 201(1A) of the Income Tax Act, 1961 (the Act) for assessment year 2016-17 was barred by limitation under Section 201(3) of the Act.
• Whether the limitation period prescribed under Section 201(3) could be extended or rendered inapplicable by virtue of Section 153(6)(i) of the Act, which allows for assessments or reassessments to be made consequential to or to give effect to findings or directions contained in certain orders, including orders of courts.
• Whether the order dated 21.03.2024 passed by the Court in W.P.(C) 1615/2024, which set aside earlier orders but permitted the Revenue to proceed further "in accordance with law," constituted a "finding or direction" within the meaning of Section 153(6)(i) so as to justify issuance of the impugned order beyond the limitation period.
• Whether the petitioner was liable to deduct tax at source (TDS) under Section 194C of the Act on payments made as External Development Charges (EDC) to Haryana Urban Development Authority (HUDA), given prior judicial pronouncements.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation under Section 201(3) of the Act

Relevant legal framework and precedents: Section 201(3) of the Act prescribes a limitation period of seven years from the end of the financial year in which the payment was made or credit given, for passing an order deeming a person as an assessee-in-default for failure to deduct TDS. The relevant payment was made in FY 2015-16, so the limitation expired on 31.03.2023.

Court's interpretation and reasoning: The Court noted that the impugned order was passed on 13.02.2025, well beyond the seven-year limitation period. Therefore, prima facie, the order was barred by limitation under Section 201(3).

Application of law to facts: Since the payment was made in FY 2015-16, the limitation expired on 31.03.2023. The impugned order dated 13.02.2025 was beyond this period and thus barred unless an exception applied.

Conclusion: The impugned order was beyond the limitation period prescribed under Section 201(3) of the Act.

Issue 2: Applicability of Section 153(6)(i) as an exception to limitation

Relevant legal framework: Section 153(6)(i) allows assessments, reassessments, or recomputations to be completed notwithstanding limitation periods if they are consequential to or to give effect to any finding or direction contained in certain specified orders, including orders under Section 260 or orders of courts.

Court's interpretation and reasoning: The Revenue argued that the impugned order was issued pursuant to the liberty granted by the Court's order dated 21.03.2024 in W.P.(C) 1615/2024, which allowed the Revenue to proceed further in accordance with law, and thus fell within Section 153(6)(i). The Court examined the operative part of the said order, which set aside previous orders but expressly permitted the Revenue to proceed further "in accordance with law" and did not constitute a "finding or direction" to issue the impugned order.

Key evidence and findings: The Court noted that the order dated 21.03.2024 did not contain any express finding or direction mandating the issuance of the impugned order. Instead, it merely set aside earlier orders and allowed the Revenue to initiate proceedings afresh, subject to the law.

Treatment of competing arguments: The Revenue's contention that the Court's order was a "finding or direction" under Section 153(6)(i) was rejected as the order was permissive and qualified by the requirement to act "in accordance with law," including limitation provisions.

Application of law to facts: Since the Court's order did not amount to a finding or direction within Section 153(6)(i), the limitation under Section 201(3) remained applicable.

Conclusion: Section 153(6)(i) did not render the limitation period inapplicable, and the impugned order was barred by limitation.

Issue 3: Liability to deduct TDS under Section 194C on payments of EDC to HUDA

Relevant legal framework and precedents: The petitioner contended that payments of EDC to HUDA were not subject to TDS under Section 194-I (which relates to rent) as the payments were statutory charges imposed by the State government and not contractual rent payments. The Court referred to its earlier decision in DLF Panchkula Homes Pvt. Ltd. v. ACIT, where it was held that payments of EDC could not be construed as rent, and thus Section 194-I was inapplicable.

However, in Puri Constructions Private Limited v. Additional Commissioner of Income Tax, the Court held that TDS under Section 194C (relating to payments to contractors) was applicable on EDC payments.

Court's interpretation and reasoning: The Court acknowledged the conflicting judicial precedents and clarified that while the petitioner was not liable to deduct TDS under Section 194-I, liability under Section 194C could be attracted. The liberty granted to the Revenue to proceed further was subject to compliance with the law, including limitation provisions.

Application of law to facts: The Revenue was entitled to initiate proceedings under Section 194C for non-deduction of TDS on EDC payments, but such proceedings had to be within the limitation period.

Conclusion: The petitioner's liability to deduct TDS under Section 194C was recognized, but the impugned order related to earlier proceedings under Section 194-I and was barred by limitation.

3. SIGNIFICANT HOLDINGS

The Court held:

"Nothing stated in the order dated 21.03.2024 could be construed as absolving the AO from the rigors of Section 201 (3) of the Act. The provisions of Section 153 (6) (i) of the Act would have little application as nothing stated in the order dated 21.03.2024 could be construed as a finding or direction to issue the impugned order."

Core principles established include:

• The limitation period prescribed under Section 201(3) for passing an order deeming a person an assessee-in-default is mandatory and cannot be extended or circumvented unless a valid finding or direction under Section 153(6)(i) exists.
• Judicial orders granting liberty to proceed further "in accordance with law" do not amount to findings or directions that extend limitation periods.
• Payments of EDC to a government authority may attract TDS liability under Section 194C, but not under Section 194-I, as payments of EDC are not rent.

Final determinations on each issue were:

• The impugned order passed beyond the limitation period under Section 201(3) was invalid.
• The Court's earlier order did not constitute a finding or direction under Section 153(6)(i) to justify issuance of the impugned order beyond limitation.
• The impugned order and demand notice were set aside accordingly.

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