2025 (9) TMI 104 - HC - Income Tax

External Development Charges collected from private builders are rent for land use, not contractor payments under Sections 194C/194I

Commissioner of Income Tax (TDS) -2 Versus M/s. SS Group Pvt. Ltd.

Commissioner of Income Tax (TDS) -2 Versus M/s. SS Group Pvt. Ltd. - 2025:DHC:6956 - DB ISSUES PRESENTED AND CONSIDERED 1. Whether the Income Tax Appellate Tribunal was required to remand the matter to the Assessing Officer to decide afresh the applicability of tax deduction provisions (notably Sections 194C/194I and related provisions) to External Development Charges (EDC) paid to a statutory/municipal authority. 2. Whether EDC payments constituted 'rent' attracting Section 194I (TDS on rent) or were payments to a contractor attracting Section 194C (TDS on contractor payments), and whether the AO's characterization or reference to a specific provision (194I v. 194C) was a curable defect permitting re-opening or remand. 3. Whether the ITAT's deletion of tax-deduction liability on EDC (by following the High Court's prior decision in the same batch of petitions) was correct and whether any contrary subsequent authority required reconsideration or remand. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Remand to Assessing Officer to Decide Applicability of TDS Provisions Legal framework: Chapter XVII-B of the Income-tax Act imposes obligations on persons effecting payments to deduct tax at source; Sections 194C and 194I are relevant for contractor payments and rent respectively. The statutory scheme permits the AO to determine whether TDS is payable, subject to appellate review. Precedent Treatment: The Court relied on its earlier decision in respect of the same assessee within a batch of petitions where remand was refused; that decision attained finality on challenge to the Supreme Court (SLP dismissed). Interpretation and reasoning: The Court held that where identical issues and facts have been adjudicated in an earlier binding decision involving the same assessee, and that decision resolved the legal character of EDC payments in favour of the assessee, there is no occasion to remit the matter for fresh adjudication. The Court found that the contention for remand essentially sought a re-characterisation contrary to the prior decision and that the AO's previous conclusion was already squarely addressed by the High Court in the batch matter. The Court further observed that the AO's choice of statutory provision (194I v. 194C) was not a mere curable defect enabling reopening when the substance of the issue had been conclusively decided. Ratio vs. Obiter: Ratio - where the same question of law and fact has been finally decided in related proceedings involving the same parties/assessee, remand to the AO for fresh consideration is not warranted. Obiter - general remarks on the AO's jurisdiction to determine TDS may be persuasive but secondary to the ratio. Conclusion: Remand to the AO was not required; ITAT correctly declined to remand and followed the High Court's prior decision in the same batch of matters. Issue 2 - Characterization of EDC: Section 194I (Rent) v. Section 194C (Contractor Payment) Legal framework: Section 194I taxes payments characterized as 'rent' (including arrangements for use of land), while Section 194C taxes payments to contractors for execution of work. The statutory regime places the onus on the payer to deduct TDS in accordance with the character of the payment. Precedent Treatment: The Court relied on its earlier decision in the batch (which included the present assessee) holding that EDC did not qualify as rent under Section 194I and that the respondents could not re-characterise the payment as a contractor payment when that issue had been adjudicated. The Revenue relied on a later decision (Puri Constructions) holding that, on similar facts, Section 194C could be attracted where payments were contractual in nature and the payee effected development works pursuant to an arrangement. Interpretation and reasoning: The Court observed that in the assessment order the AO had held EDC to be in the nature of rent (arrangement for use of land) and that the High Court in the earlier batch rejected the plea to treat EDC as contractor payments. The Court emphasized finality: where identical facts and parties are involved and a binding decision exists that EDC is not rent attracting TDS (or that the AO's characterization cannot be challenged now), the Revenue cannot revisit characterization by invoking a different provision. The Court noted that the Puri Constructions reasoning (that Section 194C applies where payment is to a contractor performing external development work) does not override the binding effect of the earlier decision in the batch as applied to the present assessee. Ratio vs. Obiter: Ratio - where a binding earlier decision on the same issues and parties holds that EDC is not subject to TDS under the characterisation advanced by Revenue, that decision governs and precludes re-characterisation in subsequent proceedings between the same parties. Obiter - analysis of whether Section 194C could apply on alternative facts (as per Puri Constructions) is persuasive for other fact patterns but not controlling here. Conclusion: The Court dismissed the Revenue's contention to treat EDC as contractor payments under Section 194C for the present assessee, holding that the issue had been finally decided in favour of the assessee and decline to disturb that conclusion. Issue 3 - Applicability of CBDT Clarification and Whether Substantial Question of Law Arises Legal framework: Administrative clarifications (e.g., CBDT circulars) may inform interpretation of TDS obligations but cannot displace binding judicial determinations between the same parties. Questions of law must be substantial and unresolved to warrant interference. Precedent Treatment: The Court referred to the prior batch decision and its finality on appeal to the Supreme Court (SLP disposed/dismissed) to underline that no substantial question of law remains for consideration in the present appeal. Interpretation and reasoning: The Court found that arguments relying on statutory interpretations, CBDT clarification, or later judicial pronouncements did not create a new substantial question of law because the identical issue with the same assessee had been adjudicated and concluded. Therefore, the ITAT's decision, which followed that binding precedent, did not give rise to a substantial question warranting appellate interference. Ratio vs. Obiter: Ratio - where a matter has been finally decided in related proceedings involving the same parties, subsequent reliance on administrative clarifications or alternate judicial views does not automatically create a substantial question of law for appeal. Obiter - comments on interplay between administrative clarifications and judicial finality. Conclusion: No substantial question of law arises; ITAT's order is sustained and the appeal dismissed.