EDC payments credited earlier trigger TDS duty u/s194C; s.201 demand for later year held invalid, time-barred

TDS liability under s. 194C arises at the earlier of credit or payment. Since the EDC liability was credited in AY 2012-13 though paid later, the payer could be treated as an "assessee in default" under s. 201(1) and charged interest under s. 201(1A), if at all, only for AY 2012-13; it could not be fastened for AY 2014-15, so the s. 201 demand for AY 2014-15 was unsustainable. Separately, under s. 201(3), the limitation ran from the FY of such credit, expiring on 31-03-2019; the order dated 25-03-2021 was time-barred, resulting in the assessee's ground being allowed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether liability to deduct tax at source under section 194C on External Development Charges (EDC) payable to HUDA arose in the year of book credit (when the liability was first credited) or in the year of actual payment, for purposes of an order under sections 201(1) and 201(1A).

(ii) Whether the order passed under sections 201(1) and 201(1A) for the relevant year was barred by limitation under section 201(3), considering the year in which the credit for EDC was given in the books.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Year in which TDS obligation under section 194C is triggered for EDC credited earlier but paid later

Legal framework: The Court applied the principle stated in the judgment itself that, under section 194C, tax deduction at source is triggered at the time of credit or payment, whichever is earlier.

Interpretation and reasoning: The Court found, on the basis of ledger accounts and audited financial statements placed on record, that the EDC liability was already outstanding and was credited in the books as payable as on 31-03-2012 (relevant to the earlier assessment year). Although actual payments were later made during the year considered by the tax authority, the Court held that the earlier "credit" event governed the time of TDS obligation because the statute triggers TDS on the earlier of credit or payment. The later payment was deferred due to a dispute but did not shift the triggering point for TDS.

Conclusions: The Court conclusively held that the TDS liability, and hence any proceedings to treat the assessee as an "assessee in default" under section 201(1) with interest under section 201(1A), could relate only to the year in which the credit first arose in the books, not the year in which payment was eventually made. Therefore, the assessee could not be treated as an "assessee in default" for the year for which the impugned order was passed.

Issue (ii): Limitation under section 201(3) for passing a section 201 order, with reference to the year of credit

Legal framework: The Court applied section 201(3) as discussed in the judgment: no order under section 201 can be passed after expiry of seven years from the end of the financial year in which payment is made or credit is given.

Interpretation and reasoning: Having already held that the relevant triggering event was the earlier credit of EDC payable in the books (and that the later payment year was not relevant for treating the assessee as in default on these facts), the Court computed limitation with reference to the financial year in which such credit was given. On that basis, the Court held that the limitation period expired on 31-03-2019, whereas the order under section 201(1)/201(1A) was passed on 25-03-2021.

Conclusions: The Court held that the impugned order was barred by limitation under section 201(3). Consequently, the challenge to the legality of the order on limitation grounds succeeded, and the appeal was allowed.

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