TDS on Development Charges: payer relief possible if the payee reports the receipt and pays tax under the proviso to payor liability.

External Development Charges (EDC) payments were held not to constitute contractual consideration attracting section 194I for the assessment year 2017-18, resulting in allowance of the appeal for that year. For assessment years 2018-19 to 2021-22 the Tribunal treated EDC as potentially subject to withholding under section 194C where amounts ultimately flow to a development authority, but remanded the matters to the assessing officer to verify whether the first proviso to section 201(1) conditions (payee filing return, including the receipt in income and paying tax) are satisfied, which, if proved, would relieve the payer of default liability.

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Issues: (i) Whether External Development Charges (EDC) payments fall within the scope of section 194I of the Income-tax Act, 1961 for AY 2017-18; (ii) Whether EDC payments for AYs 2018-19 to 2021-22 were subject to deduction under section 194C of the Income-tax Act, 1961 and whether the first proviso to section 201(1) of the Income-tax Act, 1961 removes liability such that the matters require remand for verification.

Issue (i): Applicability of section 194I of the Income-tax Act, 1961 to EDC payments for AY 2017-18.

Analysis: The assessment invoked section 194I but the Tribunal noted authoritative precedent of the Hon'ble Delhi High Court in DLF Homes Panchkula Pvt. Ltd. and related subsequent treatment showing section 194I not applicable to EDC in the circumstances; the assessing officer had relied on section 194I in the order while the CIT(A) applied section 194C. A Coordinate Bench decision applying the DLF Homes ratio held that EDC are not taxable under section 194I and allowed the appeal.

Conclusion: The Tribunal allows the appeal for AY 2017-18 and holds that section 194I is not applicable to the EDC payments in that assessment year; decision in favour of the assessee.

Issue (ii): Applicability of section 194C of the Income-tax Act, 1961 to EDC payments for AYs 2018-19 to 2021-22 and applicability of the first proviso to section 201(1) removing payor liability if conditions are satisfied.

Analysis: The assessing officer and CIT(A) considered whether payments routed through DTCP ultimately went to HUDA/HSVP and whether such receipts attracted TDS under section 194C. The CIT(A) relied on CBDT memorandum dated 23.12.2017 and the Hon'ble Delhi High Court decision in Puri Constructions holding that EDC paid to HUDA/HSVP are subject to section 194C. However, subsequent Tribunal authority (Deputy Gothwal Construction Pvt. Ltd.) held that where the payee has furnished return, taken the sum into income and paid tax thereon as required by the first proviso to section 201(1), the payer may be relieved of default liability; the matter therefore requires verification of those conditions by the assessing officer.

Conclusion: The Tribunal sets aside and remands the appeals for AYs 2018-19 to 2021-22 to the assessing officer to verify whether the conditions in the first proviso to section 201(1) are satisfied; in consequence the appeals are allowed by remand in favour of the assessee subject to verification.

Final Conclusion: Appeal for AY 2017-18 is allowed on the ground that section 194I does not apply to the EDC payments; appeals for AYs 2018-19 to 2021-22 are allowed by setting aside and remanding to the assessing officer for verification of the conditions under the first proviso to section 201(1), with the potential to relieve the assessee of TDS default if those conditions are fulfilled.

Ratio Decidendi: Where EDC payments are not contractual consideration attracting section 194I they cannot be sustained under that provision; payments ultimately received and assessed by a development authority like HUDA/HSVP may attract section 194C, but a payer's liability under section 201(1) may be negated if the payee has furnished return, taken the sum into income and paid tax thereon as required by the first proviso to section 201(1), warranting remand for verification of those conditions.

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