TaxTMI 
TaxTMI 
2024 (2) TMI 756
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....antoor & Mr. Soniya Dodeja, Advs. Mr. Salil Kapoor, Ms. Ananya Kapoor, Mr. Utkarsh Kumar Gupta, Mr. Tarun Chanana & Mr. Sumit Lalchandani, Advs. Mr. Kamal Kant Jha, Sr. PC with Mr. Avinash Singh, Adv. for UOI. Mr. Tapas Ram Mishra, Adv. Mr. Kapil Goel & Mr. Sandeep Goel, Advs. For the Respondents Through: Mr. Aseem Chawla, SSC with Ms. Pratishtha Chaudhary, Mr. Aditya Gupta & Mr. Navin Rohila, Advs. Mr. Zoheb Hossain, SSC with Mr. Sanjeev Menon, JSC., Mr. Sanjay Kumar, Ms. Easha & Ms. Hemlata Rawat, Advs. Ms. Bakshi Vinita, SPC for R-1/ UOI. Mr. Puneet Rai, Mr. Ashvini, Kumar, Mr. Rishabh Nangia, Advs. for Income Tax. Ms. Shivang Jain & Ms. Swati Tiwari, Advs. for R-2. Mr. Asheesh Jain, CGSC with Mr. Gaurav Jain, Adv. for R-1. Mr. Ravi Prakash, CGSC with Ms. Usha Jamnal, Adv. for Resp./UOI. Mr. Sunil Agarwal, Sr. SC with Mr. Shivansh Pandya, Mr. Utkarsh Tiwari, Advs., Mr. Sumit Batra, Mr. Manish Khurana, Ms. Priyanka Jindal, Advs. Ms. Akanksha Kaul, Ms. Versha Singh, Advs. for UOI. Mr. Vipul Agrawal, SSC with Mr. Gibran Naushad & Ms. Sakshi Shairwal, Adv. for R- 1 & R-3. Mr. Gigi C. George & Mr. Dheeraj Singh, Advs. for Resp./UOI. Mr. Bhagwan Swaroop Shukla, CGSC with Mr. Vinay ....
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....ssioner of Income Tax Circle 73(1) JUDGMENT YASHWANT VARMA, J. 1. This batch of writ petitions assail the action initiated by the respondents predicated upon a purported failure on the part of the writ petitioners to deduct tax on payments made to the Haryana Shahari Vikas Pradhikaran [HSVP] (earlier known as the Haryana Urban Development Authority, for short "HUDA") under Section 194C of the Income Tax Act, 1961 [The Act]. The respondents assert that the External Development Charges [EDC] which were paid by the writ petitioners to HSVP albeit on the directions of the Director General, Department of Town and Country Planning [DTCP], Haryana, a department functioning under the Government of Haryana, would clearly fall within the ambit of Section 194C of the Act and as a consequence of default, the petitioners are liable to be proceeded under Section 201 as also to answer why penalty be not levied in terms of Section 271C of the Act. 2. We at the outset deem it appropriate to note and observe that we have heard learned counsels for respective sides solely on the question of whether the payment of EDC would fall within the ambit of Section 194C of the Act and whether the w....
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.... quashing the impugned show cause notice dated 12.03.2021 issued by the Respondent being illegal, arbitrary and not legally sustainable in the eyes of law; B. Issuance of a writ, order and/or directions in the nature of certiorari, prohibition, mandamus or any other appropriate writ, order or direction staying the operation of the impugned show cause notice dated 12.03.2021 issued by the Respondent. C. Issuance of a writ, order and/or directions in the nature of certiorari, prohibition, mandamus or any other appropriate writ, order or direction staying all consequential proceedings, that may be initiated pursuant to the impugned notice under challenge issued under section 201(1)/201(1A) by the Respondent in the case of Petitioner for FY 2013-14. D. Grant an ad-interim ex-parte stay in terms of prayers (a), (b) and (c) above; E. Issuance of a writ in the nature of mandamus or any other writ, order or direction, as deemed fit and proper in the facts and circumstances of the present case. It is further prayed that during the pendency of the present writ petition, the further proceeding before the Respondent may kindly be stayed in the inter....
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....f an Office Memorandum [OM] dated 23 December 2017, the CBDT took the following position:- "F. No. 370133/372017-TPL Government of India Ministry of Finance Department of Revenue (Central Board of Direct Taxes) TPL Division ******* New Delhi, 23rd December, 2017 OFFICE MEMORANDUM Sub: Recommendations for relief from applicability of TDS provisions on External Development Charges (EDC) payable to Directorate of Town & Country Planning (DTCP) State Government of Haryana-regarding. Kindly refer to your letter dated 21st November, 2017 addressed to the Finance Secretary, along with the enclosures on the captioned subject. 2. In this regard it is submitted that provisions of non-deduction of tax under Section 196 of the Income-tax Act, 1961, is applicable to the Government and to the other authorities as mentioned under the Section. Accordingly, External Development Charges (EDC) if paid to Government of Haryana would be exempt from TDS provisions. However, in the instant case, it appears that the developer has made the payment in the nature of External Development Charges (EDC) not to the Government but to HUDA [Haryana Urban Development ....
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....he periphery of or outside colony/area for the benefit of the colony/area are being executed by Haryana Shahri Vikas Pradhikaran (hereafter HSVP) which is the Development Authority of State govt. Earlier upto 31.03.2017, Department of Town & Country Planning used to collect the external development charges from the colonizer to whom licences have been granted under Act No.8 of 1975 and the persons to whom permission for change of Land use have been granted under Act No. 41 of 1963, in the shape of bank draft drawn in favour of CA, HSVP and sent the same to CA, HSVP. 4. As the receipt on account of EDC was not sufficient to carry out the all development works under EDC for the urban estate as per approved development plans, therefore, to meet out the shortfall, a new scheme Swaran Jayanti Haryana Urban Infrastructure Development Scheme (renamed as Mangal Nagar Vikas Yojana was approved by the State Govt. and appropriate budget provision for execution of development works has been made in the said scheme. From Financial Year 2017-18, the receipts on account of EDC is being deposited in the consolidated fund of the State under Major Receipt Head 0217 receipts and all license ....
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....n effect to." 11. Writ petitions thereafter came to be filed before this Court including W.P. (C) 9483/2019 by the collaborator of Natureville Promoters and where upon taking note of the orders passed by the Punjab and Haryana High Court in DLF Utilities Limited, interim orders were passed providing that while proceedings may go on, any orders adverse to the petitioner, if passed, would not be given effect to. Similar orders operate on the various writ petitions forming part of this batch. It is this interim order which has continued on all the writ petitions forming part of this batch. 12. The sequence of events insofar as RPS Infrastructure is concerned follow a similar chronology. A notice under Section 201 and Section 201(1A) of the Act came to be issued against that writ petitioner on 16 December 2020. The charge in that notice was identical to that laid against Natureville Promoters, namely, the liability to deduct tax on EDC payments made to HSVP. 13. Responding to the aforesaid notice, RSP Infrastructure took the position that TDS was not liable to be deducted and prayed for the proceedings being dropped. Ultimately and by an order dated 12 March 2021, the Income T....
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....n if one were to ignore the provision of law quoted and relied upon by the Assessing Officer, and we were to agree with the contention of Revenue that while exercising the power, the source may not be specifically referred to or if wrongly mentioned to, it would not render the exercise of such power to be invalid, yet, we are unable to fathom as to how the Assessing Officer has arrived at the conclusion that the external development charges payment was subject to tax deduction at source. The Revenue in its counter-affidavit has sought to elaborate on the aforesaid reasons by contending that the external development charges payment is akin to rent. However, we are not impressed with this submission. Firstly, such an understanding is not borne out from the recorded reasons and, secondly, the Department cannot by way of a counter-affidavit supplement the recorded reasons by introducing such legal submissions. The source of the power in this case, as sought to be argued, is not discernible. 27. If the Assessing Officer harboured a reason to believe that the payment of external development charges requires deduction of tax at source under the provisions of the Income-tax Act, i....
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....e. 28. We would also like to reflect on section 194-1 and its Explanation which deals with rent and has been relied upon by the Revenue to contend that the definition of "rent" is broad and would also envisage the payment of external development charges and is subject to withholding tax. In support of this provision, the Revenue has relied upon the observations of the Supreme Court in New Okhla Industrial Development Authority (No. 2) v. CIT (Appeals) (2018) 406 ITR 209 (SC), the relevant portion whereof is reproduced herein below (page 218 of 406 ITR): "The definition of rent as contained in the Explanation is a very wide definition. The Explanation states that 'rent' means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land. The High Court has read the relevant clauses of the lease deed and has rightly come to the conclusion that payment which is to be made as annual rent is rent within the meaning of section 194-1, we do not find any infirmity in the aforesaid conclusion of the High Court. The High Court has rightly held that tax deducted at source shall be deducted on the payme....
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....affidavit or otherwise." 15. Yet another challenge thereafter came to be laid before this Court in DLF Homes Panchkula Pvt. Ltd. vs. Joint Commissioner of Income Tax 2023:DHC:2401-DB with the respondents this time taking the position that TDS on EDC was liable to be deducted by virtue of Section 194I. This stand came to be negatived with our Court holding that EDC could not be termed as 'rent' so as to fall within the ambit of Section 194I. 16. The writ petitioners have also referred to the views expressed by different benches of the Income Tax Appellate Tribunal [ITAT] while dealing with penalty proceedings. However, insofar as RPS Infrastructure is concerned, it appears to have been placed on notice with respect to a levy of penalty under Section 271C for Financial Years [FY] 2013-14, 2014-15 and 2015-16. While dealing with the aforesaid issue the Additional Commissioner of Income Tax in terms of an order made on 15 January 2018 took the following stand:- "4.1. HUDA was constituted under Haryana Urban Development Authority Act, 1977. The functions of HUDA are: a. To promote and secure development of urban areas with the power to acquire. sell and dispose o....
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....AO requests its superior authority, Director General Urban Estate Department Haryana for administrative approval for acquiring the land. C) The urban Estate Department. Haryana conveys administrative approval for acquisition of land to Director General Urban Estate Department, Haryana. It asks LAO to acquire land in question as per law. A copy of this approval is marked to HUDA. D) HUDA authorizes its bank to disburse payment for award for land to the LAO. E) LAO transfers the ownership and possession of land to HUDA. 4.2 Basis/Rationale for charging of EDC by HUDA- 4.2.1 External Development Work (hereafter EDW) is defined in the Haryana Development and Regulation of Urban Area Act. 1975 (hereafter HDRUA). Definition of EDW is given in section 2(g) of this Act It is as follows: 'External Development works include water supply. sewerage, drains. necessary provisions of treatment and disposal of sewage, sullage and storm water, roads, electrical works. solid waste management and disposal slaughter houses, colleges, hospitals, stadium/sports complex. fire stations grid sub-stations etc and any other work which the directory may sp....
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....private persons/builders, colonizers etc.- 4.3.1 A participating private builder is required to pay EDC as provided in the license for setting up a commercial colony on urbanisable land held by it in vicinity of land owned and developed (EDWs) by HUDA The license is issued by the Directorate of Town and Country Planning, Haryana, subject to the undertaking as per the relevant conditions mention below: To submit an undertaking to the effect that you shall make arrangement for water supply, sewerage, drainage ere to the satisfaction of DGTCP till these services are made available from external infrastructure to be laid by HUDA" 4.3.2 Computation of External Development Charges (EDC) is made as under: A) Charges for Commercial area =Rs. X Lakhs (@ Rs. Y lakhs/Acre) B) Total cost of Development = Rs. X Lakhs C) 25% bank guarantee required = Rs. 0.25 X Lakhs iv) The demand drafts of EDC amounts are drawn in favour of the Chief Administrator, HUDA though routed through the Director General Town and Country Planning, Sector 18, Chandigarh. This state of affairs as for as the EDC is concerned is stated by HUDA in the 'Notes to ....
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....herefore. EDC is a revenue receipt having character of income of HUDA. This is also a finding of assessing officer of HUDA which stands confirmed by CIT(A) too. Therefore, ought to have been subjected to TDS by payer of EDC. 4.4 Reasons for Applicability of TDS provisions on EDC paid to HUDA: i) HUDA is a taxable entity carrying out business activities to acquire, develop and dispose off land for residential, industrial, commercial and institutional purposes in urban estates so developed in state of Haryana its business income is taxed by income tax department which includes EDC. ii) In the Circular No. 681 dated 8.3.94 issued by the CBDT it has been stated that a work done by one person is service rendered to another. One of the dictionary meanings of the word 'service* is work {Associate Cement Co. Ltd. Vs. CIT, 120 ITR 444 (Patna)]. The Circular at para (v) states that the *service contract would be covered by the provisions of this section since service means doing any work. It further states at para (i) that 'the provisions of section 194C shall apply to all types of contracts for carrying out any work including transport contracts, service contracts....
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.... Circulars Nos. 86 and 93 and para 11 of Circular No 108 and issue the following guidelines in regard to the applicability of the provisions of section 194C:- (i) The provisions of section 194C shall apply to all types of contracts for carrying out any work including transport contracts, service contracts, advertisement contracts, broadcasting contracts. Telecasting contracts, labour contracts, materials contracts and works contracts......." 4.5 Payments received as EDC are for EDWs like water supply, sewerage, drains, necessary provisions of treatment and disposal of sewage, sullage and storm water, roads, electrical works, solid waste management and disposal slaughter houses colleges. Hospitals, stadium/sports complex, fire stations, grid sub-stations etc. and any other work which the Director may specify to the executed in the periphery of or outside colony/area for the benefit of the colony/area. 4.6 EDC is worked out for a particular urban estate on the basis of the cost of external development services such as Master Water Supply, Master Sewage, Master Roads. Master Storm Water Drainage Master Horticulture. Master Community building and other servic....
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....ted in the periphery of or outside colony/area for the benefit of the colony/area;] (h) "Government" means the government of the State of Haryana; (hha) "infrastructure development charges" include the cost of development of major infrastructure projects;} (i) "internal development works" means- (i) metalling of roads and paving of footpaths; (ii) turfing and plantation with trees of open spaces; (iii) street lighting; (iv) adequate and wholesome water supply; (v) sewers and drains both for storm and sullage water and necessary provision for their treatment and disposal; and (vi) any other work that the Director may think necessary in the interest of proper development of a colony; (j) "local authority" means a Municipal Committee or Municipal Council or municipal Corporation;" 19. Our attention was also drawn to Sections 3, 3A and 3AC of the HDRUA which are reproduced hereinbelow:- "3. Application for licence- [(1) Any owner desiring to convert his land into a colony shall, unless exempted under section 9, make an application to the Director, for the grant of license to develop a ....
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....receipt of the application under sub section (1), the Director shall, among other things, enquire into the following matters, namely :- (a) title to the land; (b) extent and situation of the land; (c) capacity to develop a colony; (d) the layout of a colony; (e) plan regarding the development works to be executed in a colony; and (f) conformity of the development schemes of the colony land to those of the neighboring areas (3) After the enquiry under sub section (2), the Director, by an order in writing, shall - (a) grant a licence in the prescribed form, after the applicant has furnished to the Director a bank guarantee equal to twenty five per centum of the [estimated cost of development works in case of area of land divided or proposed to be divided into plots or flats for residential, commercial or industrial purposes and a bank guarantee equal to thirty-seven and a half per centum of the estimated cost of development works in case of cyber city or cyber park purposes] as certified by the director and has undertaken- (i) to enter into an agreement in the prescribed form for carrying out and complet....
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....ow cause notice and an opportunity of hearing shall be issued before vesting the land in the Government {Provided further that the applicant shall be exempted from the provisions of this clause where compliance of clause (iv-b) is sought by the Director.} [(iv-a) to pay proportionate cost of construction of such percentage of sites of such school, hospital, community centre and other community buildings and at such rates as specified by the Director;] [(iv-b) to hand-over the possession and transfer the ownership of such land, as demarcated and identified in the approved layout plan, in such form and manner, as may be specified by the Director and such land shall vest with the Government to achieve the objective of creation of community buildings, housing, commercial and other physical and social urban infrastructure, in such colonies where a condition to this effect is imposed by the Director, before grant of licence;] (v) to permit the Director or any other officer authorised by him to inspect the execution of the layout and the development works in the colony and to carry out all directions issued by him for ensuring due compliance of the exec....
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....he agreement, the coloniser shall have the option either to deposit the infrastructure augmentation charges as applicable from time to time at any stage before the grant of such completion certificate and get the exemption of the restriction of net profit beyond 15% or deposit the amount as per terms of the agreement. 3A. Establishment of Fund- (1) Any colonizer to whom a license has been given under this Act shall deposit as 50{infrastructure development charges} a sum, ^51{at such rate as may be prescribed by the Government from time to time, per square metres of the gross area and of the covered area of all the floors in case of flats proposed to be developed by him into a colony} in two equal installments. The first installment shall be deposited within 60 days from the date of grant of the license and the second installment to be deposited within six months from the date of grant of license. (2) The Haryana Urban Development Authority {local authorities, firms, undertakings of Government and other authorities involved in land development} shall also be liable to deposit the {infrastructure development charges} and shall be deemed to be {colonizers}for this pu....
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....rces other than those provided by State budget and shall,- (a) identify infrastructure projects for private participation; (b) promote competitiveness and progressively involve private participation while ensuring fair deal to the end- users; (c) identify and promote technology initiatives in urban development and infrastructure development sector for improving efficiency in the system; (d) identify bottlenecks in the infrastructure sectors and recommend to the Government policy initiatives to rectify the same; (e) select, prioritise and determine sequencing of infrastructure projects; (f) formulate clear and transparent policies related to the infrastructure sectors so as to ensure that project risks are clearly identified and allocated between the stakeholders; and (g) identify the sectoral concessions to be offered to concessionaires to attract private participation and secure availability of viable infrastructure facilities to the consumers; Provided that where participation is sought by any person by participating in disinvestment process, the provisions of this Act shall not apply: Provided furth....
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....e Board's property or assets (whether present or future), and also by a similar mortgage, charge, standard security, lien or security to secure and guarantee the performance by the Board of any obligation or liability, it may have undertaken or which may become binding on it; (v) constitute a professional multi-disciplinary Project Management Team and one or more Advisory Committee or Committees or Sectoral Sub-Committee or Project Implementation Sub-Committee, or engage suitable service providers or advisors or consultants to advise the Board for the efficient discharge of its functions; (vi) enter into and perform all such contracts as it may think necessary or expedient for performing any of its functions; and (vii) do such other things and perform such other acts as it may think necessary or expedient for the proper conduct of its functions and for carrying into effect the purposes of creation of the Board, as contained in this Act." 20. The principal submission of Mr. Jain was that there exists no privity of contract between the petitioners and HSVP. According to learned counsel, a reading of the aforesaid provisions would clearly establish that t....
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....zer transfer the possession of and the title to the land to the plot-holders on receipt of the amount which was due from them. (5) After meeting the expenses on development works under sub- section (2), the balance amount shall be payable to the colonizer." 21. Mr. Jain further underlined the fact that even the imposition of penalties is a subject which is regulated by the Director in the office of the DTCP. He in this regard drew our attention to Section 10 of the HDRUA which is reproduced hereinbelow:- "10. Penalties.- (1) Any person who contravenes any of the provisions of this Act or the rules made thereunder or any of the conditions of a licence granted under section 3 shall be punishable with imprisonment of either description for a term which may extend to three years and shall also be liable to fine: Provided that where only of the provisions of section 9 are contravened the punishment of imprisonment shall not exceed six months. ^84[(2) Without prejudice to the provisions of sub-section (1), the Director or any other officer authorized in writing by him in this behalf may, by notice, served by post and if a person avoids service, or is not ava....
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....ll make an application in writing to the Director in form LC-I and shall furnish therewith;- [(a) a demand draft for licence fee at the rates (given in the Schedule to these rules) for the plotted colony, group housing colony and commercial/office complexes in residential sectors and for industrial colony;] (b) income tax clearance certificate; (c) particulars of experience as colonizer showing number and details of colonies already established or being established; (d) particulars about financial position [so as to determine the capacity to develop the colony for which he is applying]; and (e) the following plans and documents in triplicate ;- (i) copy or copies of all title deeds and other documents showing the interest of the applicant in the land under the colony, along with a list of such deeds and documents; (ii) a copy of the Shajra Plan showing the location of the colony along with the names of revenue estate, Khasra number and area of each field; (iii) a guide map on a scale of not less than 10 centimetre to 1 Kilometre showing the location of the colony in relation to surrounding geographical features....
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....ctor [Section 3(2)].- (1) On receipt of application in the prescribed form and complete in all respects, the Director shall enquire into the following matters and such other matters as he may consider necessary; (a) title to land; (b) extent and situation of the land; (c) capacity to develop the colony; (d) layout plan of the colony; (e) plan regarding the development works to be executed in the colony; (f) conformity with the development scheme of the land in question and the neighbouring areas; and [(g) conformity with the development plan.] [(2) Before making enquiries under sub-rule (1), the Director shall, by an order in writing, require the applicant {except industrial colonies of Haryana Urban Development Authority and Haryana State Industrial Development Corporation} to furnish, within a period of thirty days from the date of service, of such order, a scrutiny fee at the rate of [twenty rupees per square meter, calculated for the gross area of the land, under low-density eco-friendly colony] {ten rupees per square metre}, calculated for the gross area of the land under low-density eco-friendly, {ten rup....
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....he control of the applicant, extend such time upto further ninety days period.] (2) If the applicant fails to fulfill the conditions under sub-rule (1) within the specified or extended period, the grant of licence shall be refused. 11. Conditions required to be fulfilled by applicant [Section 3(3)]- (1) the applicant shall:- [(a) furnish to the Director either a bank guarantee equal to twenty-five percent of the estimated cost of the development works or mortgage a part of the licenced land, as determined by the Director and enter into an agreement in form LC-IV for carrying out and completion of development works in accordance with the licence finally granted: Provided that in case of affordable plotted residential colony under Deen Dayal Jan Awas Yojana, the coloniser shall have option to deposit the cost of internal development works with the concerned municipal authority as per mutually agreed rates or in the alternative, shall have option to mortgage fifteen percent of the total area under all residential plots, in favour of the Director, in lieu of depositing bank guarantee equal to twenty-five percent of the estimated cost of development w....
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....tion and Power facilities as determined by Director (given in the {Schedule-A}to these rules); and (h) execute bilateral agreement in Form LC-IV-A for group housing colony, in Form LC-IV-B for plotted colony, in Form LC-IV-C for industrial colony and in Form LC-IV-D for commercial colony.] (2) If the Director, having regard to the amenities which exist or are proposed to be provided in the locality, decides that it is not necessary or possible to provide such amenity or amenities, the applicant will be informed thereof and clauses (c), (d) and (e) of sub-rule (1) shall be deemed to have been modified to that extent. (3) In case of an application for grant of licence for low-density eco-friendly colony, the applicant shall additionally undertake to- (a) install solar farms aiming for meeting energy requirements of the colony through solar energy, in accordance with the technical parameters specified by the Director, on at least five percent of the area of the colony that shall be in addition to the five percent area reserved for open spaces; (b) provide integrated facility for storage, purification, distribution and recycling of storm-wat....
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....e owner:- NOW THIS DEED OF BILATERAL AGREEMENT WITNESSETH AS FOLLOWS: 1. In consideration of the Director agreeing to grant licence to the owner to set up the said colony on the land mentioned in Annexure hereto on the fulfillment of the conditions of this bilateral agreement, the owner, his partners, legal representatives, authorized agents, assignees, executers etc. shall be bound by the terms and conditions of this bilateral agreement executed by the owner hereunder covenanted by him as follows: (i) That the owner undertakes to pay proportionate external development charges as per rate, schedule, terms and conditions hereunder:- (ii) That the owner shall pay the proportionate external development charges at the tentative rate of Rs. lacs per gross acre for commercial colony. These charges shall be payable to Haryana Urban Development Authority through the Director, Town and Country Planning, Haryana either in lumpsum within thirty days from the date of grant of licence or in eight equal quarterly installments of 12.5% each in the following manner:- (a) First installment shall be payable within a period of thirty days from the date of ....
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....ayable extra as decided by Director from time to time. (b) The owner shall arrange the electric connection from the outside source for electrification of their colony from Haryana Vidhyut Parsaran Nigam. If the owner fails to seek electric connection from Haryana Vidhyut Parsaran Nigam the Director, shall recover the cost of from the owner and deposit the same with Haryana Vidhyut Parsaran Nigam. However, the installation of internal electricity distribution infrastructure as per the peak load requirement of the colony shall be the responsibility of the colonizer, for which the colonizer will be required to get the "electric (distribution) services plan/estimates" approved from the agency responsible for installation of "external electrical services" i.e. Haryana Vidhyut Parsaran Nigam/Uttari Haryana Vidhyut Nigam Limited/Dakshin Haryana Bijlee Vitran Nigam Limited, Haryana and complete the same before obtaining completion certificate for the colony. (c) That the rates, schedule and terms and conditions of external development charges may be revised by the Director during the period of licence as and when necessary and owner shall be bound to pay the balance enhan....
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....n as provided in the Haryana Development and Regulation of Urban Areas Act, 1975 and the Haryana Development and Regulation of Urban Areas Rules, 1976, as amended up to date, the bank guarantee in that event shall stand forfeited in favour of the Director. 4. The Stamp duty and registration charges on this deed shall be borne by the owner. 5. After the layout plans and development in respect of the commercial colony have been completed by owner in accordance with the approved plans and specifications and a completion certificate in respect thereof issued, the Director may, on an application in this behalf, from the owner, release she bank guarantee or part thereof as the case may be, provided that the bank guarantee equivalent to 1/5th amount thereof shall be kept unreleased to ensure upkeep and maintenance of the colony for a period of 5 years from the date of issue of the completion certificate under rule 16 or earlier in case the owner is relieved of the responsibility in this behalf by the Government. However, the bank guarantee regarding the external development charges shall be released by the Director in proportion to the payment of the external development....
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.... 188 ITR) of the judgment, their Lordships, after referring to the views expressed by the Rajasthan, Punjab, Gujarat and Orissa High Courts that the royalty cannot be said to be a tax because this is something which is being paid in lieu of minerals extracted, in paragraph 34 (at page 707 of 188 ITR), concluded by saying that the royalty is a tax and thus the decisions of the High Courts cannot hold good." 16. When the royalty is treated as a tax that cannot be a contractual liability. The view taken by the Madhya Pradesh High Court in Gorelal's case, [1998] 232 ITR 246 has been affirmed by their Lordships of the Supreme Court reported in Gorelal Dubey v. CIT, [2001] 248 ITR 3. Their Lordships in para. 3 observed that the Constitution Bench judgment in India Cement Ltd.'s case, [1991] 188 ITR 690 lays down the law, namely, that royalty is tax, and it is a tax for all purposes including section 43B of the Income-tax Act, 1961. 17. While considering the provisions of sections 82 and 83 of the Forest Act, the Madhya Pradesh High Court has held in the case of Dulichand Agarwal v. State of M.P., [1980] MPLJ 465, that section 82 of the Forest Act as substituted by the M....
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.... 27. While reiterating the submissions addressed by Mr. Jain, Mr. Agarwal appearing in Natureville Promoters additionally addressed the following submissions. It was firstly contended that Section 196 of the Act is liable to be read alongside Article 289 of the Constitution and thus the Court declaring that payments made to HSVP would clearly be exempt from TDS. Mr. Agarwal took us through the LC- I, II, III, IV, IV-D and V formats and submitted that the application by a developer is made to the DTCP and which is the solitary authority empowered to either accept or refuse the grant of a licence. It was further submitted that once the DTCP comes to form a provisional opinion that a grant of licence would be merited, it calls upon the owner to fulfil various conditions laid down in Rule 11. Rule 11 is extracted hereinbelow: "11. Conditions required to be fulfilled by applicant [Section 3(3)]- (1) the applicant shall:- (a) furnish to the Director either a bank guarantee equal to twenty-five percent of the estimated cost of the development works or mortgage a part of the licenced land, as determined by the Director and enter into an agreement in form LC-IV for carryi....
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.... deem fit; Provided that a show cause notice and opportunity for hearing shall be given before vesting the land in the Government;] (f) undertake to permit the Director or any other officer authorized by him to inspect the execution of the layout and the development works in the colony and to carry out all directions issued by him for ensuring due compliance of the execution of the layout and development works in accordance with the licence granted. (g) pay such development charges including the cost of development of State/National Highways, Transport, Irrigation and Power facilities as determined by Director (given in the 128{Schedule-A}to these rules); and (h) execute bilateral agreement in Form LC-IV-A for group housing colony, in Form LC-IV-B for plotted colony, in Form LC-IV-C for industrial colony and in Form LC-IV-D for commercial colony.] (2) If the Director, having regard to the amenities which exist or are proposed to be provided in the locality, decides that it is not necessary or possible to provide such amenity or amenities, the applicant will be informed thereof and clauses (c), (d) and (e) of sub-rule (1) shall be deemed ....
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....SVP, they were physically furnished to the DTCP, Haryana. According to learned counsel when the contract is viewed in its entirety, it would be apparent that the owner is under no contractual or other obligation towards HSVP. It was submitted that while EDC payments may be forwarded to the HSVP, the said authority is not empowered in law to take any steps against the owner in case of default. 30. It was then submitted that the communications issued by the DTCP and HSVP would themselves establish that the payments made to HSVP would fall within the ambit of Section 196. Our attention was specifically drawn to the Memo dated 06 October 2017 in which the DTCP had disclosed that EDC is a charge levied by the Government for carrying out external development works. Mr. Agarwal also took us through the reply of HSVP dated 20 November 2017 in terms of which its Accounts Officer had categorically averred that it is not receiving any EDC payments. Reliance was also placed on the Memo dated 19 June 2018 issued by DTCP and where it had clarified that HSVP is only an executing agency working for and on behalf of the State Government. According to learned counsel, once the aforesaid facts are....
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....sel undisputedly the land over which the development is to be undertaken belonged to the petitioner and, therefore, there was no question of an aspect of rent arising in connection therewith. It was submitted that in any case since the land neither vested in HSVP nor was it taken on rent from that authority, Section 194I would clearly not stand attracted. In any event according to Mr. Agarwal this issue stands concluded in favour of the petitioners in light of the decision of the Court rendered in DLF Homes Panchkula. 35. Insofar as the OM dated 23 December 2017 is concerned, Mr. Agarwal submitted that the same incorrectly proceeds on the basis that EDC is an amount payable to HSVP and thus the provisions of Section 194C being attracted. Learned counsel pointed out that Section 194C is not founded on an amount being payable to a person. It was contended that as per the provision itself, tax is liable to be deducted either at the time of credit of such sum to the account of the contractor or at the time of its payment in cash. It was in the aforesaid light that learned counsel argued that Section 194C pre-supposes a sum being paid to a contractor as opposed to amounts being payab....
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....decision of the Apex Court to the case on hand, which we had already narrated in the preceding paragraph, with the debate on the status of the assessee existing at least till 2000 and the assessee not having any information as regards the order passed by the Advance Ruling Authority, we have no hesitation in accepting the plea of the assessee that the assessee herein could not be declared as an assessee in default for the purpose of interest under Section 201(1A) of the Income Tax Act. It may be of relevance to note herein that the assessee had deducted tax at 2%. The foreign company had paid tax under Section 44BBB at 4.8% and sought for a refund. Taking note of the decision of the Apex Court reported in (2009) 312 ITR 225 (CIT v. Eli Lilly & Company (India) (P) Ltd.) and the object underlying Section 201 to recover the taxes where there is a shortfall, it is but necessary to find out whether the foreign company had already remitted the tax as per Section 44BBB." 37. In any case, and without prejudice to the above, Mr. Agarwal submitted that the respondents are yet to ascertain and clarify whether HSVP has shown EDC as its income and has been assessed to tax on the same. It was....
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.... deduct TDS in respect of the payment made to a Government Department, DTCP in this case, u/s 196 of the Act as the payment was made to HUDA on behalf of DTCP only xxxx xxxx xxxx 9. We are of the considered view that when payment of EDC has been made by the assessee in accordance with licence granted by the DTCP, the payment made to HUDA was not made in pursuance of any work contract or under statutory obligation meaning thereby that when the assessee has no privity of contract with HUDA rather the assessee has privity of contract with DTCP, a Government Department of Haryana, as per Agreement (supra) and the HUDA has merely received the payment for and on behalf of DTCP, the assessee was not required to deduct the TDS." (II) Satya Developers Pvt. Ltd. Vs Joint Commissioner Of Income Tax, Range-77 New Delhi 2022 (6) TMI 687 ITAT Delhi "2. As per Section 3(3)(ii), license holder has to pay proportionate development charges if the external development works as defined in clause (g) of section 2 are to be carried out by the Government or any other local authority. The proportion in which and the time within which, such payment is to be made, shall b....
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.... holder has to pay proportionate development charges if the external development works as defined in clause (g) of section 2 are to be carried out by the Government or any other local authority. The proportion in which and the time within which, such payment is to be made, shall be determined by the Director. 3. Presently, external development works in the periphery of or outside colony/area for the benefit of the colony/area are being executed by Haryana Shahari Vikas Pradhikaran thereafter HSVP) which is the Development Authority or state Govt. Earlier upto 31.03.2017, Department of Town 8t Country Planning used to collect the external development charges from the colonizer to whom licences have been granted under Act No. 8 of 1975 and the persons to whom permission for change of land use have been granted under Act No. 41 of 1963, in the shape of bank draft drawn in favour of CA, HSVP and send the same to CA, HSVP. 4. As the receipt on account of EDC was not sufficient to carry out the all development works under EDC for the urban estate as per approved development plans, therefore to meet out the shortfall, a new scheme Swaran Jayanti Haryana Urban Infrastruct....
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....not in dispute that HUDA has shown EDC as current liability in the balance sheet, but in the 'Notes' to the Accounts Forming part of the Balance Sheet, it has been shown that EDC has been received for execution of various external development works and as and when the development works are carried out, the EDC's liabilities are reduced accordingly. It is also not in dispute that HUDA is engaged in acquiring land, developing it and finally handing it over for a price. It is also not in dispute that EDC is fixed by HUDA from time to time. However, the fact of the matter remains that payment has been made to HUDA through DTCP which is a Government Department and the same is not in pursuance to any contract between the assessee and HUDA. Thus, the payment of EDC is not for carrying out any specific work to be done by HUDA for and on behalf of the assessee but rather DTCP which is a Government Department which levies these charges for carrying out external development and engages the services of HUDA for execution of the work. Therefore, it is our considered view that the assessee was not required to deduct tax at source at the time of payment of EDC as the same was not out of any statu....
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....to impose a tax on the income of a State if such income is not earned in the manner contemplated by clause (2) of Article 289. This, to our mind, does not answer the question which arises for our consideration in this appeal. Clause (2) of Article 289 presupposes that the income sought to be taxed by the Union is the income of the State, but the question to be answered at the threshold is whether in terms of clause (1) of Article 289, the income of the appellant Authority is the income of the State. Having regard to the provisions of the Bihar Industrial Area Development Authority Act, 1974, particularly Section 17 thereof, we have no manner of doubt that the income of the appellant Authority constituted under the said Act is its own income and that the appellant Authority manages its own funds. It has its own assets and liabilities. It can sue or be sued in its own name. Even though, it does not carry on any trade or business within the contemplation of clause (2) of Article 289, it still is an authority constituted under an Act of the legislature of the State having a distinct legal personality, being a body corporate, as distinct from the State. Section 17 of the Act further cla....
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....tion. This Court considered the scheme of Article 289 and observed as follows: (SCR p. 25) "The scheme of Article 289 appears to be that ordinarily, the income derived by a State both from governmental and non-governmental or commercial activities shall be immune from income tax levied by the Union, provided, of course, the income in question can be said to be the income of the State. This general proposition flows from clause (1). Clause (2) then provides an exception and authorises the Union to impose a tax in respect of the income derived by the Government of a State from trade or business carried on by it, or on its behalf; that is to say, the income from trade or business carried on by the Government of a State or on its behalf which would not have been taxable under clause (1), can be taxed, provided a law is made by Parliament in that behalf. If clause (1) had stood by itself, it may not have been easy to include within its purview income derived by a State from commercial activities, but since clause (2), in terms, empowers Parliament to make a law levying a tax on commercial activities carried on by or on behalf of a State, the conclusion is inescapable t....
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....deal with it elaborately; and so, prima facie, the income derived by the appellant from its trading activity cannot be claimed by the State which is one of the shareholders of the corporation." xxxx xxxx xxxx 17. Considerable reliance was placed on the principles laid down in the aforesaid decision by learned counsel appearing for the Union of India. He submitted that having regard to the provisions of the Act under which the appellant Authority is established, the same conclusion may be reached. In particular, emphasising the fact that as in A.P. SRTC case [(1964) 7 SCR 17 : AIR 1964 SC 1486] so in the instant case as well, Section 17 of the Act provides that upon dissolution of the appellant Authority, the properties, funds and dues realisable by the Authority along with its liabilities shall devolve upon the State Government. Impliedly, therefore, such properties, funds and dues vest in the Authority till its dissolution, and only thereafter it vests in the State Government. He also referred to various other provisions of the Act and submitted that there was nothing in the Act which attempted to lift the veil from the face of the Corporation. Even though the Au....
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....nsel, the statutory scheme in the context of which Adityapur Industrial Area came to be rendered, is similar to that which underlies the 1977 Act. Mr. Hossain laid emphasis on the right of HSVP to manage its own funds, its right to independently own assets, as well as the right to sue/ be sued in its own name. According to learned counsel, all of the above would tend to establish and evidence the conferral of a distinct legal personality upon HSVP. It was additionally pointed out that in terms of the 1977 Act in case HSVP were to be dissolved, its assets, funds and liabilities would devolve upon the State Government. According to learned counsel, all of the above places HSVP in a position identical to Adityapur Industrial Area. In view of the above, according to Mr. Hossain, the submission that the income of HSVP would be exempt by virtue of Article 289 of the Constitution deserves outright rejection. 40. Mr. Hossain also submitted that while considering the applicability of the provisions of the 1977 Act, the nature of functions that may be performed or discharged by HSVP is wholly irrelevant. According to learned counsel taxability is not dependent upon the functions or duties....
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....92. The object of introducing these provisions was that in many States the local bodies were not working properly and the timely elections were not being held and the nominated bodies were continuing for long periods. Elections had been irregular and many times unnecessarily delayed or postponed and the elected bodies had been superseded or suspended without adequate justification at the whims and fancies of the State authorities. These views were expressed by the then Minister of State for Urban Development while introducing the Constitution Amendment Bill before Parliament and thus the new provisions were added in the Constitution with a view to restore the rightful place in political governance for local bodies. It was considered necessary to provide a constitutional status to such bodies and to ensure regular and fair conduct of elections. In the Statement of Objects and Reasons in the Constitution Amendment Bill relating to urban local bodies, it was stated...." 28. The constitutional provisions as contained in Part IX-A delineate that the Constitution itself provided for constitution of Municipalities, duration of Municipalities, powers of Authorities and responsibil....
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....e 243-Q may not be constituted in an urban area. The proviso is an exception to the constitution of Municipality as contemplated by clause (1) of Article 243-Q. No other interpretation of the proviso conforms to the constitution scheme. 30. A Constitution Bench of this Court had noticed the principles of statutory interpretation of a proviso in S. Sundaram Pillai v. V.R. Pattabiraman [S. Sundaram Pillai v. V.R. Pattabiraman, (1985) 1 SCC 591]. The following has been laid down by this Court in paras 37 to 43: (SCC pp. 609-10) "37. In short, generally speaking, a proviso is intended to limit the enacted provision so as to except something which would have otherwise been within it or in some measure to modify the enacting clause. Sometimes a proviso may be embedded in the main provision and becomes an integral part of it so as to amount to a substantive provision itself. 38. Apart from the authorities referred to above, this Court has in a long course of decisions explained and adumbrated the various shades, aspects and elements of a proviso. In State of Rajasthan v. Leela Jain [State of Rajasthan v. Leela Jain, AIR 1965 SC 1296] , the following observations....
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....ervations: [SCC p. 224, para 22: SCC (Tax) p. 315] '22. ... Ordinarily a proviso to a section is intended to take out a part of the main section for special treatment. It is not expected to enlarge the scope of the main section. But cases have arisen in which this Court has held that despite the fact that a provision is called proviso, it is really a separate provision and the so-called proviso has substantially altered the main section.' 43. We need not multiply authorities after authorities on this point because the legal position seems to be clearly and manifestly well established. To sum up, a proviso may serve four different purposes: (1) qualifying or excepting certain provisions from the main enactment; (2) it may entirely change the very concept of the intendment of the enactment by insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable; (3) it may be so embedded in the Act itself as to become an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself; and (4) it may be used merely to act as an optional addenda to the enactment wi....
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....ion of India, (2006) 5 SCC 100]. The Adityapur Industrial Development Authority was constituted under the Bihar Industrial Area Development Authority Act, 1974. In para 2 of the judgment the constitution of the authority was noticed which is to the following effect: (SCC p. 103) "2. The appellant Authority has been constituted under the Bihar Industrial Area Development Authority Act, 1974 to provide for planned development of industrial area, for promotion of industries and matters appurtenant thereto. The appellant Authority is a body corporate having perpetual succession and a common seal with power to acquire, hold and dispose of properties, both movable and immovable, to contract, and by the said name sue or be sued. The Authority consists of a Chairman, a Managing Director and five other Directors appointed by the State Government. The Authority is responsible for the planned development of the industrial area including preparation of the master plan of the area and promotion of industries in the area and other amenities incidental thereto. The Authority has its own establishment for which it is authorised to frame regulations with prior approval of the State Governm....
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....and villages, which before the amendment was not included in computing the total income, was omitted. Consequently, the benefit conferred by clause (20-A) on such an authority was taken away. 7. The High Court by its impugned judgment [Adityapur Industrial Area Development Authority v. Union of India, 2003 SCC OnLineJhar 227 : 2003 AIR Jhar R 876] and order held that in view of the fact that Section 10(20-A) was omitted and an Explanation was added to Section 10(20) enumerating the "local authorities" contemplated by Section 10(20), the appellant Authority could not claim any benefit under those provisions after 1-4-2003. It further held that the exemption under Article 289(1) was also not available to the appellant Authority as it was a distinct legal entity, and its income could not be said to be the income of the State so as to be exempt from Union taxation. The said decision of the High Court is impugned in this appeal." 38. The Court further held that the Explanation under Section 10(20) provides an exhaustive definition and the tests laid down by this Court in an earlier case i.e. Union of India v. R.C. Jain [Union of India v. R.C. Jain, (1981) 2 SCC 308 : 1....
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....ent and meaning of local authority. The Explanation having now contained the exhaustive definition of local authority, the definition of local authority as contained in Section 3(31) of the General Clauses Act, 1897 is no more applicable. Section 3 of the General Clauses Act begins with the words "In this Act, and in all Central Acts and Regulations made after the commencement of this Act, unless there is anything repugnant in the subject or context...". The definition given of the local authority under Section 3(31) does not now govern the field in view of the express omission of the expression "all other authority". This Court has already in Agricultural Produce Market Committee [Agricultural Produce Market Committee v. CIT, (2008) 9 SCC 434] held that the definition under Section 3(31) of the General Clauses Act is now no more applicable to interpret local authority under Section 10(20) of the IT Act. Before we proceed further it shall be useful to notice certain well-settled principles of statutory interpretation of fiscal statutes. 45. This Court in A.V. Fernandez v. State of Kerala [A.V. Fernandez v. State of Kerala, AIR 1957 SC 657] laid down the following: (AIR p. ....
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....4 and 13.1 to 13.4. Paras 12.2. to 12.4 under the heading: Income of certain local authorities to become taxable are to the following effect: "12.2. Through the Finance Act, 2002, this exemption has been restricted to the Panchayats and Municipalities as referred to in Articles 243(d) and 243-P(e) of the Constitution of India respectively. Municipal Committees and District Boards, legally entitled to or entrusted by the Government with the control or management of a Municipal or a local fund and Cantonment Boards as defined under Section 3 of the Cantonments Act, 1924. 12.3. The exemption under clause (20) of Section 10 would, therefore, not be available to Agricultural Marketing Societies and Agricultural Marketing Boards, etc., despite the fact that they may be deemed to be treated as local authorities under any other Central or State Legislation. Exemption under this clause would not be available to port trusts also. 12.4. This amendment will take effect from 1-4-2003 and will, accordingly, apply in relation to Assessment Year 2003-2004 and subsequent assessment years." 48. Further paras 13.1 to 13.4 of the Explanatory Notes contained heading:....
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....lant's case comes squarely under Section 10(20-A) of the Income Tax Act, hence, the appellant was liable to be exempted under the said Act, although, the High Court did not express any opinion on the question whether the appellant was exempted under Section 10(20) in that judgment. 51. After omission of Section 10(20-A), the only provision under which a body or authority can claim exemption is Section 10(20). Local authority having been exhaustively defined in the Explanation to Section 10(20) an entity has to fall under Section 10(20) to claim exemption. It is also useful to notice that this Court laid down in State of Gujarat v. Essar Oil Ltd. [State of Gujarat v. Essar Oil Ltd., (2012) 3 SCC 522 : (2012) 2 SCC (Civ) 182] that a person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. It is useful to extract para 88 which is to the following effect: (SCC p. 547) "88. This Court in Novopan case [Novopan India Ltd. v. CCE, 1994 Supp (3) SCC 606], held that the principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee, does no....
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....drance in the interpretation of the same.'" 53. This Court in Adityapur Industrial Area Development Authority [Adityapur Industrial Area Development Authority v. Union of India, (2006) 5 SCC 100] after considering Section 10(20) as amended by the Finance Act, 2002 and consequences of deletion of Section 10(20-A) has laid down the following in para 13: (SCC p. 107) "13. Applying the above test to the facts of the present case, it is clear that the benefit, conferred by Section 10(20-A) of the Income Tax Act, 1961 on the assessee herein, has been expressly taken away. Moreover, the Explanation added to Section 10(20) enumerates the "local authorities" which do not cover the assessee herein. Therefore, we do not find any merit in the submission advanced on behalf of the assessee." 54. It is also relevant to notice that this Court in Gujarat Industrial Development Corpn. v. CIT [Gujarat Industrial Development Corpn. v. CIT, (1997) 7 SCC 17], after considering the provisions of Section 10(20-A) of the IT Act held that Gujarat Industrial Development Corporation is entitled for exemption under Section 10(20-A). The Gujarat Industrial Development Corporation was ....
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....slative intent is not clear.' Vide HiralalRattanlal v. State of U.P. [HiralalRattanlal v. State of U.P., (1973) 1 SCC 216 : 1973 SCC (Tax) 307 : AIR 1973 SC 1034] , SCC p. 224, para 22." 55. A Division Bench of the Delhi High Court also in Agricultural Produce Market Committee v. CIT [Agricultural Produce Market Committee v. CIT, 2006 SCC OnLine Del 1722 : (2007) 294 ITR 549] had occasion to consider Section 10(20) as amended w.e.f. 1-4-2003 where the High Court in para 5 has stated the following: (SCC OnLine Del) "5. The most striking feature of the Explanation is that the same provides an exhaustive meaning to the expression "local authority". The word "means" used in the Explanation leaves no scope for addition of any other entity as a "local authority" to those enlisted in the Explanation. In other words, even if an entity constitutes a "local authority" for purposes of the General Clauses Act, 1897, or for purposes of any other enactment for that matter, it would not be so construed for purposes of Section 10(20) of the Act unless it answers the description of one of those entities enumerated in the Explanation. Mrs Ahlawat did not make any attempt t....
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....f Article 243-P. Thus, the appellant is not clearly included in clause (ii) of the Explanation. It is not even the case of the appellant that the appellant is covered by Section 10(20) except clause (ii). 43. Proceeding to the facts of the case, Mr. Hossain pointed out that Form LC IV-D in unambiguous terms provides for the EDC being paid to HSVP. The aforesaid clause as contained in the bilateral agreement, according to Mr. Hossain, is incontrovertible proof of the obligation of the petitioner to pay EDC to HSVP, albeit "through" the DTCP. In any event, according to learned counsel, the payment of EDC is "not to" the DTCP. It was submitted that the petitioners have at no stage questioned HSVP as being the ultimate recipient of the EDC. 44. Learned counsel also questioned the reliance which was sought to be placed on the OM dated 06 October 2017 and contended that merely because the EDC payments were ultimately placed under a 'receipt' head of the DTCP, the same does not detract from the payment having been made directly to HSVP. According to Mr. Hossain how that payment is ultimately accounted for in the books of HSVP and DTCP is an issue which is of little relevance or sign....
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....of work undertaken by the contractor". In our view, the submissions so made remain entirely baseless. 15.1. The nature of contract entered into by the appellant with the consignor company makes it clear that the appellant was to transport the goods (cement) of the consignor company; and in order to execute this contract, the appellant hired the transport vehicles, namely, the trucks from different operators/owners. The appellant received freight charges from the consignor company, who indeed deducted tax at source while making such payment to the appellant. Thereafter, the appellant paid the charges to the persons whose vehicles were hired for the purpose of the said work of transportation of goods. Thus, the goods in question were transported through the trucks employed by the appellant but, there was no privity of contract between the truck operators/owners and the said consignor company. Indisputably, it was the responsibility of the appellant to transport the goods (cement) of the company; and how to accomplish this task of transportation was a matter exclusively within the domain of the appellant. Hence, hiring the services of truck operators/owners for this purpose c....
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....ediary between the two parties (i.e. the consignor company and the transporter) and had no privity of contract with either of such parties inasmuch as he only collected freight charges from the clients who intended to transport their goods through other transporters; and the amount thus collected from the clients was paid to those transporters by the assessee while deducting his commission. Looking to the nature of such dealings, the said assessee was held to be "not the person responsible" for making payments in terms of Section 194-C of the Act and hence, having no obligation to deduct tax at source. In contradistinction to the said case of Hardarshan Singh [CIT v. Hardarshan Singh, 2013 SCC OnLine Del 128 : (2013) 350 ITR 427], the appellant of the present case was not acting as a facilitator or intermediary between the consignor company and the truck operators/owners because those two parties had no privity of contract between them. The contract of the company, for transportation of its goods, had only been with the appellant and it was the appellant who hired the services of the trucks. The payment made by the appellant to such a truck operator/owner was clearly a payment made....
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....dings in regard to the applicability of Section 194-C to the present case. Question 1 is, therefore, answered in the negative; against the appellant assessee and in favour of the Revenue." 47. We at the outset note that Mr. Hossain apart from addressing submissions noticed hereinbefore had also raised an objection to the maintainability of the writ petitions asserting that orders passed under Section 201 are appealable under the provisions of the Act. It was his submission, therefore, that these writ petitions should be dismissed on this score. We, however, find ourselves unable to sustain that objection bearing in mind the undisputed fact that most of these writ petitions were entertained as far back as in 2019 and 2021 and on which, and after hearing counsels for respective sides, the Court had entertained the writ petitions and passed interim orders. It would thus be wholly inequitable to relegate parties to pursue an alternative remedy. We additionally note from the initial orders passed on these writ petitions, that an objection to their maintainability in the face of an alternative remedy does not appear to have been raised or addressed in the first instance. In any case a....
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....e respondents, has an arrangement with the Government of Haryana to undertake external development work. Undisputedly the Government of Haryana, by virtue of being the State Government, would fall within the meaning of the expression 'specified person' as per the Explanation appended to Section 194C. The critical question which thus arises is whether the arrangement between HSVP and the Government of Haryana could be said to fall within the meaning of the phrase "in pursuance of a contract" as occurring in that provision. 51. The HDRUA Act in Section 2(g) defines EDC to include all infrastructure development work, such as water supply, sewerage, drains, treatment and disposal of sewage, storm water, roads, electrical works and other activities including those which may be additionally specified by the Director, to be executed in the periphery or outside a colony or an area for the benefit thereof. A 'colony' has been defined in Section 2(c) to mean an area of land divided or proposed to be divided into plots for residential, commercial, industrial development or for the establishment of a cyber-city, cyber-park, integrated commercial complexes or for construction of flats in a g....
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.... meeting expenditure for development of land and for such other purposes as the State Government might direct or permit. Section 21 of the 1977 Act reads as follows: "(21). Fund of authority (1) the authority shall have and maintain its own fund to which shall be credited - (a) all moneys received by the authority from the State Government and the Central Government by way of grants, loans, advances or otherwise; (b) all moneys borrowed by the authority from source other than the Government, by way of loans or debentures; (c) all fees received by the authority under this Act; (d) all moneys received by the authority from the disposal of lands, building and other properties, movable and immovable; and (e) all moneys received by the authority by way of rents and profits or in any other manner or from any other source. (2) The fund shall be applied towards meeting- (a) expenditure incurred in the administration of this Act; (b) cost of acquisition of land for purposes of this Act; (c) expenditure for development of land; (d) expenditure for such other purposes as the State Gover....
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....DC were found to be insufficient to bear the cost of development work, it had formulated a new scheme and for which appropriate budgetary provisions were made for execution of all external development works by it. It was on the promulgation of the aforesaid scheme titled as the "Swarn Jyanti Haryana Urban Infrastructure Development Scheme" that EDC w.e.f. FY 2017-18 was deposited directly with the State Government and constituted a part of the Consolidated Fund of that State. It is further admitted that it was post the promulgation of that scheme and the issuance of an order dated 12 May 2017 that all payments towards EDC were made online through the State Government's e-payment gateway or in the shape of demand drafts favouring the DTCP. It is further averred that the required funds for execution of development works were thereafter released to HSVP upon sanction being granted by the Finance Department of the Government of Haryana. This communication is thus evidence of all EDC charges being made over to the HSVP at least prior to 31 March 2017 pursuant to an understanding that those funds would be utilised towards external development. Undisputedly, EDC charges, which form the su....
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....ned from the arrangement which existed between HSVP and the Government of Haryana and is also duly acknowledged by the DTCP itself, the absence of a written or codified agreement would not be relevant for the purposes of Section 194C being applicable. 61. We further note that not only the provisions of the HDRUA but also the forms and bilateral agreements executed by the applicants, mandated that all payments of EDC were to be drawn in favour of HSVP. Although they were routed through the DTCP, those payments undoubtedly were to the account of HSVP. The statute as well as the licence conditions thus placed the petitioners under a binding obligation to advance all EDC payments in favour of HSVP. The aforesaid clearly qualifies the responsibility which Section 194C places upon a payer who is contemplating making payments to a contractor. 62. The submission of a lack of privity between the writ petitioners and HSVP is noticed only to be rejected since Section 194C does not contemplate the existence of a contractual relationship between a person who is responsible for paying a sum and the contractor as defined in that provision. The existence of a contract is only envisaged to be....
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....the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force: Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23-D) of Section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode: [* * *] [Explanation-1].-For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. [Explanation 2.-For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all perso....
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.... may be prescribed. (7) Notwithstanding anything contained in sub-section (1) and sub-section (2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application 3636[in such form and manner to the Assessing Officer, to determine in such manner, as may be prescribed], the appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under sub-section (1) on that proportion of the sum which is so chargeable." 65. The special character of that section and others similar thereto and which speak of "income chargeable" was noticed by the Supreme Court in Engineering Analysis Centre of Excellence Private Limited v. Commissioner of Income Tax and Anr. (2022) 3 SCC 321. We deem it apposite to extract paras 27 to 31 of that decision hereunder: "27. The learned Additional Solicitor General further pointed out that the Indian Government had expressed its reservations on the OECD Commentary, especially on the parts o....
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.... Substituted by the Finance Act, 1992 (18 of 1992), Section 3(c) (w.e.f. 1-6-1992).] (37-A) "rate or rates in force" or "rates in force", in relation to an assessment year or financial year, means- *** (iii) for the purposes of deduction of tax under Section 194-LBA or Section 194-LBB or Section 194-LBC or Section 195, the rate or rates of income tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income tax specified in an agreement entered into by the Central Government under Section 90, or an agreement notified by the Central Government under Section 90-A, whichever is applicable by virtue of the provisions of Section 90, or Section 90-A, as the case may be; *** 4. Charge of income tax.-(1) Where any Central Act enacts that income tax shall be charged for any assessment year at any rate or rates, income tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income tax) of, this Act in respect of the total income of the previous year of every person: Provided that where by virtue o....
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....- *** (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; *** Explanation 2.-For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for- (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (iv) the imparting of any information concerning technical, industrial, commercial or sc....
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....mation is in India. *** 90. Agreement with foreign countries or specified territories.- (1) The Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India,- (a) for the granting of relief in respect of- (i) income on which have been paid both income tax under this Act and income tax in that country or specified territory, as the case may be, or (ii) income tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment, or (b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be, without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in the said agreement for the indirect benefit to residents of any other country or territory), or (c) for exchange of information for the prevention....
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.... or by the issue of a cheque or draft or by any other mode. Explanation 1.-For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. [Inserted by the Finance Act, 2012 (23 of 2012), Section 77(a)(ii) (w.r.e.f. 1-4-1962).] Explanation 2.-For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has- (i) a residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India. (2) Where the person responsible for paying any such sum chargeable under this Act [Substituted by the ....
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....defined by Section 2(37-A) of the Income Tax Act, in respect of the total income of the previous year of every person. Under Section 4(2), in respect of income chargeable under sub-section (1) thereof, income tax shall be deducted at source or paid in advance, depending upon the provisions of the Income Tax Act. Importantly, under Section 5(2) of the Income Tax Act, the total income of a person who is a non-resident, includes all income from whatever source derived, which accrues or arises or is deemed to accrue or arise to such person in India during such year. This, however, is subject to the provisions of the Income Tax Act. Certain income is deemed to arise or accrue in India, under Section 9 of the Income Tax Act, notwithstanding the fact that such income may accrue or arise to a non-resident outside India. One such income is income by way of royalty, which, under Section 9(1)(vi) of the Income Tax Act, means the transfer of all or any rights, including the granting of a licence, in respect of any copyright in a literary work. 31. That such transaction may be governed by a DTAA is then recognised by Section 5(2) read with Section 90 of the Income Tax Act, making it cl....
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....mentation of the terms of DTACs which would automatically override the provisions of the Income Tax Act in the matter of ascertainment of chargeability to income tax and ascertainment of total income, to the extent of inconsistency with the terms of DTAC." Unlike those provisions finding place in Chapter XVII-B, and which require a person responsible for effecting a payment to examine whether the sum is chargeable under the provisions of the Act, Section 194C places no such discretion or leeway in the hands of the person responsible for paying a sum to a contractor. 66. We further take note of the significant provisions contained in Sections 197 and 197A of the Act, and which are reproduced hereinbelow: "197. Certificate for deduction at lower rate.-(1) Subject to the rules made under sub-section (2-A), [where, in the case of any income of any person [or sum payable to any person], income tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of Sections 192, 193, 194, 194-A, 194-C 194- D, 194-G, 194-H, 194-I, 194-J, 194-K, 194-LA , 194-LBA, 194-LBB, 194-LBC, 194-M, 194-O [* * *] ....
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....ated total income of the previous year in which such income is to be included in computing his total income will be nil.] (1-B) The provisions of this section shall not apply where the amount of any income of the nature referred to in sub-section (1) or sub-section (1-A), as the case may be, or the aggregate of the amounts of such incomes credited or paid or likely to be credited or paid during the previous year in which such income is to be included exceeds the maximum amount which is not chargeable to income tax.] (1-C) Notwithstanding anything contained in [Section 192-A or Section 193 or Section 194 or Section 194-A [or Section 194-D] or Section 194-DA] or Section 194-EE [or Section 194-I] or Section 194-K or sub-section (1-B) of this section, no deduction of tax shall be made in the case of an individual resident in India, who is of the age of [sixty years] or more at any time during the previous year [* * *], if such individual furnishes to the person responsible for paying any income of the nature referred to in [Section 192-A or Section 193 or Section 194 or Section 194-A [or Section 194-D] or Section 194-DA] or Section 194-EE [or Section 194-I] or Section....
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....ions nor had it obtained a declaration that moneys received by it were exempt from tax. In view of the aforesaid, it is apparent that the writ petitioners did not stand absolved of the obligation to deduct tax on payments that were being made to HSVP. 68. That takes us further to consider the submission which was addressed in the context of Section 196 of the Act. The submission essentially was that since payments being made to HSVP were pursuant to the directives of the DTCP and in aid of external development work being carried out, those payments should be viewed as sums which were payable to the Government of Haryana. It was in this context submitted that all aspects pertaining to EDC were regulated by the DTCP. The petitioners urged that the determination and quantification of EDC were subjects exclusively regulated by directives of the DTCP. The petitioners also referred to the power vested in the DTCP to initiate proceedings for recovery of EDC as arrears of revenue and thus constituting a statutory impost exempt from taxation. It was in the backdrop that the petitioners urged us to accept EDC payments as falling within Section 196. We find ourselves unable to sustain that....
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....he income from trade or business carried on by the Government of a State or on its behalf which would not have been taxable under clause (1), can be taxed, provided a law is made by Parliament in that behalf. If clause (1) had stood by itself, it may not have been easy to include within its purview income derived by a State from commercial activities, but since clause (2), in terms, empowers Parliament to make a law levying a tax on commercial activities carried on by or on behalf of a State, the conclusion is inescapable that these activities were deemed to have been included in clause (1) and that alone can be the justification for the words in which clause (2) has been adopted by the Constitution. It is plain that clause (2) proceeds on the basis that but for its provision, the trading activity which is covered by it would have claimed exemption from Union taxation under clause (1). That is the result of reading clauses (1) and (2) together. Clause (3) then empowers Parliament to declare by law that any trade or business would be taken out of the purview of clause (2) and restored to the area covered by clause (1) by declaring that the said trade or business is incident....
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....es the payer under the unshirkable obligation of deducting tax from all payments being made to a contractor. We have already noticed in the preceding parts of this decision that Section 194C of the Act vests no discretion in the payer to examine or contemplate chargeability of that payment to tax. We, in this connection, note the following pertinent observations as rendered by the Supreme Court in Associated Cement Co. Ltd. v. Commissioner of Income Tax (1993) 2 SCC 556. "7. The above decision cannot be of any help to the appellant for it does not lay down that the percentage amount deductible under Section 194-C(1) should be out of the income of the contractor from the sum or sums credited to the account of or paid to him. The words in the sub-section 'on income comprised therein' appearing immediately after the words 'deduct an amount equal to two per cent of such sum as income tax' from their purport, cannot be understood as the percentage amount deductible from the income of the contractor out of the sum credited to his account or paid to him in pursuance of the contract. Moreover, the concluding part of the sub-section requiring deduction of an amount equal to two per....
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....judgment rendered in DLF Homes Panchkula. 76. We are of the firm opinion that in matters pertaining to taxation we would not readily import the principle of a power otherwise inhering being sufficient for the purposes of examining the validity of a Show Cause Notice. Chapter XVII-B embodies Sections 192 to 206AB and refers to various contingencies and situations where a payer is bound in law to deduct tax. The respondents were thus clearly obliged to indicate with sufficient clarity the specific statutory provision contained in Chapter XVII-B and which according to them placed an obligation on the petitioners to deduct tax. This aspect of criticality could not have been left to supposition or for the writ petitioners grappling to understand and discern an obligation to deduct tax flowing from any one of the more than the fifty sections comprised in Chapter XVII-B. A Show Cause Notice fundamentally must apprise the noticee of the case that it is called upon to answer, the context in which an explanation is sought and the charge that it has to answer. The notice thus cannot leave the assessee grappling with or trying to discern the provision which it is supposed to have infringed.....
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.... act judicially is implicit in the exercise of such power. If the essentials of justice be ignored and an order to the prejudice of a person is made, the order is a nullity. That is a basic concept of the rule of law and importance thereof transcends the significance of a decision in any particular case." 77. The requisites of a valid Show Cause Notice were lucidly explained by the Supreme Court in Gorkha Security Services v. Govt. (NCT of Delhi) (2014) 9 SCC 105 as under: "Contents of the show-cause notice 21. The central issue, however, pertains to the requirement of stating the action which is proposed to be taken. The fundamental purpose behind the serving of show-cause notice is to make the noticee understand the precise case set up against him which he has to meet. This would require the statement of imputations detailing out the alleged breaches and defaults he has committed, so that he gets an opportunity to rebut the same. Another requirement, according to us, is the nature of action which is proposed to be taken for such a breach. That should also be stated so that the noticee is able to point out that proposed action is not warranted in the given cas....
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....text that the Supreme Court observed as follows: - "We are of the opinion that the contention is not well-founded. Section 147 of the 1961 Act is an enabling provision which empowers the Income-tax Officer to bring to tax incomes which have escaped assessment either on account of the failure of the assessee to disclose fully and truly all material facts necessary for his assessment for the relevant year or the Income-tax Officer in consequence of the information in his possession has reason to believe that income chargeable to tax has escaped assessment for any assessment year. That being so, it is not necessary that notice under section 147 of 1961 Act should state under which of the clauses, whether under clause (a) or clause (b) the same is issued. The main notice to be issued in a case under section 147 is a notice under section 139(2), and section 148 read with section 147 merely authorises the issue of such a notice. [See Kantamani Venkatanarayan and Son v. First Additional Income-tax Officer, (63, I.T.R. 638) (8) Deep Chand Daga v. Income-tax Officer C- Ward, Raipur, (77, I.T.R. 661) (9) Anne Nagendram and BommaReddiVenkayya and Company v. Commissioner of Income- ta....
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....hat only leaves us to deal with the issue of the petitioners having been treated as an assessee in default in terms of Section 201 and called upon to pay penalties by virtue of Sections 221 and 271C of the Act. Pursuant to the interim orders that were made on these writ petitions, while the respondents were permitted to continue further in terms of the show cause notices impugned herein, orders if passed against the petitioner were not to be given effect to. We have not been apprised of the status of those proceedings nor have the respondents apprised of any final orders that may have been framed in respect of each of the writ petitioners. We have also not been apprised of whether the EDC payments have been taxed in the hands of the HSVP or whether the same was offered to tax. 84. We are also cognizant of the legal position of penalty be it either under Section 221 or 271C not being an inevitable corollary in case of default. This position is made explicit by the Second Proviso to Section 221 as well as Section 273B. The imposition of penalty where a question with respect to taxability had remained unclear or where an assessee had good and sufficient cause to not deposit the tax....
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....t of these cases, the tax deductor assessee has not claimed deduction under Section 40(a)(iii) in computation of its business income. This is one more reason for not imposing penalty under Section 271-C because by not claiming deduction under Section 40(a)(iii), in some cases, higher corporate tax has been paid to the extent of Rs 906.52 lakhs (see Civil Appeal No. 1778 of 2006 entitled CIT v. Bank of Tokyo- Mitsubishi Ltd.)." 85. The aforesaid view has been reiterated in a more recent judgment of the Supreme Court in Singapore Airlines Ltd. Vs. CIT (2023) 1 SCC 497 where the following principles were laid down: - "58. This Court in Hindustan Coca Cola Beverage (P) Ltd. v. CIT [Hindustan Coca Cola Beverage (P) Ltd. v. CIT, (2007) 8 SCC 463] was confronted with a similar situation where the recipient of income on which the assessee had failed to deduct TDS under Section 194-C of the IT Act, had already paid income taxes on that amount. The Court held : (SCC pp. 464-65, paras 6 & 9) "6. The Tribunal upon rehearing the appeal held that though the appellant assessee was rightly held to be an "assessee in default", there could be no recovery of the tax alleged to be....
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....e salary/special allowance(s) stands paid off then the AO shall not proceed under Section 201(1). In cases where the tax has not been paid, the AO shall proceed under Section 201(1) to recover the shortfall in the payment of tax. 100. Similarly, in each of the 104 appeals, the AO shall examine and find out whether interest has been paid/recovered for the period between the date on which tax was deductible till the date on which the tax was actually paid. If, in any case, interest accrues for the aforestated period and if it is not paid then the adjudicating authority shall take steps to recover interest for the aforestated period under Section 201(1-A)." 60. It appears to us that if the recipient of income on which TDS has not been deducted, even though it was liable to such deduction under the IT Act, has already included that amount in its income and paid taxes on the same, the assessee can no longer be proceeded against for recovery of the shortfall in TDS. However, it would be open to the Revenue to seek payment of interest under Section 201(1-A) for the period between the date of default in deduction of TDS and the date on which the recipient actually paid in....
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....s penalty was leviable under Section 271-C as the respondent in each case has discharged its burden of showing reasonable cause for failure to deduct tax at source." 66. We find some parallels between the facts of the present case and the situation in Eli Lilly & Co. [CIT v. Eli Lilly & Co. (India) (P) Ltd., (2009) 15 SCC 1] The liability of an airline to deduct TDS on supplementary commission had admittedly not been adjudicated upon by this Court when the controversy first arose in AY 2001-2002. While the learned counsel for the Revenue, Mr Kumar, has notified us that various airlines were deducting TDS under Section 194-H at that time, this does not necessarily mean that the position of law was settled. Rather, it appears to us that while one set of air carriers acted under the assumption that the supplementary commission would come within the ambit of the provisions of the IT Act, another set held the opposite view. The assessees before us belong to the latter category. Furthermore, as we have highlighted earlier, there were contradictory pronouncements by different the High Courts in the ensuing years which clearly highlights the genuine and bona fide legal conundrum t....
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.... Assessing Officer is satisfied that the person liable had good and sufficient reasons to not deduct and pay the tax in question. Thus, the proviso is to be applied only to the question of penalty. It would not absolve the assessee insofar as his being considered as an assessee in default for the purposes of Section 201(1) of the said Act. Therefore, this finding of the Tribunal is set aside. Consequently, question no. 1 is decided in favour of the Revenue and against the assessee. 10. Insofar as the second question is concerned i.e., with regard to the interest payable under Section 201(1A) of the said Act, that is a mandatory provision, as already held by a Division Bench of this Court in the case of CIT v. ITC Limited, ITA No. 475/2010, dated 11.05.2011. The said Division Bench observed as under:- xxxx xxxx xxxx However, levy of interest under section 201(1A) is neither treated as penalty nor has the said provision been included in Section 273B to make 'reasonableness of the cause' for the failure to deduct a relevant consideration. Section 201(1A) makes the payment of simple interest mandatory. The payment of interest under that provision is not penal....