Income Tax Appellate Tribunal - Chandigarh
M/S Preet Land Promoters And Developers ... vs Ito, Chandigarh on 8 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND
SHRI B.R.R. KUMAR, ACCOUNTANT MEMBER
ITA No.829/Chd/2017
Assessment Year: 2014-15
Preet Land Promoters and Vs. The I TO
Developers Pvt. Ltd. TDS-1
Site Office Sector 86, Preet City Chandigarh
Mohali
PAN No. AADCP8893L
(Appellant) (Respondent)
Assessee By : Sh. Vineet Krishan
Revenue By : Sh. Ravi Sarangal
Date of hearing : 12/07/2017
Date of Pronouncement : 08/08/2017
ORDER
PER B.R.R. KUMAR A.M. This appeal has been filed by the assessee against the Ld. CIT (A)-2, Chandigarh dt. 15/03/2017.
2. The assessee has raised the following grounds of appeal:
1. That the order passed under section 250(6) of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax (Appeals)-2 Chandigarh in Appeal No. 181/2/15-16 dated 15.03.2017 is contrary to law and facts of the case.
2 That in the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) gravelly erred in upholding the order of Income Tax Officer (TDS-I), Chandigarh in treating the 'assessee in default' under the provisions of Section 201(1) & 201(1A) of the Income Tax Act, 1961.
3. That in the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) gravelly erred in upholding the action of the ld. Assessing Officer that appellant was required to deduct TDS of Rs. 16,18,240/- under Section 194C on an amount of Rs. 8,09,12,000/- paid as External Development Charges to GMADA.
4. That in the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) gravelly erred in upholding the action of the ld. Assessing Officer that assessee was required to deduct tax of Rs. 16,18,240/- under Section 194C in respect of EDC charges paid to GMADA and charging of interest under Section 201(1A) of Rs. 3,68,386/- . The provisions of Section 194C of the Income Tax Act, 1961 are not applicable to payment of EDC charges paid by assessee to GMADA.2
3. The appellant has raised various grounds. The only effective ground is against the demand raised of Rs .19,95,305/- U/S 201(1)/201(1A) of the Act by treating the assessee as 'assessee in default' for non - deduction of tax u/s 194C on payments of EDC made to GMADA of Rs. 8,09,12,000/-.
4. Briefly, the facts on the issue are that the appellant company has paid External Development Charges (EDC) of Rs 8,09,12,000/- to GMADA and has not deducted tax as per the provisions of section 194C of the Act. Assessing officer noted that EDC is an advance payment received by GMADA from private builders for doing civil work. The EDC received by GAMADA has been spent on repair / maintenance/ creating infrastructure for Pvt. colonizers. On perusal of the notification GMADA the Assessing Officer held that EDC is actually charged by GMADA from pvt. builders and incur these payments for development of infrastructure and other amenities for the builders. Thus external development charges made by the appellant to GMADA is covered under service contract where the deductor has made payment of EDC to GMADA for the services rendered by it and therefore, assessee was liable to deduct tax at source on such payments as per the provisions of section 194C of the Income Tax Act, 1961.
5. Before the Ld.CIT(A), the appellant filed copy of notification dated 22.06.2010 that GMADA is a statutory body of Punjab Government and collects the EDC on behalf of the Government and a copy of RTI reply from GMADA stating that the EDC collected by GMADA is accounted under the head liabilities of the Government in the balance sheet by GMADA. These documents were filed as additional evidence and requested that these are relevant in deciding the appeal and be admitted as additional evidence under Rule 46A of the Income Tax Rules, 1962. The additional evidences were forwarded to AO for remand report. The Assessing Officer held that the payment of external development charges to GMADA are in the nature of contractual payment which is the income in the hands of GMADA and therefore, assessee was under
obligation to deduct tax on this payment as per the provisions of section 194C. The Assessing Officer concluded that none of the documents can be regarded as additional evidence, as they do not in any way alter the facts of the case.
7. Ld. CIT(A) held that the payments on EDC charges to GMADA which in the nature of the contractual payment which is the income in the hands of GMADA and therefore the assessee was under obligation to deduct tax on this payment as per the provision of section 194C.3
8. Before us the Ld .AR argued that there is no contract between GMADA and the assessee hence the payment did not fall under the category of contractual payment. The Ld. AR strongly supported the orders of the lower authorities.
9. We have gone through the factual material available on record and found that such payments are out of legal obligations rather than contractual arrangements, and it is only when payments are made "in pursuance of a contract" that the provisions of section 194C come into play. The contract may be oral or written, express or implied but there must be a contract nevertheless.
In the present case, however, the payment is on account of legal obligation.
10. We have further gone through the order of the Ld. CIT (A) for the AY 2013-14 in the case of the assessee where in it was held the the assessee is not liable to deduct TDS on the EDC payments. The relevant para reads as under :
"As per the provisions of section 194C of Income Tax Act the tax is deductible only if the contract of work has been given to the other party. The relation between the parties should be at least that of Principal and Service provider. The scope of work in such contracts of work is determined by the person awarding the contract and it is executed by the other party in accordance with the desires of the party awarding the work. However, in the present case, the relationship between the Appellant and GMADA does not conform to being principal and service provider in strict sense because even though EDC is charged for development of the area but yet GMADA does not carry out the work of development at the instructions of the person paying EDC. The decisions for carrying out developmental activity in the area are exclusively taken by GMADA without consulting the persons paying EDC. In other sense, the payment of EDC is more of a levy charged by GMADA but for a specific purpose of development of the area. Under the circumstances, the charges of EDC are not payments made to GMADA in view of specific work contract; therefore these are outside the purview of 194C of Income Tax Act. The ground of appeal is allowed."
11. On the factual matrix of the assessee these payments do not fall under the category of contractual payment and hence assessee is not liable to TDS under section 194C.
12. In the result appeal of the assessee is allowed.
Order pronounced in the open court.
Sd/- Sd/- (SANJAY GARG) (B.R.R.KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 08/08/2017 AG
Copy to: The Appellant, The Respondent, The CIT, The CIT(A), The DR