Benchmark Infotech Pvt. Ltd. v. Income Tax Officer Tds WARD73(3)

Delhi HC13 Feb 2024W.P.(C)/4498/2022

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Benchmark Infotech Pvt. Ltd. Vs Income Tax Officer Tds… — Cheque Dishonour | Delhi HC (2024)

¶252

― 26. The Assessing Officer in paragraph 2 of the recorded reasons quotes that "External development charges is covered by the provisions of section 194 of the Income-tax Act, 1961. The assessee has failed to deduct tax at source on the payments made to the Haryana Urban Development Authority". There is no explanation or rationale for the aforesaid observation made by the Assessing Officer. We, therefore, cannot understand as to how the payment of external development charges being in the nature of statutory fees, could be subject to withholding tax under section 194 of the Act, a provision that is applicable to dividends. The nature of dividend payment is intrinsically different from external development charges and, therefore, the apparent reason for reopening seems to be erroneous, irrational and fallacious. The subsequent observation in paragraph 2 "as per the provisions of section 40(a)(ia) of the Income-tax Act, any sum payable on which tax is deductible at source under Chapter XVII-B but the same has not been deducted" appears to be based on the understanding that the provisions of section 194 are attracted to external development charges and, therefore, it is subject to withholding tax and consequently the provisions of section 40(a)(ia) of the Act would be attracted. Even 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.

¶256

should have been subjected to tax deducted at source by assessee". The Assessing Officer has further proceeded to observe since the assessee is a development authority of State Government of Haryana and is a taxable entity, deduction of tax at source provisions could be applicable on external development charges payable by the assessee through Haryana Urban Development Authority. Apart from making aforenoted observations and referring to section 194 and section 40(a)(ia), there is no apparent rationale for assumption of jurisdiction by the Assessing Officer. The judgment in Greater Mohali Area (supra) is of no assistance to the Revenue as the same is distinguishable on facts. In the said case, the petitioner who was recipient of external development charges had approached the court seeking quashing of the order disposing of its objections to the reasons recorded for reopening the assessment under sections 147 and 148 of the Act. In the assessment under section 143 (3) of the Act, the effect of external development charges upon petitioner's income was not referred to, the Assessing Officer sought to reopen the assessment on the basis of reason to believe that income on account of external development charges had escaped assessment. In these circumstances, since, the assessment order, did not deal with the character of the income of external development charges or its effect on petitioner's income, the court upheld the action of reopening on the ground that the issue had not been considered at the time of the assessment. Likewise, the other judgment relied upon by the Revenue in the case of New Okhla Industrial Development Authority (supra) is also distinct on facts. In the said case, the court was examining as to whether Greater Noida and Noida Authorities were local authorities within the meaning of section 10(20) of the Income-tax Act and whether their income was exempt from Income-tax. Deciding this question, the court held that the Noida and Greater Noida are not local authorities for the purpose of the Act. Therefore, the aforesaid decision has no relevance to the facts of the present case.

¶295

Sr. No.	Subject/ Description	Dispatch No.	Date of Issue
a	Fixation of development charges of released land and cases of change of land use in the Urban Estate/ Controlled area of the state	22860-72	14.08.2002
b	Fixation of EDC in cases of released/change of land use	851-76	15.01.2022
c	Fixation of External Development Charges in cases of released/change of land	16493- 16518	08.07.2002

	use
d	Fixation of	External	33580-608	25.09.2009
	Development	Charges
	in cases of rele	ased land

¶680

― 5.0 We have heard the rival submissions and have also perused the material on record. It is seen that in Para 4.3.2, subparagraph (iv) of the order passed u/s 271C of the Act, the AO has himself noted that the demanddraft of the EDC amounts are drawn in favour of the Chief Administrator, HUDA though routed through the Director General, Town and Country Planning, Sector-18, Chandigarh. He has also referred to the notes to accounts to the financial statements of HUDA wherein it has been stated that ―other liabilities also include external development charges received through DGTCP, Department of Haryana for execution of various EDC works. The expenditure against which have been booked in Development Work in Progress, Enhancement compensation and Land cost.‖ Undisputedly, the payment of EDC was issued in the name of Chief Administrator, HUDA. It is also 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 statutory or contractual liability towards HUDA and, therefore, the impugned penalty was not leviable. We note that similar view has been taken by the Co-ordinate Benches of ITAT Delhi in the cases of Santur Infrastructure Pvt. Ltd. vs. ACIT in ITA 6844/Del/2019 vide order dated 18.12.2019, Sarv Estate Pvt. Ltd. vs. JCIT in ITA No.5337 & 5338/Del/2019 vide order dated 13.09.2019 and Shiv Sai Infrastructure (Pvt.) Ltd. vs. ACIT in ITA No.5713/Del/2019 vide order dated 11.09.2019. A similar view was also taken by the Co-ordinate Bench of ITAT Delhi in case of R.P.S Infrastructure Ltd. vs. ACIT in 5805, 5806 & 5349/Del/2019 vide order dated 23.07.2019. Therefore, on an

¶738

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 responsibilities of the Municipalities. The Municipalities are created as vibrant democratic units of self-government. The duration of Municipality was provided for five years contemplating regular election for electing representatives to represent the Municipality. The special features of the Municipality as was contemplated by the constitutional provisions contained in Part IX-A cannot be said to be present in the Authority as delineated by the statutory scheme of the 1976 Act. It is true that various municipal functions are also being performed by the Authority as per the 1976 Act but the mere facts that certain municipal functions were also performed by the authority it cannot acquire the essential features of the Municipality which are contemplated by Part IX-A of the Constitution. The main thrust of the argument of the learned counsel for the appellant that the High Court having not adverted to the Notification dated 24-12-2001 issued under the proviso to Article 243-Q(1) the judgments relied on by the High Court for dismissing the writ petition are not sustainable. We thus have to focus on the proviso to Article 243-Q(1). For the purpose and object of the industrial township referred to therein whether industrial township mentioned therein can be equated with Municipality as defined under Article 243-P( e ). Article 243-P( e ) provides that the ―Municipality‖ means an institution of selfgovernment constituted under Article 243-Q. Whether the appellant is an institution of self-government constituted under Article 243-Q is the main question to be answered? Clause (1) of Article 243-Q provides that there shall be constituted in every State, a Nagar Panchayat, a Municipal Council and a Municipal Corporation, in accordance with the provisions of this Part. The proviso to clause (1) provides that:

¶840

― 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 to bring her case under clauses ( i ), ( ii ) and ( iv ) of the Explanation and, in our opinion, rightly so because the appellant Committee cannot by any process of reasoning be construed as a Panchayat as referred to in clause ( d ) of Article 243 of the Constitution of India, a municipality in terms of clause ( e ) of Article 243-P of the Constitution of India or a Cantonment Board as defined under Section 3 of the Cantonments Act, 1924. What she argued was that looking to the nature of the functions enjoined upon the appellant Committee, it must be deemed to be a Municipal Committee within the meaning of that expression in clause ( iii ) of the Explanation. We regret our inability to accept that submission. We say so for two distinct reasons. Firstly, because the expression ―Municipal Committee‖ appears in a taxing statute and must, therefore, be construed strictly. It is fairly well settled by a long line of decisions rendered by the Supreme Court that while interpreting a taxing statute, one has simply to look to what is clearly stated therein. There is, in fiscal statutes, no room for any intendment nor is there any equity about the levy sanctioned under the same. The following passage from Cape Brandy Syndicate v. IRC [ Cape Brandy Syndicate v. IRC , (1921) 1 KB 64] has been approved by the Apex Court in the decisions rendered by their Lordships: (KB p. 71)

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15.4. Though the decision of this Court in Palam Gas Service [ Palam Gas Service v. CIT , (2017) 7 SCC 613 : (2017) 394 ITR 300] essentially relates to the interpretation of Section 40( a )( i-a ) of the Act and while the relevant aspects concerning the said provision shall be examined in the next question but, for the present purpose, the facts of that case could be usefully noticed, for being akin to the facts of the present case and being of apposite illustration. Therein, the assessee was engaged in the business of purchase and sale of LPG cylinders whose main contract for carriage of LPG cylinders was with Indian Oil Corporation, Baddi wherefor, the assessee received freight payments from the principal. The assessee got the transportation of LPG done through three persons to whom he made the freight payments. The assessing officer held that the assessee had entered into a sub-contract with the said three persons within the meaning of Section 194-C of the Act. Such findings of AO were concurrently upheld up to the High Court and, after interpretation of Section 40( a )( i-a ), this Court also approved the decision [ Palam Gas Service v. CIT , 2014 SCC OnLine HP 2388 : (2015) 370 ITR 740] of the High Court while dismissing the appeal with costs. The learned counsel for the appellant has made an attempt to distinguish the nature of contract in Palam Gas Service [ Palam Gas Service v. CIT , (2017) 7 SCC 613 : (2017) 394 ITR 300] by suggesting that therein, the assessee's sub-contractors were specific and identified persons with whom the assessee had entered into contract whereas the present appellant was free to hire the service of any truck operator/owner and, in fact, the appellant hired the trucks only on need basis. In our view, such an attempt of differentiation is totally baseless and futile. Whether the appellant had specific and identified trucks on its rolls or had been picking them up on freelance basis, the legal effect on the status of parties had been the same that once a particular truck was engaged by the appellant on hire charges for carrying out the part of work undertaken by it (i.e. transportation of the goods of the company), the operator/owner of that truck became the subcontractor and all the requirements of Section 194-C came into operation.‖

Benchmark Infotech Pvt. Ltd. v. Income Tax Officer Tds WARD73(3)

Case brief

What is this about?

A compact analysis

Benchmark Infotech Pvt. Ltd. v. Income Tax Officer Tds WARD73(3)

Case brief

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