Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act, 1961 challenging the order dated 14.02.2024 passed by the Income Tax Appellate Tribunal, which had dismissed the Revenue’s appeal against the order of the Commissioner of Income Tax (Appeals).

The respondent, M/s SS Group Pvt. Ltd., is engaged in the business of real estate development. Pursuant to information received from the Deputy Commissioner of Income Tax (TDS), Panchkula, a survey under Section 133A was conducted at the premises of Haryana Urban Development Authority and another entity. It was observed that External Development Charges were received by HUDA from private builders without deduction of tax at source.

The Assessing Officer passed an order under Sections 201(1) and 201(1A), holding that External Development Charges constituted rent for use of land and were liable to TDS under Section 194I. The assessee was treated as an assessee in default, resulting in a demand aggregating to ₹2.22 crores.

Issues Involved

Whether External Development Charges paid by builders to HUDA are in the nature of rent liable to TDS under Section 194I, whether the Revenue could seek remand to apply Section 194C after having proceeded on Section 194I, and whether any substantial question of law arose in view of binding precedent and Supreme Court dismissal.

 

Appellant’s Arguments

The Revenue argued that Chapter XVII-B imposes a statutory obligation to deduct tax at source on taxable payments and that the Assessing Officer has jurisdiction to determine the correct TDS provision. It was contended that even if Section 194I was wrongly applied, the matter ought to be remanded to the Assessing Officer to examine applicability of Section 194C, relying on the Delhi High Court judgment in Puri Constructions Pvt. Ltd.

The Revenue asserted that External Development Charges represent payments made pursuant to an arrangement for execution of development work and therefore attract TDS, and failure to permit remand would cause loss of revenue.

Respondent’s Arguments

The assessee submitted that the issue stood conclusively settled inter se the parties by the Delhi High Court judgment in DLF Homes Panchkula Pvt. Ltd., in which the respondent itself was a party. It was contended that the Assessing Officer had consciously treated EDC as rent under Section 194I and that it was not open to the Revenue to now change the substratum of the case and seek remand to apply Section 194C.

It was further pointed out that the Special Leave Petition filed by the Revenue against DLF Homes Panchkula, insofar as it related to SS Group, had been dismissed by the Supreme Court on merits as well as on the ground of delay, thereby attaining finality.

Court Order / Findings

The Delhi High Court noted that in the assessment order, the Assessing Officer had clearly concluded that External Development Charges were rent and attracted TDS under Section 194I. The Court held that the nature of EDC payment was a foundational issue which the Assessing Officer was required to determine, and having categorically held it to be rent, the Revenue could not subsequently seek to alter its stand and contend that Section 194C applied.

The Court relied on its earlier judgment in DLF Homes Panchkula Pvt. Ltd., wherein identical submissions seeking remand to apply Section 194C had been expressly rejected. The Court also took note of the dismissal of the Revenue’s Special Leave Petition by the Supreme Court, which affirmed the finality of the issue between the parties.

In view of the binding precedent and the Supreme Court’s dismissal, the Court held that no substantial question of law arose for consideration and that interference with the order of the ITAT was unwarranted.

Important Clarification

The Court clarified that where the Assessing Officer has proceeded on a specific statutory footing by treating a payment as rent under Section 194I, the Revenue cannot subsequently seek remand to recharacterise the same payment under Section 194C. The substratum of the assessment cannot be altered at the appellate stage, particularly after the issue has attained finality.

 

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court upheld the order of the Income Tax Appellate Tribunal, held that External Development Charges paid by M/s SS Group Pvt. Ltd. were not liable to TDS as rent under Section 194I, rejected the Revenue’s plea for remand to apply Section 194C, and decided the matter in favour of the assessee and against the Revenue.

Link to download order - https://www.mytaxexpert.co.in/uploads/1769678103_COMMISSIONEROFINCOMETAXTDS2VsSSGROUP.pdf

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