Facts of the Case

The petitioners, real estate developers in Haryana, were required to pay External Development Charges (EDC) to the Haryana Urban Development Authority (HUDA), now Haryana Shahari Vikas Pradhikaran (HSVP), as a condition for obtaining licences for development projects.

The Income Tax Department alleged that the developers had failed to deduct TDS on these payments. Proceedings were initiated treating them as assessees in default under Section 201 along with consequential interest and penalty exposure.

Issues Involved

  1. Whether EDC payments to HUDA/HSVP constitute payments to a contractor under Section 194C.
  2. Whether such payments attract TDS obligations.
  3. Whether developers can be treated as assessees in default for non-deduction.
  4. Whether statutory origin of payment excludes applicability of TDS provisions. 

Petitioner’s Arguments

  • EDC is a statutory levy imposed by the State under development regulations.
  • Payments are not made under any contractual arrangement with HUDA/HSVP.
  • The authority performs public functions as a State instrumentality.
  • Therefore, no contractor–contractee relationship exists.
  • Consequently, Section 194C should not apply. 

Respondent’s Arguments

  • EDC payments are intrinsically linked to external development works carried out by HUDA/HSVP.
  • The payment obligation arises from licence conditions forming an arrangement between developers and the authority.
  • Even without a formal written contract, the arrangement qualifies as a contract for work.
  • Hence, TDS under Section 194C is applicable. 

Court Findings / Order

  • Section 194C applies where payment is made for execution of work pursuant to an arrangement, even without a formal contract.
  • EDC payments are made in connection with external development work to be executed by the authority.
  • The statutory mechanism for computing or collecting EDC does not change the character of the payment.
  • Once payment is made to an authority executing development work under an arrangement, Section 194C is attracted. 

Important Clarification by the Court

  • A formal written contract is not essential for invoking Section 194C.
  • Payments arising from licence conditions can still be contractual for TDS purposes.
  • Statutory collection of charges does not automatically exempt the payer from TDS liability.

 Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/YVA13022024CW94832019_190341.pdf

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