2024 (2) TMI 756 - DELHI HIGH COURT

TDS u/s 194C - liability to deduct tax - External Development Charges (EDC) - payments made to the Haryana Shahari Vikas Pradhikaran [HSVP] (earlier known as the Haryana Urban Development Authority - “HUDA”) - As per revenue department functioning under the Government of Haryana, would clearly fall within the ambit of Section 194C 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.

HELD THAT:- The liability to deduct tax stands effaced only if a recipient obtains a certificate of exemption or where a beneficiary produces a certificate which obliges the payer to deduct tax at a rate lower than that prescribed. HSVP had obtained no certification as contemplated in terms of the aforenoted provisions 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.

Section 196 frees sums payable to the Government, RBI or a corporation established by or under a Central Act from the obligation of tax being collected at source. Undisputedly, HSVP would neither fall within the ambit of clause (1) or clause (3) of Section 196. The mere fact that HSVP has been constituted under a statutory enactment does not make it the “Government”. Even if it were discharging functions akin to or similar to governmental obligations or performing activities closely connected with State functions, the same would not result in us recognising HSVP as the Government.

This issue, in our considered opinion, stands conclusively answered against the writ petitioners by Adityapur Industrial Area[2006 (5) TMI 61 - SUPREME COURT]. The said decision eloquently explains the distinction which is liable to be borne in mind between a sovereign government and a statutory authority. Quoting from Basu’s Commentary on the Constitution of India, the Supreme Court noted that it is the property of the State which alone is immune from taxation under Article 289 of the Constitution.

Ultimately, the question which warrants consideration is whether EDC was a payment to the State. This must necessarily be answered in the negative bearing in mind the undisputed fact that the income was placed in the hands and at the disposal of HSVP. We note that undisputedly at least till 31 March 2017 all EDC payments even as per the DTCP were being made out in favour of HSVP. It is only thereafter that EDC was deposited with the DTCP. This too leads us to the irresistible conclusion that the payments made to HSVP would not fall within Section 196.

We also bear in mind the unambiguous legislative command of Section 194C which places 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 find ourselves unable to concur with the view taken by the Tribunal in Santur [2019 (12) TMI 1106 - ITAT DELHI], Satya [2022 (6) TMI 687 - ITAT DELHI], Perfect Constech [2020 (12) TMI 1158 - ITAT DELHI] and Spaze Tower[2022 (5) TMI 1344 - ITAT DELHI]. Those decisions have proceeded on the basis of a contractual obligation between the petitioner and HSVP being a prerequisite. They have additionally based their decision on the fact that HSVP was undertaking external development work on the directives of the DTCP. These, for reasons recorded hereinabove, were factors wholly irrelevant for the purposes of considering the applicability of Section 194C.

Show Cause Notices not specifically adverting to the specific provision contained in Chapter XVIIB and in terms of which the petitioners were held liable to deduct tax - 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. In the absence of requisite particulars, the Show Cause Notice would be liable to be quashed on the ground of being wholly vague.

Assessee in Default u/s 201 - Levy of penalties by virtue of Sections 221 and 271C - 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.

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 were lucidly explained by the Supreme Court in CIT v. Eli Lilly & Co. (India) (P) Ltd [2009 (3) TMI 33 - SUPREME COURT]

We are accordingly of the opinion that while the challenge as raised in the writ petition must fail, subject to due verification of the issues flagged in para 82 and 83 above as well as the scope of a person in default and penalty provisions as noticed above, the respondents may revive the proceedings presently pending and conclude the same in light of the observations made hereinabove.

Accordingly, we negative the challenge raised in these writ petitions insofar as the invocation of Section 194C of the Act is concerned and hold that EDC payments would be covered thereunder. For reasons recorded in the body of this judgment, we also turn down the challenge to the Clarification issued by the Central Board of Direct Taxes dated 23 December 2017.

We dispose of those writ petitions where final orders under Section 201 may not have been made by according liberty to the respondents to revive the pending show cause notice proceedings and conclude the same in accordance with law bearing in mind the observations appearing hereinabove. The proceedings on the pending show cause notices would be liable to be decided afresh after affording an opportunity of hearing to the writ petitioners and decided in accordance with this judgment.