9911796707
TMI Blog2024 (2) TMI 1473X X X X Extracts X X X X X X X X Extracts X X X X ..... 22, CM Appl. 13960/2022, W.P. (C) 5365/2022, CM APPL. 16059/2022, W.P. (C) 5367/2022, CM Appl. 16062/2022, W.P. (C) 6552/2022, CM Appl. 19907-19908/2022, W.P. (C) 6558/2022, CM Appl. 19924-19925/2022, W.P. (C) 6631/2022, CM Appl. 20143-20144/2022, W.P. (C) 6694/2022, CM Appl. 20332-20333/2022, W.P. (C) 6737/2022, CM Appl. 20450-20451/2022, W.P. (C) 6893/2022, CM Appl. 21015/2022, W.P. (C) 7978/2022, CM Appls. 24381/2022, 36849/2022, W.P. (C) 9236/2022, CM Appl. 27686/2022, W.P. (C) 11184/2022, CM Appl. 32877/2022, W.P. (C) 11220/2022, CM Appl. 32975/2022, W.P. (C) 11706/2022, CM Appl. 34819/2022, W.P. (C) 4920/2023, CM Appl. 19028-19029/2023, W.P. (C) 5313/2023 and CM Appl. 20713/2023 M/S VIPUL SEZ DEVELOPERS PVT. LTD., M/S ALPHA CORP DEVELOPMENT PVT. LTD., COUNTRYWIDE PROMOTERS PVT. LTD., M/S RAMPRASTHA ESTATES PVT. LTD., M/S FLORENTINE ESTATES OF INDIA LTD., M/S VIPUL SEZ DEVELOPERS PVT. LTD., RAHEJA DEVELOPERS LIMITED, BENCHMARK INFOTECH PVT LTD, ONE POINT REALITY PVT LTD, ONE HEIGHT COLONIZERS PVT. LTD., JAGRAN DEVELOPERS PVT. LTD. , ANSAL PROPERTIES AND INFRASTRUCTURE LTD, M/S FLORENTINE ESTATES OF INDIA LTD., ACTIVE PROMOTERS PRIVATE LIMITED, M/S OMAXE LTD, M/S TS REALTECH P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. 2. We at the outset deem it appropriate to note and observe that we have heard learned counsels for respective sides solely on the question of whether the payment of EDC would fall within the ambit of Section 194C of the Act and whether the writ petitioners can be held liable to have deducted tax at source in terms of that provision. We thus propose to principally answer the primary question and consequentially leave it open for the writ petitioners as well as the respondents to proceed further in respect of notices that may have been issued referable to Sections 201 and Section 271C of the Act in accordance with the present judgment. 3. Since the questions raised were found to be common, we propose to briefly notice the salient facts as they obtain in W.P.(C) 11232/2019 and W.P.(C) 3850/2021. It may also be noted that the facts of each writ petition forming part of this batch and the status of individual cases has been gleaned from a detailed chart which was placed by the respondents and forms part of the record. 4. Natureville Promoters Private Limited Natureville Promoters has preferred the aforenoted writ petition seeking the following reliefs:- "(a) Quash and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case. It is further prayed that during the pendency of the present writ petition, the further proceeding before the Respondent may kindly be stayed in the interest of justice and equity." 6. Natureville Promoters is stated to be engaged in the business of construction, promotion and development of land and real estate. It was granted license no. 99 of 2010 in Form LC-V dated 30 November 2010 under the provisions of the Haryana Development and Regulation of Urban Areas Act, 1975 HDRUA for carrying out a development project in collaboration with Puri Constructions Pvt. Ltd. It also appears to have entered into a bilateral agreement in Form LC-IV with the DTCP in connection with the aforesaid project. On 22 March 2017, a notice came to be issued by the Income Tax authorities calling upon Natureville Promoters to explain why TDS had not been deducted on EDC payments made to HSVP. That EDC payments were made directly to HSVP is not questioned by the writ petitioners. Their challenge essentially stems from the fact that the said payment was made on the directions of the DTCP. Whether this aspect would have any material bearing on their alleged liability to deduct tax is one which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment in the nature of External Development Charges (EDC) not to the Government but to HUDA [Haryana Urban Development Authority) which is a development authority of State Government of Haryana and is a taxable entity under the income-tax Act, 1961. Hence, TDS provisions would be applicable on EDC payable by the developer to HUDA 3. It may be mentioned here that section 194 of the Income as Act, 1961 provides for non-deduction of tax in suitable cases. The HUDA may resort to aforesaid provision for exemption of TDS with regard to payment of EDC 4. This issues with the approval of Finance Secretary. (Dr. Rishi Kumar) DCIT (OSD) (TPL-III) Shri Praveen Jain Vice Chairman National Real Estate Development Council First Floor, 8, Community Centre, East of Kailash, New Delhi-110065 Tele:01126225795, 01141608570 Fax:01126225796" 9. Insofar as the DTCP is concerned, it vide its communication of 19 June 2018 while clarifying the position with respect to HSVP took the following stand:- "DIRECTORATE OF TOWN & COUNTRY PLANNING HARYANA SCO No. 71-75, Sector-17/C, Chandigarh, Website www.topharyana. gov .in 0172-2549347, E-mail: [email protected] To The Chief Admini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted vide order dated 12.05.2017 that payment of EDC in respect of license/CLU granted by TCP Deptt. May be made online through e-payment gateway or in shape of demand drafts favouring Director, Town & Country Planning, Haryana. Required funds for execution of development works are released to HSVP after granting the sanction from the Finance Department. It is, therefore, clarified that HSVP is only an executing agency working for and on behalf of State Govt. for carrying out EDW for which funds are given to HSVP by the Govt. through TCP Deptt. Since, payment for EDC has been made to TCP Deptt. Of State Govt., no TDS was/is to be deducted out of payment made to Govt. for EDW. Endst No. DTCP/ACCTTS/AO(HQ)/CA0/2903-04/2018 Dated: 19.06.2018 A copy with reference to representation on the subject cited matter is forwarded to CREDAI, Haryana, 12A, First Floor, Omaxe Square Building, District Center jasola, New Delhi-110044 & Satya Developers Pvt. Ltd., 34, Babar Lane, Bengali Market, New Delhi-110004 for information please. Accounts Officer (HQ) For: Director, Town & Country Planning Haryana, Chandigarh" 10. In the meanwhile and taking note of the controversy which had arisen, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RSP Infrastructure to deduct tax in accordance with the provisions made in Chapter XVII-B of the Act. 14. It becomes pertinent to note that the present litigation stems from the stand taken by the Income Tax Department that tax was liable to be deducted by virtue of the provisions made in Section 194C. It would further appear from the record that earlier also notices under Section 148 of the Act and based on a failure to deduct tax in respect of EDC payments had been issued against various entities and at which stage the respondents had taken the position that tax was liable to be deducted under Section 194 of the Act. One of those notices came to be challenged in BPTP Limited v. Principal Commissioner of Income Tax (Central)-III & Anr. (2020) 421 ITR 59 The Court in BPTP upheld that challenge holding that no liability to deduct tax under Section 194 or 194I would arise. We deem it apposite to extract the following passages from BPTP:- "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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... silent on this aspect. It merely states that "Since, external development charges has income character, therefore it 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A perusal of the circular dated January 30, 1995 indicate that the query which has been answered in the above circular is 'Whether requirement of deduction of Income-tax at source under section 194-I applies in case of payment by way of rent to the Government, statutory authorities referred to in section 10(20A) and local authorities whose income under the head 'Income from house property' or 'Income from other sources' is exempt from Income-tax." 29. We are unable to see as to how the above provision and decision is of any assistance to the Revenue. It can be seen from the quoted portion of the said judgment that in the said case, the payment of annual rent was considered to be falling within the ambit of section 194-I , a conclusion drawn by the court on a reading of the relevant clauses of the lease deed. In the present case, the external development charges, on the aforesaid rationality, cannot be subjected to section 194-I of the Act. Moreover, if such was the understanding of the Revenue, it should have been well founded and disclosed in the reasons recorded by the Assessing Officer. Deduction of tax at source is dealt with under Chapter XVII of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c To make available developed land to Haryana Housing board and other bodies for providing houses to Economically Weaker Sections of the society, and d To undertake building works and other engineering works. 4.1 1 HUDA is developer of urban areas. It develops urban infrastructure. It is doing business of development of large real estate projects. During survey of HUDA, statement of Sh. Ram Kumar. Sr. AO. HUDA. and relevant representative documents showing entire gamut of business activities of HUDA were found and taken on record. HUDA is the entity which is acquiring land, developing and finally handing it over to consumers for a price. Lands developed by HUDA is though identified and acquired by the Urban Estate Department, Haryana Government yet the ownership and possession of land is transferred to HUDA for consideration paid by HUDA. A) land to be developed is identified and surveyed by the Director General Town & Country Planning Haryana the land so identified and surveyed is ready for acquisition by LAO (Land Acquisition Officer) of the Urban Estate Department Haryana The relevant portion of the statement of Sh. Ram Kumar was is as under: "Q. Please explain the proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development works as defined in clause (g) of Section 2 are to be carried out by the Government or any other local authority The proportion in which and the time within which such payment is to be made, shall be determined by the Director' 4.2.3 HUDA charges EDC for EDWs by issuing letters/circulars which are documented from time to time: 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 use 16493-16518 08.07.2002 d Fixation of External Development Charges in cases of released land 33580-608 25.09.2009 4.2.4 The gist of these letters/circulars is that EDC are levied as per Section 2(g) for EDW on the beneficiaries to whom the change of land use permission is granted for various purposes in the Agricultural/Rural Zone and who are also availing the benefits of the EDW like the town level facilities of major circulation roads, stadiums, hospitals c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt compensation and Land cost. (iv) This establish the fact that the land is owned and developed by HUDA which receives EDC as return/income on the money invested in the EDWs. There is specific quid pro quo for EDC. EDC would never be returnable and would never be returned because it is a consideration paid by EDW users. 4.3.3 EDC is worked out for a particular urban estate on the basis of the cost of external development services such as master water supply. Master Sewage, Master Roaos, Master Storm Water Drainage, Master Horticulture. Master Community building and other services is determined on the basis of a price index of a particular year in respect of a particular urban estate. The cost is determined by the Engineering Wing of HUDA keeping in view the requirement of development plan of an urban estate. EDC is charged from sectors floated by HUDA or the license granted by the Town & Country Planning Department to the developers. To say that there is no element of profit in EDC because EDC varies depending upon requirement of development in each urban estate. Therefore it is in the nature of liabilities is incorrect because the payers of EDC are allowed to use EDWs for pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 4. Some of the issues raised in the above-mentioned circulars need to be reviewed in the light of the judgment dated March 23, 1993, delivered by the Supreme Court of India in Civil Appeal No. 2860(NT) of 1979* Associated Cement Co. Ltd. Vs. CIT 1993:INSC:108 : 1993] 201 ITR 435. 5. The Supreme Court has held that "... there is nothing in the sub-.section which could make us hold that the contract to carry out a work or the contract to supply labour to carry out a work should be confined to 'works contract'. Their Lordships have further held that 'Any work' means; any work and not a 'work contract', which has a special connotation in the tax law ... 'Work' envisaged in the sub-section, therefore, has a wide import and covers 'any work' which one or the other of the organizations specified ln the sub-section can get carried out through a contractor under a contract and further it includes obtaining by any of such organizations supply of labour under a contact with a contractor for carrying out its work which would have fallen outside the 'work' but for its specific inclusion in the sub-section." 6. It may be pointed out that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for using the developed urban infrastructure in urban estates wherein they are allowed to establish their commercial set ups. The EDC is arising out of an agreement which is in the nature of service contract wherein colonizers pay EDC to HUDA is rendering a service to colonizers for which EDC is paid EDC is charged for development work received by HUOA from private builders and the work carried out is civil work in nature for providing amenities. The work is for creating/maintaining and strengthening of infrastructure created for urban areas in order to make it suitable for urban habitations. EOWs enhance value of property and the value additions fetch higher price from prospective customers. Thus EDC payments made by the builders to HUDA are covered under service contract Therefore, a private builder is liable to deduct tax at source on such payments under the provisions of Section 194C of Income tax Act Hence EDC ought be subjected to TDS by payers @ 2 % u/s 194C of the Income tax Act." 17. RPS Infrastructure challenged the aforesaid order before the Tribunal and which by its order of 23 July 2019 ultimately allowed the appeals holding that there was reasonable cause underlying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e [Provided further that in case of migration of licence, the colonizer shall pay the outstanding renewal fee with interest accrued upto the date of payment. However, the external development charges including interest paid thereon for the area under migration shall be adjusted in the licence and the colonizer shall not be liable to deposit the unpaid interest amount on external development charges and infrastructure development charges of the existing project. The conversion charges, licence fee, infrastructure development charges already paid shall be adjusted in case the amount to be paid for migration at the current rate is more than the earlier paid in case of existing project [Provided further that for such colonies located in such land use zones of various notified development plans, where in the opinion of the Government, the licences are to be issued after invitation of bids or following an auction procedure in pursuance of the policy framed by the Government in this regard from time to time, such application shall be considered to be valid only if it is filed in response to a notice of the Director and fulfils the prescribed terms and conditions] [(1A) All such applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... responsibility and thereupon to transfer all such roads, open spaces, public parks and public health services free of cost to the Government or the local authority, as the case may be; (iv) to construct at his own cost, or get constructed by any other institution or individual at its cost, schools, hospitals, community centres and other community buildings on the lands set apart for this purpose, in a period as may be specified, and failing which the land shall vest with the Government after such specified period, free of cost, in which case the Government shall be at liberty to transfer such land to any person or institution including a local authority, for the said purposes, on such terms and conditions, as it may deem fit: Provided that in case of licenses issued prior to the notification of the Haryana Development and Regulation of Urban Areas (Amendment and Validation) Act, 2012, the licensee, the purchaser or the person claiming through him shall construct the school, hospital, community centres and other community buildings on the land set apart for this purpose, within a period of four years, extendable by the Director by another period of two years, for reasons to be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted in lieu of submission of bank guarantee against cost of internal development works and external development works.] (b) refuse to grant a licence, by means of speaking order, after affording the applicant an opportunity of being heard. (4) The license so granted shall be valid for a period of 44 [five years], and will be renewable from time to time for a period of [two years], on payment of prescribed fee: [Provided that in the licensed colony permitted as a special project by the Government, the license shall be valid for a maximum period of five years and shall be renewable for a period of as decided by the Government.] (5) Each colony may comprise of one or more licences with contiguous land pockets. (6) After the coloniser has laid out the colony in accordance with the approved layout plan and executed the internal development works in accordance with the approved design and specifications, he may apply to the Director for grant of completion or part-completion certificate. The Director may enquire into such matters, as he deems necessary before granting such certificate. (7) After enquiry under sub-section (6), the Director may, by an order in writing, gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er shall constitute a fund called the Fund, for stimulating socio-economic growth and development of major infrastructure projects for the benefit of the State of Haryana (hereinafter referred to as the Fund)]. [(7) The Fund shall be collected and managed by the Director and passed on for the purpose of its further utilisation to the Board to be constituted by the Government for this purpose.] (8) The amount of infrastructure development charges {and infrastructure augmentation charges} deposited by the colonizers, loans and grants from the Central/State Government or the local authority, or loans and grant from national/international financial institutions and any other money from such source as the state Government may decided, shall be credited to the fund. [(9) The Fund shall be utilized for stimulating socio-economic growth and development of major infrastructure projects for the benefit of the state of Haryana. The Fund may also be utilized to meet the cost of administering the Fund.]} (10) [XXX.] 3AC. Functions and Powers of Board.-(1) The Board shall be the apex body for overall planning and development of infrastructure sector and infrastructure projects for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... special purpose vehicle for implementation of any infrastructure project in co-ordination with the Government or public infrastructure agencies; and (vii) administer the Fund and projects under this Act. (3) The Board shall not play any role in the infrastructure projects undertaken by the Government exclusively through its budgetary provisions. (4) In order to carry out its functions consistent with the provisions of this Act, the Board shall have the powers to do all or any of the following, namely:- (i) acquire, hold, develop or construct such property, both movable and immovable, as the Board may deem necessary for the performance of any of its activities related to the development of infrastructure sectors or infrastructure projects; (ii) advise or recommend to the Government acquisition of land under the Land Acquisition Act, 1894 for the purposes of infrastructure projects; (iii) lease, sell, exchange, or otherwise make allotments of the property referred to in clause (i) to concessionaire and to modify or rescind allotments, including the right and power to evict the allottees concerned on breach of any of the terms or conditions of such allotment; (iv) borro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holders in the manner prescribed as arrears of land revenue. (3) The liability of the colonizer for payment of such charges shall not exceed the amount the colonizer has actually recovered from the plot-holders less the amount actually spent on such developments works, and that of the plot-holders shall not exceed the amount which they would have to pay to the colonizer towards the expenses of the said development works under the terms of the agreement of sale or transfer entered into between them: Provided that Director may, recover from the plot holders with their consent, an amount in excess of what may be admissible under the aforesaid terms of agreement of sale or transfer. (4) Notwithstanding anything contained in this Act after the colony has been fully developed under sub-section (2), the Director may, with a view to enabling the colonizer, to transfer the possession of and the title to the land to the plot-holders within a specified time, authorize the colonizer by an order to receive the balance amount, if any, due from the plot holders, after adjustment of the amount which may have been recovered by the Director towards the cost of the development works and also tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seven day. (3) If the order made under sub-section (2) is not carried out within a specified period, the Director, or any other officer authorized in writing by him in this behalf may, himself at the expiry of the specified period, take such measures, as may appear necessary to give effect to the order and the cost of such measure shall, if effect to the order and the cost of such measure shall, if not paid on demand being made to him, be recoverable from such person as arrears of land revenue: Provided that even before the expiry of the period mentioned in the order under subsection (2), if the Director or such authorized officer is satisfied that instead of stopping the construction, the person continues with the contravention, the Director or such authorized officer may himself take such measures, as may appear necessary, to give effect to the order and the cost of such measures shall if not paid on demand being made to him, be recoverable from such person as arrears of land revenue.]" 22. Mr. Jain then took us through the Haryana Development and Regulation of Urban Area Rules, 1976 HDRUA Rules and more particularly Rules 3, 8, 9, 10 and 11 which are reproduced hereunder:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paths, green verges, position of electric poles and of any other works connected with such roads; (viii) plans as required under sub-clause (vii) indicating, in addition the position of sewers, storm water channels, water supply and any other public health services; (ix) detailed specifications and designs of road works shown under sub-clause (vii) and estimated costs thereof; (x) detailed specifications and designs of sewerage, storm, water and water supply schemes with estimated costs of each; (xi) detailed specification and designs for disposal and treatment of storm and sullage water and estimated costs of works; (xii) detailed specification and designs for electric supply including street lighting. (2) The triplicate plans mentioned in clause (e) of sub-rule (1) shall be clear and legible A0 prints with one set mounted on cloth. (3) If the applicant wants to be exempted from providing any one or more of the amenities in a colony he shall furnish detailed explanatory note in triplicate along with application if necessary, indicating the reasons as to why the said amenity or amenities need not or cannot be provided 8. Enquiry by Director [Section 3(2)].- (1) On r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imated expenditure on water-supply mains or extramural and outfall sewers is not commensurate with the size of the colony. 10. Applicant to be called upon to fulfill certain conditions for grant of licence [Section 3 (3)].-(1) If after scrutiny for the plans and other necessary inquiries which the Director may deem fit, he is satisfied that the application is not for the grant of licence, he shall before granting licence, call upon the applicant to fulfill conditions laid down in rule 11 within a period of thirty days from the date of the service of notice in form LC-III: Provided that on an application within the aforesaid period, for the extension of time limit, the Director, if satisfied of the reasons given therein extend such time up to thirty days: [Provided further that on the request of the applicant, for the extension of time limit for submission of Bank guarantees under clause (a) of sub-rule (1) of rule 11, the Director, if satisfied that the reasons for delay in submission of the bank guarantee are beyond the control of the applicant, extend such time upto further ninety days period.] (2) If the applicant fails to fulfill the conditions under sub-rule (1) within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extendable by the Director for another period of two years, for reasons to be recorded in writing, failing which the land shall vest with the Government after such specified period, free of cost, in which case the Government shall be at liberty to transfer such land to any person or institution including a local authority, for the said purposes, on such terms and conditions, as it may deem fit; Provided that a show cause notice and opportunity for hearing shall be given before vesting the land in the Government;] (f) undertake to permit the Director or any other officer authorized by him to inspect the execution of the layout and the development works in the colony and to carry out all directions issued by him for ensuring due compliance of the execution of the layout and development works in accordance with the licence granted. (g) pay such development charges including the cost of development of State/National Highways, Transport, Irrigation and Power facilities as determined by Director (given in the {Schedule-A}to these rules); and (h) execute bilateral agreement in Form LC-IV-A for group housing colony, in Form LC-IV-B for plotted colony, in Form LC-IV-C for industrial co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... _____ resident of ____________ (hereinafter called the "owner") of the one part and the Governor of Haryana, acting through the Director, Town and Country Planning, Haryana (hereinafter referred to as the "Director") of the other part. Whereas in additional to agreement executed in pursuance of the provisions of rule-11 of the Haryana Development and Regulation of Urban Areas Rules, 1976 (hereinafter referred to as the "Rules") and the conditions laid down therein for grant of licence, the owner shall enter into a bilateral agreement with the Director for carrying out and completion of the development works in accordance with the licence finally granted for setting up of a Commercial colony on the land measuring _____acres _______falling in the revenue estate of village______ district_______. AND WHEREAS the bilateral agreement mutually agreed upon and executed between the parties shall be binding on the owner:- NOW THIS DEED OF BILATERAL AGREEMENT WITNESSETH AS FOLLOWS: 1. In consideration of the Director agreeing to grant licence to the owner to set up the said colony on the land mentioned in Annexure hereto on the fulfillment of the conditions of this bilateral agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two months in the State Government Treasury by the Owner. (vii) The owner shall submit the certificate to the Director within thirty days of the full and final completion of the project from a Chartered Accountant that the overall net profits (after making provisions for the payment of taxes) have not exceeded 15% of the total project cost of the scheme. (viii) In case Haryana Urban Development Authority executes external development works before final payment of external development charges, the Director, shall be empowered to call upon the owner to pay the balance amount of external development charges in lumpsum even before the completion of licence period and the owner shall be bound to make the payment within the period so specified. (a) Enhanced compensation on land cost, if any, shall be payable extra as decided by Director from time to time. (b) The owner shall arrange the electric connection from the outside source for electrification of their colony from Haryana Vidhyut Parsaran Nigam. If the owner fails to seek electric connection from Haryana Vidhyut Parsaran Nigam the Director, shall recover the cost of from the owner and deposit the same with Haryana Vidhyut P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anything contained in this agreement, all provisions contained in the Act and the Rules shall be binding on the owner. (k) That the owner shall make his own arrangement for disposal of sewerage till the external sewerage system is provided by Haryana Urban Development Authority and the same is made functional. 2. Provided always and it is hereby agreed that if the owner commits any breach of the terms and conditions of this bilateral agreement or violate any provisions of the Act or the Rules, then and in any such cases notwithstanding the waiver of any previous clause or right, the Director, may cancel the licence granted to the owner. 3. Upon cancellation of the licence under clause2 above, action shall be taken as provided in the Haryana Development and Regulation of Urban Areas Act, 1975 and the Haryana Development and Regulation of Urban Areas Rules, 1976, as amended up to date, the bank guarantee in that event shall stand forfeited in favour of the Director. 4. The Stamp duty and registration charges on this deed shall be borne by the owner. 5. After the layout plans and development in respect of the commercial colony have been completed by owner in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the issue whether the royalty payable by the assessee in pursuance of the order dated April 30, 1979, is a statutory liability. To consider this issue first we would like to refer to some observations, decisions, relevant to the issue. 15. In the case of CIT v. Gorelal Dubey, [1998] 232 ITR 246 the issue before the Madhya Pradesh High Court was whether royalty is a tax. Following the decision of their Lordships in India Cement Ltd. v. State of Tamil Nadu, [1991] 188 ITR 690 (SC), the Madhya Pradesh High Court has taken the view that royalty is a tax. The Madhya Pradesh High Court has observed at page 248 as under: "In paragraph 31 (at page 707 of 188 ITR) of the judgment, their Lordships, after referring to the views expressed by the Rajasthan, Punjab, Gujarat and Orissa High Courts that the royalty cannot be said to be a tax because this is something which is being paid in lieu of minerals extracted, in paragraph 34 (at page 707 of 188 ITR), concluded by saying that the royalty is a tax and thus the decisions of the High Courts cannot hold good." 16. When the royalty is treated as a tax that cannot be a contractual liability. The view taken by the Madhya Pradesh High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d unless otherwise warranted under the provisions of the Act. In the case of contractual liability, if the liability is disputed that cannot be recovered as land revenue or to enforce the terms of the agreement, for that one has to approach the court. If it is a statutory liability like royalty in this case that royalty liability which is fixed by the Government can be recovered as land revenue without approaching the court." In view of the above, according to Mr. Jain, the payment of EDC is liable to be viewed as a payment to the Government of Haryana itself and consequently being exempted in terms of Section 196 of the Act. 27. While reiterating the submissions addressed by Mr. Jain, Mr. Agarwal appearing in Natureville Promoters additionally addressed the following submissions. It was firstly contended that Section 196 of the Act is liable to be read alongside Article 289 of the Constitution and thus the Court declaring that payments made to HSVP would clearly be exempt from TDS. Mr. Agarwal took us through the LC-I, II, III, IV, IV-D and V formats and submitted that the application by a developer is made to the DTCP and which is the solitary authority empowered to either acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... individual at its cost, schools, hospitals, community centers and other community buildings on the land set apart for this purpose, within a period of four years from the date of grant of licence extendable by the Director for another period of two years, for reasons to be recorded in writing, failing which the land shall vest with the Government after such specified period, free of cost, in which case the Government shall be at liberty to transfer such land to any person or institution including a local authority, for the said purposes, on such terms and conditions, as it may deem fit; Provided that a show cause notice and opportunity for hearing shall be given before vesting the land in the Government;] (f) undertake to permit the Director or any other officer authorized by him to inspect the execution of the layout and the development works in the colony and to carry out all directions issued by him for ensuring due compliance of the execution of the layout and development works in accordance with the licence granted. (g) pay such development charges including the cost of development of State/National Highways, Transport, Irrigation and Power facilities as determined by D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were to seek condonation of delay in the payment of EDC, permission in that respect is to be obtained from the Director. It was further submitted that the Bank Guarantee equivalent to 25% of EDC is made out in favour of the Governor of Haryana. Mr. Agarwal further contended that the LC-V format would unerringly point towards the substance of the agreement being one between the owner and the DTCP. 29. It was pointed out that although the demand drafts representing EDC liability were drawn in the name of HSVP, they were physically furnished to the DTCP, Haryana. According to learned counsel when the contract is viewed in its entirety, it would be apparent that the owner is under no contractual or other obligation towards HSVP. It was submitted that while EDC payments may be forwarded to the HSVP, the said authority is not empowered in law to take any steps against the owner in case of default. 30. It was then submitted that the communications issued by the DTCP and HSVP would themselves establish that the payments made to HSVP would fall within the ambit of Section 196. Our attention was specifically drawn to the Memo dated 06 October 2017 in which the DTCP had disclosed that EDC i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arwal merely because the sum is routed to the HSVP through the DTCP, the same would be insufficient to attract the provisions of Section 194C. 34. It was further contended by Mr. Agarwal that in some of the cases the respondents had also sought to invoke Section 194I of the Act. According to learned counsel, Section 194I on its plain reading would be wholly inapplicable. Learned counsel pointed out that the said provision is concerned with income earned by way of rent. According to learned counsel undisputedly the land over which the development is to be undertaken belonged to the petitioner and, therefore, there was no question of an aspect of rent arising in connection therewith. It was submitted that in any case since the land neither vested in HSVP nor was it taken on rent from that authority, Section 194I would clearly not stand attracted. In any event according to Mr. Agarwal this issue stands concluded in favour of the petitioners in light of the decision of the Court rendered in DLF Homes Panchkula. 35. Insofar as the OM dated 23 December 2017 is concerned, Mr. Agarwal submitted that the same incorrectly proceeds on the basis that EDC is an amount payable to HSVP and thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e face of such debatable issue, the assessee could not be declared as an assessee in default under Section 192 read with Section 201 of the Income Tax Act. Further, the Apex Court pointed out that since the foreign company-assessees therein had paid the differential tax and the interest and had further undertook not to claim refund for the amount paid, the Supreme Court held that the orders passed under Section 201(1) and 201(1A) could not be upheld. Applying the decision of the Apex Court to the case on hand, which we had already narrated in the preceding paragraph, with the debate on the status of the assessee existing at least till 2000 and the assessee not having any information as regards the order passed by the Advance Ruling Authority, we have no hesitation in accepting the plea of the assessee that the assessee herein could not be declared as an assessee in default for the purpose of interest under Section 201(1A) of the Income Tax Act. It may be of relevance to note herein that the assessee had deducted tax at 2%. The foreign company had paid tax under Section 44BBB at 4.8% and sought for a refund. Taking note of the decision of the Apex Court reported in (2009) 312 ITR 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kes to pay proportionate EDC as per rate, schedule, terms and conditions contained in the Agreement. 6. When we examine the question "as to whether TDS on payment of EDC to HUDA was not to be deducted by assessee because levy is made by DTCP having control over the EDC and not HUDA as contended by the ld. AR for the assessee" in the light of the aforesaid undisputed facts, we are of the considered view that the assessee has no liability to deduct TDS in respect of the payment made to a Government Department, DTCP in this case, u/s 196 of the Act as the payment was made to HUDA on behalf of DTCP only xxxx xxxx xxxx 9. We are of the considered view that when payment of EDC has been made by the assessee in accordance with licence granted by the DTC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Subject: Clarification on TDS Deductions on EDC Payments. Please refer to the matter cited as subject above. 1. Section 2(g) of the Haryana Development and Regulation of Urban Areas Act, 1975 defines that external development works (hereinafter referred as EDW) shall includes any or all infrastructure development works like water supply, sewerage, drains, provisions of treatment and disposal of sewage, sullage and storm water, roads, electrical works, solid waste management and disposal, slaughter houses, colleges, hospitals, stadium/sports complex, fire stations, grid sub-stations etc. and/or any other work which the Director may specify to be executed in the periphery of or outside colony/area for the benefit of the colony/area. 2-As per Section 3(3)(ii), license holder has to pay proportionate development charges if the external development works as defined in clause (g) of section 2 are to be carried out by the Government or any other local authority. The proportion in which and the time within which, such payment is to be made, shall be determined by the Director. 3. Presently, external development works in the periphery of or outside colony/area for the benefit of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order passed u/s 271C of the Act, the AO has himself noted that the demand draft 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or under a Central Act. Mr. Hossain cited for our consideration the decision of the Supreme Court in Adityapur Industrial Area Development Authority v. Union of India (2006) SCC OnLine SC 530 where a contention that an authority constituted under a State Legislation would be exempt from taxation by virtue of Article 289 of the Constitution, came to be negatived in unequivocal terms. Mr. Hossain laid emphasis on the following passages from that decision: "11. It is true, as submitted by Shri Venugopal, that clause (2) of Article 289 empowers Parliament to make a law imposing a tax on income earned only from trade or business of any kind carried by or on behalf of the State. It does not authorise Parliament to impose a tax on the income of a State if such income is not earned in the manner contemplated by clause (2) of Article 289. This, to our mind, does not answer the question which arises for our consideration in this appeal. Clause (2) of Article 289 presupposes that the income sought to be taxed by the Union is the income of the State, but the question to be answered at the threshold is whether in terms of clause (1) of Article 289, the income of the appellant Authority is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 285(1), income derived by the State from business, as distinguished from governmental purposes, shall not have exemption from Union taxation unless Parliament declares such trade or business as incidental to the ordinary functions of the Government of the State [see Article 289(3)] (emphasis supplied) xxxx xxxx xxxx 14. In A.P. SRTC v. ITO [(1964) 7 SCR 17 : AIR 1964 SC 1486] the question arose as to whether the income derived from trading activity by the Andhra Pradesh Road Transport Corporation established under the Road Transport Corporation Act, 1950 was not the income of the State of Andhra Pradesh within the meaning of Article 289(1) of the Constitution and hence exempted from Union taxation. This Court considered the scheme of Articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property and income of the State, and thus the crucial question to be answered is: "Is the income derived by the State from its transport activities the income of the State?" It was observed that if a trade or business is carried on by a State departmentally or through its agents appointed exclusively for that purpose, there would be no difficulty in holding that the income made from such trade or business is the income of the State. Difficulties arise when one is dealing with trade or business carried on by a corporation established by a State by issuing a notification under the relevant provisions of the Act. In this context, the Court observed: (SCR p. 26) "The corporation, though statutory, has a personality of its own and this personality is distinct from that of the State or other shareholders. It cannot be said that a shareholder owns the property of the corporation or carries on the business with which the corporation is concerned. The doctrine that a corporation has a separate legal entity of its own is so firmly rooted in our notions derived from common law that it is hardly necessary to deal with it elaborately; and so, prima facie, the income derived by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; xxxx xxxx 20. Similarly, the decision in New Delhi Municipal Council v. State of Punjab [(1997) 7 SCC 339] does not advance the case of the appellant. It was held that the property/municipal taxes levied by the New Delhi Municipal Council under the relevant Act constituted Union taxation within the meaning of clause (1) of Article 289 of the Constitution. The levy of property taxes under the aforesaid enactments on lands or buildings belonging to the State Government was invalid and incompetent by virtue of the mandate contained in clause (1) of Article 289. However, if any land or building is used or occupied for the purpose of any trade or business, meaning thereby a trade or business carried on with profit motive, by or on behalf of the State Government, such land or building shall be subject to the levy of the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act and which defines a "local authority" as under: "10. Incomes not included in total income (20) the income of a local authority which is chargeable under the head, "Income from house property", "Capital gains", or "Income from other sources" or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area; [Explanation.-For the purposes of this clause, the expression "local authority" means- (i) Panchayat as referred to in clause (d) of Article 243 of the Constitution; or (ii) Municipality as referred to in clause (e) of Article 243-P of the Constitution; or (iii) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or (iv) Cantonment Board as defined in Section 3 of the Cantonments Act, 1924;]" 42. According to learned counsel, a plain reading of Section 10(20) of the Act would establish that HSVP cannot be treated to be a local authority. In any case acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unctions 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 self-government 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 Muni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject of taking out of the scope of that principal clause what is included in it and what the legislature desires should be excluded.' 40. In CCT v. Ramkishan Shri kishan Jhaver [CCT v. Ramkishan Shrikishan Jhaver, AIR 1968 SC 59] , this Court made the following observations: (AIR p. 63, para 8) '8. ... Generally speaking, it is true that the proviso is an exception to the main part of the section; but it is recognised that in exceptional cases a proviso may be a substantive provision itself.' 41. In Dwarka Prasad v. Dwarka Das Saraf [Dwarka Prasad v. Dwarka Das Saraf, (1976) 1 SCC 128] Krishna Iyer, J. speaking for the Court observed thus: (SCC pp. 136-37, paras 16 & 18) '16. There is some validity in this submission but if, on a fair construction, the principal provision is clear, a proviso cannot expand or limit it. Sometimes a proviso is engrafted by an apprehensive draftsman to remove possible doubts, to make matters plain, to light up ambiguous edges. Here, such is the case. *** 18. ... If the rule of construction is that prima facie a proviso should be limited in its operation to the subject-matter of the enacting clause, the stand we have taken is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt specify it to be an industrial township. The words "industrial township" have been used in contradiction of a Nagar Panchayat, a Municipal Council and a Municipal Corporation. The object of issuance of notification is to relieve the mandatory requirement of constitution of a Municipality in a State in the circumstances as mentioned in the proviso but exemption from constituting Municipality does not lead to mean that the industrial establishment which is providing municipal services to an industrial township is same as Municipality as defined in Article 243-P(e). We have already noticed that Article 243-P(e) defines "Municipality" as an institution of self-government constituted under Article 243-Q, the word "constituted" used under Article 243-P(e) read with Article 243-Q clearly refers to the constitution in every State of a Nagar Panchayat, a Municipal Council or a Municipal Corporation. Further, the words in the proviso "a Municipality under this clause may not be constituted" clearly means that the words "may not be constituted" used in the proviso are clearly in contradistinction with the word "constituted" as used in Article 243-P(e) and Article 243-Q. Thus, notification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of loan from financial and other institutions and debentures floated for the execution of a scheme or schemes of the Authority duly approved by the State Government. Unless the State Government directs otherwise, all monies received by the Authority shall be credited to its funds which shall be kept with State Bank of India and/or one or more of the nationalised banks and drawn as and when required by the Authority." 33. On the question as to whether the Adityapur Industrial Area Development Authority was covered within the meaning of local authority as per Section 10(20) as amended by the Finance Act, 2002, the High Court held that the appellant Authority could not have claimed benefit under the provisions after 1-4-2003. In paras 6 and 7, the following was held: (Adityapur Industrial Area Development Authority case [Adityapur Industrial Area Development Authority v. Union of India, (2006) 5 SCC 100] , SCC pp. 104-05) "6. It would thus be seen that the income of a local authority chargeable under the head "Income from house property", "Capital gains" or "Income from other sources" or from a trade or business carried on by it was earlier excluded in computing the total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is evolved in R.C. Jain [Union of India v. R.C. Jain, (1981) 2 SCC 308 : 1981 SCC (L&S) 323] . However, as stated earlier, Parliament in its legislative wisdom has omitted the words "other authority" from the said Explanation to Section 10(20) of the 1961 Act. The said Explanation to Section 10(20) provides a definition to the word "local authority". It is an exhaustive definition. It is not an inclusive definition. The words "other authority" do not find place in the said Explanation. Even, according to the appellant(s), AMC(s) is neither a Municipal Committee nor a District Board nor a Municipal Committee nor a panchayat. Therefore, in our view functional test and the test of incorporation as laid down in R.C. Jain [Union of India v. R.C. Jain, (1981) 2 SCC 308 : 1981 SCC (L&S) 323] is no more applicable to the Explanation to Section 10(20) of the 1961 Act. Therefore, in our view the judgment of this Court in R.C. Jain [Union of India v. R.C. Jain, (1981) 2 SCC 308 : 1981 SCC (L&S) 323] followed by judgments of various High Courts on the status and character of AMC(s) is no more applicable to the provisions of Section 10(20) after the insertion of the Explanation/definition cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of the Act and the rules made thereunder before we can come to the conclusion that the appellant was liable to assessment as contended by the Sales Tax Authorities." 46. This Court in Rajasthan Rajya Sahakari Spg. & Ginning Mills Federation Ltd. v. CIT [Rajasthan Rajya Sahakari Spg. & Ginning Mills Federation Ltd. v. CIT, (2014) 11 SCC 672] again reiterated that there has to be strict interpretation of taxing statutes and further the fact that one class of legal entities is given some benefit which is specifically stated in the Act does not mean that the legal entities not referred to in the Act would also get the same benefit. The following was laid down in para 23: (SCC p. 678) "23. We are also of the view that in all the tax matters one has to interpret the taxation statute strictly. Simply because one class of legal entities are given some benefit which is specifically stated in the Act does not mean that the legal entities not referred to in the Act would also get the same benefit. As stated by this Court on several occasions, there is no equity in matters of taxation. One cannot read into a section which has not been specifically provided for and therefore, we do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to housing authorities, etc. referred to in clause (20-A) of Section 10 is eligible for 50% deduction from total income in the hands of the donors. Since clause (20-A) of Section 10 has been deleted, donation to the housing authorities, etc. would not be eligible for deduction in the hands of the donors and this may result in drying up of donations. To continue the incentive to donation made to housing authorities, etc., Section 80-G has been amended so as to provide that 50% of the sum paid by an assessee to an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both, shall be deducted from the total income of such assessee. 13.4. These amendments will take effect from 1-4-2003 and will, accordingly, apply in relation to Assessment Year 2003-2004 and subsequent assessment years." 49. The Explanatory Note clearly indicates that by the Finance Act, 2002 the exemption under Section 10(20) has been restricted to the Panchayats and Municipalities as referred to in Articles 243-P(d) and 243-P( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the provisions of the section. The proper function of an Explanation is to make plain or elucidate what is enacted in the substantive provision and not to add or subtract from it. Thus an Explanation does not either restrict or extend the enacting part; it does not enlarge or narrow down the scope of the original section that it is supposed to explain.... The Explanation must be interpreted according to its own tenor; that it is meant to explain and not vice versa.' (pp. 297-98) *** 53. Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is- '(a) to explain the meaning and intendment of the Act itself, (b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve, (c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful, (d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation to Section 10(20). 8. It may be noted that the Explanation to Section 10(20) uses the word "means" and not the word "includes". Hence, it is not possible for this Court to extend the definition of "local authority" as contained in the Explanation to Section 10(20), vide P. Kasilingam v. P.S.G. College of Technology [P. Kasilingam v. P.S.G. College of Technology, 1995 Supp (2) SCC 348, para 19 : AIR 1995 SC 1395, para 19] . It is also not possible to refer to the definitions in other Acts, as the IT Act now specifically defines "local authority". 9. It is well settled that in tax matters the literal rule of interpretation applies and it is not open to the court to extend the language of a provision in the Act by relying on equity, inference, etc. 10. It is the first principle of interpretation that a statute should be read in its ordinary, natural and grammatical sense. As observed by the Supreme Court of India: '22. ... In construing a statutory provision, the first and the foremost rule of construction is the literary construction. All that [the Court has] to see at the very outset is what does the provision say? If the provision is unambiguous and if from that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) '... in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.'" 56. We fully endorse the views taken by the High Court in the above two judgments [Krishi Utpadan Mandi Samiti v. Union of India, (2004) 267 ITR 460] , [Agricultural Produce Market Committee v. CIT, (2007) 294 ITR 549] . 57. Now, reverting back to the Explanation to Section 10(20), these are entities which mean the local authority. The submission of the appellant is that the appellant is covered by clause (ii) of the Explanation i.e. "Municipality as referred to in clause (e) of Article 243-P of the Constitution". We, while discussing the above provisions, have alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 194C it is not imperative that the payment to the contractor be based on a written or explicit contract. According to learned counsel, the existence of an agreement or an arrangement can always be gathered from the conduct of parties. Viewed in that light, it was his submission that it would be apparent that the payments which were made by the petitioners was for the carrying out of works pursuant to an agreement between the contractor (HSVP) and a specified person (DTCP). In support of the aforenoted contention Mr. Hossain laid reliance on the following pertinent observations as appearing in the decision of the Supreme Court in Shree Choudhary Transport Company v. Income Tax Officer (2021) 13 SCC 401:- "15. In order to maintain that the appellant was under no obligation to make any deduction of tax at source, it has been argued that there was no oral or written contract of the appellant with the truck operators/owners, whose vehicles were engaged to execute the work of transportation of the goods only on freelance and need basis. The submission has been that the question of TDS under Section 194-C(2) would have arisen only if the payment was made to a "sub-contractor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or for the purpose of the work in question. The AO, CIT(A) and ITAT have concurrently decided this issue against the appellant with reference to the facts of the case, particularly after appreciating the nature of contract of the appellant with the consignor company as also the nature of dealing of the appellant, while holding that the truck operators/owners were engaged by the appellant as sub-contractors. The same findings have been endorsed by the High Court in its short order [Shree Choudhary Transport Co. v. CIT, (2009) 225 CTR 125] dismissing the appeal of the appellant. We are unable to find anything of error or infirmity in these findings. 15.3. The decision of the Delhi High Court in Hardarshan Singh [CIT v. Hardarshan Singh, (2013) 350 ITR 427] , in our view, has no application whatsoever to the facts of the present case. The assessee therein, who was in the business of transporting goods, had four trucks of his own and was also acting as a commission agent by arranging for transportation through other transporters. As regards the income of assessee relatable to transportation through other transporters, it was found that the assessee had merely acted as a facilitator o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt 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 sub-contractor and all the requirements of Section 194-C came into operation." 15.5. Thus, we have no hesitation in affirming the concurrent findings in regard to the applicability of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision places an obligation on any person responsible for paying a sum to any resident for carrying out any work pursuant to a contract between the resident and a specified person, to deduct tax at source at the time of crediting such sum to the account of the resident or at the time of payment. The resident, who is envisaged to have a contract with a specified person, is referred to in that provision as the "contractor". The liability to deduct tax, on an ex facie reading of Section 194C, stands attracted at the time of payment of any sum or the credit thereof to the account of the contractor. The existence of a contract which is spoken of in Section 194C is between the contractor and a specified person. The provision thus does not construct a contractual relationship between the person responsible for paying the sum and deducting tax with the contractor as a precondition. This is clearly not a prerequisite for Section 194C being attracted. For the purposes of Section 194C, all that is required is a payment being effected to a contractor who has a contractual relationship with a specified person. 50. HSVP, according to the respondents, has an arrangement with the Government o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for it to act as a local development authority for the development of local areas in the State of Haryana. The expression "amenities" and "basic amenities" are defined therein in the following terms: "(a) amenity" includes roads, water supply, street lighting, drainage, [sewerage, treatment and disposal of sewage, sullage and storm water] Public works, tourist spots, open spaces, Parks, landscaping and Play fields, and such other conveniences as the State Government may, by notification, specify to be an amenity for the purposes of this Act; (ai) "basic amenities" include metalled roads, wholesome water, sewerage and electrification;" 53. The objects of HSVP are set out in Section 13 of the 1977 Act and which explains it to include the promotion and securing the development of all or any of the areas comprised in an urban area. By virtue of Section 21, HSVP is enjoined to create and maintain a fund to which, amongst others, would be credited all monies received by it from the State Government or the Central Government by way of grants, loans, advances "or otherwise". The aforesaid fund is liable to be applied towards meeting expenditure for development of land and for such ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity thus appears to have been constituted as a specialised agency which would carry out external development works in colonies and areas. A statutory obligation to carry out external development, thus, cannot possibly be doubted. 56. Of critical significance is the communication of the DTCP dated 19 June 2018. A reading of that communication evidences an acknowledgement by that authority of HSVP undertaking external development work in and around a colony/area. The aforesaid communication also admits to an arrangement which was in existence upto 31 March 2017 in terms of which the DTCP used to collect EDC from colonisers in the shape of a bank draft drawn in favour of and sent to HSVP. The communication further asserts that HSVP is thus an executing agency working for and on behalf of the State Government for carrying out external development works for which funds are provided to HSVP through the DTCP. 57. In para 4 of this communication, the DTCP discloses that since receipts on account of EDC were found to be insufficient to bear the cost of development work, it had formulated a new scheme and for which appropriate budgetary provisions were made for execution of all external de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court to hold and observe that since the hiring of the sub-contractor was only for the purposes of fulfilling the principal contract which the appellant had with the specified person, the provisions of Section 194C were satisfied. It was thus the conduct of parties which led to the Supreme Court coming to the conclusion that all essentials of the creation and existence of a contract existed. 60. In the facts of the present case, and as we construe the provisions of the HDRUA read along with the Rules as also the statutory obligations placed upon HSVP, it becomes apparent that there was in existence an understanding or an arrangement between HSVP and the Government of Haryana for the execution of external development works. The phrase "in pursuance of a contract" as finding place in Section 194C would have to necessarily be construed bearing in mind the salient principles which were propounded by the Supreme Court in Shree Chaudhary Transport. If the existence of a contract were to be gleaned from the arrangement which existed between HSVP and the Government of Haryana and is also duly acknowledged by the DTCP itself, the absence of a written or codified agreement would not be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n contingencies and in respect of certain category of payments, does not confer any discretion in a person effecting payment to consider whether tax is liable to be deducted and collected at source. It is only in certain contingencies, such as those which are spoken of in Section 195, that the statute enables the person responsible for effecting a payment to consider whether the amount sought to be paid would be income chargeable under the Act. This is evident from Section 195 which is extracted hereunder: "195. Other sums.-((1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, [any interest (not being interest referred to in Section 194-LB or Section 194-LC) [or Section 194-LD]] [* * *] or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries" [* * *] shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force: Provided that in the case of interest payable by the Government or a public sector ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) A certificate granted under sub-section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation. (5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith. (6) The person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall furnish the information relating to payment of such sum, in such form and manner, as may be prescribed. (7) Notwithstanding anything contained in sub-section (1) and sub-section (2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst set out the relevant provisions of the Income Tax Act that we are directly concerned with: "2. Definitions.-In this Act, unless the context otherwise requires- *** (7) "assessee" means a person by whom any tax or any other sum of money is payable under this Act, and includes- (a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or assessment of fringe benefits or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person; (b) every person who is deemed to be an assessee under any provision of this Act; (c) every person who is deemed to be an assessee in default under any provision of this Act; *** [Substituted by the Finance Act, 1992 (18 of 1992), Section 3(c) (w.e.f. 1-6-1992).] (37-A) "rate or rates in force" or "rates in force", in relation to an assessment year or financial year, means- *** (iii) for the purposes of deduction of tax under Section 194-LBA or Section 194-LBB or Section 194-LBC or Section 195, the rate or rates of income tax specified in this behalf in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that it is taken into account in a balance sheet prepared in India. Explanation 2.-For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India. *** 9. Income deemed to accrue or arise in India.-(1) The following incomes shall be deemed to accrue or arise in India- *** [Inserted by the Finance Act, 1976 (66 of 1976), Section 4(b) (w.e.f. 1-6-1976).] (vi) income by way of royalty payable by- *** (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; *** Explanation 2.-For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nserted by the Finance Act, 2012 (23 of 2012), Section 4(b) (w.r.e.f. 1-6-1976).] Explanation 5.-For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not- (a) the possession or control of such right, property or information is with the payer; (b) such right, property or information is used directly by the payer; (c) the location of such right, property or information is in India. *** 90. Agreement with foreign countries or specified territories.- (1) The Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India,- (a) for the granting of relief in respect of- (i) income on which have been paid both income tax under this Act and income tax in that country or specified territory, as the case may be, or (ii) income tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment, or (b) for the avoidance of double taxation of income under this Act and u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other mode, whichever is earlier, deduct income tax thereon at the rates in force: Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23-D) of Section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode. Explanation 1.-For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. [Inserted by the Finance Act, 2012 (23 of 2012), Section 77(a)(ii) (w.r.e.f. 1-4-1962).] Explanation 2.-For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before us is concerned, is that for income to be taxed under the Income Tax Act, residence in India, as defined by Section 6, is necessary in most cases. By Section 4(1), income tax shall be charged for any assessment year at any rate or rates, as defined by Section 2(37-A) of the Income Tax Act, in respect of the total income of the previous year of every person. Under Section 4(2), in respect of income chargeable under sub-section (1) thereof, income tax shall be deducted at source or paid in advance, depending upon the provisions of the Income Tax Act. Importantly, under Section 5(2) of the Income Tax Act, the total income of a person who is a non-resident, includes all income from whatever source derived, which accrues or arises or is deemed to accrue or arise to such person in India during such year. This, however, is subject to the provisions of the Income Tax Act. Certain income is deemed to arise or accrue in India, under Section 9 of the Income Tax Act, notwithstanding the fact that such income may accrue or arise to a non-resident outside India. One such income is income by way of royalty, which, under Section 9(1)(vi) of the Income Tax Act, means the transfer of all or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking those sections "subject to the provisions of the Act". The very object of grafting the said two sections with the said clause is to enable the Central Government to issue a notification under Section 90 towards implementation of the terms of DTACs which would automatically override the provisions of the Income Tax Act in the matter of ascertainment of chargeability to income tax and ascertainment of total income, to the extent of inconsistency with the terms of DTAC." Unlike those provisions finding place in Chapter XVII-B, and which require a person responsible for effecting a payment to examine whether the sum is chargeable under the provisions of the Act, Section 194C places no such discretion or leeway in the hands of the person responsible for paying a sum to a contractor. 66. We further take note of the significant provisions contained in Sections 197 and 197A of the Act, and which are reproduced hereinbelow: "197. Certificate for deduction at lower rate.-(1) Subject to the rules made under sub-section (2-A), [where, in the case of any income of any person [or sum payable to any person], income tax is required to be deducted at the time of credit or, as the case may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-I]] or Section 194-K, as the case may be, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil.] (1-B) The provisions of this section shall not apply where the amount of any income of the nature referred to in sub-section (1) or sub-section (1-A), as the case may be, or the aggregate of the amounts of such incomes credited or paid or likely to be credited or paid during the previous year in which such income is to be included exceeds the maximum amount which is not chargeable to income tax.] (1-C) Notwithstanding anything contained in [Section 192-A or Section 193 or Section 194 or Section 194-A [or Section 194-D] or Section 194-DA] or Section 194-EE [or Section 194-I] or Section 194-K or sub-section (1-B) of this section, no deduction of tax shall be made in the case of an individual resident in India, who is of the age of [sixty years] or more at any time during the previous year [* * *], if such individual furnishes to the person responsible for paying any income of the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 68. That takes us further to consider the submission which was addressed in the context of Section 196 of the Act. The submission essentially was that since payments being made to HSVP were pursuant to the directives of the DTCP and in aid of external development work being carried out, those payments should be viewed as sums which were payable to the Government of Haryana. It was in this context submitted that all aspects pertaining to EDC were regulated by the DTCP. The petitioners urged that the determination and quantification of EDC were subjects exclusively regulated by directives of the DTCP. The petitioners also referred to the power vested in the DTCP to initiate proceedings for recovery of EDC as arrears of revenue and thus constituting a statutory impost exempt from taxation. It was in the backdrop that the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a State from trade or business carried on by it, or on its behalf; that is to say, the income from trade or business carried on by the Government of a State or on its behalf which would not have been taxable under clause (1), can be taxed, provided a law is made by Parliament in that behalf. If clause (1) had stood by itself, it may not have been easy to include within its purview income derived by a State from commercial activities, but since clause (2), in terms, empowers Parliament to make a law levying a tax on commercial activities carried on by or on behalf of a State, the conclusion is inescapable that these activities were deemed to have been included in clause (1) and that alone can be the justification for the words in which clause (2) has been adopted by the Constitution. It is plain that clause (2) proceeds on the basis that but for its provision, the trading activity which is covered by it would have claimed exemption from Union taxation under clause (1). That is the result of reading clauses (1) and (2) together. Clause (3) then empowers Parliament to declare by law that any trade or business would be taken out of the purview of clause (2) and restored to the area c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, in this connection, note the following pertinent observations as rendered by the Supreme Court in Associated Cement Co. Ltd. v. Commissioner of Income Tax (1993) 2 SCC 556. "7. The above decision cannot be of any help to the appellant for it does not lay down that the percentage amount deductible under Section 194-C(1) should be out of the income of the contractor from the sum or sums credited to the account of or paid to him. The words in the sub-section 'on income comprised therein' appearing immediately after the words 'deduct an amount equal to two per cent of such sum as income tax' from their purport, cannot be understood as the percentage amount deductible from the income of the contractor out of the sum credited to his account or paid to him in pursuance of the contract. Moreover, the concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 in the case of BPTP and subsequently under Section 194I as is evident from the judgment rendered in DLF Homes Panchkula. 76. We are of the firm opinion that in matters pertaining to taxation we would not readily import the principle of a power otherwise inhering being sufficient for the purposes of examining the validity of a Show Cause Notice. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is power to decide and determine to the prejudice of a person, duty to act judicially is implicit in the exercise of such power. If the essentials of justice be ignored and an order to the prejudice of a person is made, the order is a nullity. That is a basic concept of the rule of law and importance thereof transcends the significance of a decision in any particular case." 77. The requisites of a valid Show Cause Notice were lucidly explained by the Supreme Court in Gorkha Security Services v. Govt. (NCT of Delhi) (2014) 9 SCC 105 as under: "Contents of the show-cause notice 21. The central issue, however, pertains to the requirement of stating the action which is proposed to be taken. The fundamental purpose behind the serving of show-cause notice is to make the noticee understand the precise case set up against him which he has to meet. This would require the statement of imputations detailing out the alleged breaches and defaults he has committed, so that he gets an opportunity to rebut the same. Another requirement, according to us, is the nature of action which is proposed to be taken for such a breach. That should also be stated so that the noticee is able to point ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act. It was in the aforesaid context that the Supreme Court observed as follows:- "We are of the opinion that the contention is not well-founded. Section 147 of the 1961 Act is an enabling provision which empowers the Income-tax Officer to bring to tax incomes which have escaped assessment either on account of the failure of the assessee to disclose fully and truly all material facts necessary for his assessment for the relevant year or the Income-tax Officer in consequence of the information in his possession has reason to believe that income chargeable to tax has escaped assessment for any assessment year. That being so, it is not necessary that notice under section 147 of 1961 Act should state under which of the clauses, whether under clause (a) or clause (b) the same is issued. The main notice to be issued in a case under section 147 is a notice under section 139(2), and section 148 read with section 147 merely authorises the issue of such a notice. [See Kantamani Venkatanarayan and Son v. First Additional Income-tax Officer, (63, I.T.R. 638) (8) Deep Chand Daga v. Income-tax Officer C-Ward, Raipur, (77, I.T.R. 661) (9) Anne Nagendram and Bomma Reddi Venkayya and Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his ground. 83. That only leaves us to deal with the issue of the petitioners having been treated as an assessee in default in terms of Section 201 and called upon to pay penalties by virtue of Sections 221 and 271C of the Act. 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. 84. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, the tax deductor assessee has not claimed deduction under Section 40(a)(iii) in computation of its business income. This is one more reason for not imposing penalty under Section 271-C because by not claiming deduction under Section 40(a)(iii), in some cases, higher corporate tax has been paid to the extent of Rs. 906.52 lakhs (see Civil Appeal No. 1778 of 2006 entitled CIT v. Bank of Tokyo-Mitsubishi Ltd.)." 85. The aforesaid view has been reiterated in a more recent judgment of the Supreme Court in Singapore Airlines Ltd. Vs. CIT (2023) 1 SCC 497 where the following principles were laid down:- "58. This Court in Hindustan Coca Cola Beverage (P) Ltd. v. CIT [Hindustan Coca Cola Beverage (P) Ltd. v. CIT, (2007) 8 SCC 463] was confronted with a similar situation where the recipient of income on which the assessee had failed to deduct TDS under Section 194-C of the IT Act, had already paid income taxes on that amount. The Court held : (SCC pp. 464-65, paras 6 & 9) "6. The Tribunal upon rehearing the appeal held that though the appellant assessee was rightly held to be an "assessee in default", there could be no recovery of the tax alleged to be in default once again from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceed under Section 201(1). In cases where the tax has not been paid, the AO shall proceed under Section 201(1) to recover the shortfall in the payment of tax. 100. Similarly, in each of the 104 appeals, the AO shall examine and find out whether interest has been paid/recovered for the period between the date on which tax was deductible till the date on which the tax was actually paid. If, in any case, interest accrues for the aforestated period and if it is not paid then the adjudicating authority shall take steps to recover interest for the aforestated period under Section 201(1-A)." 60. It appears to us that if the recipient of income on which TDS has not been deducted, even though it was liable to such deduction under the IT Act, has already included that amount in its income and paid taxes on the same, the assessee can no longer be proceeded against for recovery of the shortfall in TDS. However, it would be open to the Revenue to seek payment of interest under Section 201(1-A) for the period between the date of default in deduction of TDS and the date on which the recipient actually paid income tax on the amount for which there had been a shortfall in such deduction. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of tax at source under Section 192 was a nascent issue. ... 96. ... The tax deductor assessee was under a genuine and bona fide belief that it was not under any obligation to deduct tax at source from the home salary paid by the foreign company/HO and, consequently, we are of the view that in none of the 104 cases penalty was leviable under Section 271-C as the respondent in each case has discharged its burden of showing reasonable cause for failure to deduct tax at source." 66. We find some parallels between the facts of the present case and the situation in Eli Lilly & Co. [CIT v. Eli Lilly & Co. (India) (P) Ltd., (2009) 15 SCC 1] The liability of an airline to deduct TDS on supplementary commission had admittedly not been adjudicated upon by this Court when the controversy first arose in AY 2001-2002. While the learned counsel for the Revenue, Mr Kumar, has notified us that various airlines were deducting TDS under Section 194-H at that time, this does not necessarily mean that the position of law was settled. Rather, it appears to us that while one set of air carriers acted under the assumption that the supplementary commission would come within the ambit of the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short deduction. It is important to remember that the question of "good and sufficient reasons" only arises when one considers the proviso to Section 201(1) of the said Act. That proviso has been specifically introduced to negate the possibility of imposition of penalty under Section 221 if the Assessing Officer is satisfied that the person liable had good and sufficient reasons to not deduct and pay the tax in question. Thus, the proviso is to be applied only to the question of penalty. It would not absolve the assessee insofar as his being considered as an assessee in default for the purposes of Section 201(1) of the said Act. Therefore, this finding of the Tribunal is set aside. Consequently, question no. 1 is decided in favour of the Revenue and against the assessee. 10. Insofar as the second question is concerned i.e., with regard to the interest payable under Section 201(1A) of the said Act, that is a mandatory provision, as already held by a Division Bench of this Court in the case of CIT v. ITC Limited, ITA No. 475/2010, dated 11.05.2011. The said Division Bench observed as under:- xxxx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity to the assessee to produce documents in this regard. The appeals are allowed to the extent indicated above." 87. 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. 88. 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. 89. 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 pendi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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