Skytech Construction Pvt. Ltd. Vs Income Tax Officer (ITAT, Delhi Bench)
TDS u/s 194-I APPLIES TO NOIDA LEASE RENT-BUT SECTION 201 DEFAULT MAY VANISH IF PAYEE HAS PAID THE TAX
The Delhi ITAT has held that lease rent paid to NOIDA, Greater NOIDA or YEIDA attracts TDS u/s 194-I, following the Supreme Court’s binding decision in New Okhla Industrial Development Authority v. CIT [2018] 95 taxmann.com 80 (SC). However, before treating the payer as an assessee-in-default u/s 201(1), the AO must grant it an opportunity to establish that the case is covered by the first proviso to section 201(1). The matter was accordingly restored to the AO.
Facts of the case
The assessee, Skytech Construction Pvt. Ltd., was engaged in the business of real-estate development.
During FY 2013-14, the assessee paid lease rent aggregating to ₹42,67,989 to NOIDA, Greater NOIDA & the Yamuna Expressway Industrial Development Authority, commonly known as YEIDA.
The assessee did not deduct tax at source from these payments.
Proceedings u/ss 201(1) & 201(1A) were initiated by the AO to examine the assessee’s TDS compliance. The assessee contended that the payees were local authorities whose income was exempt u/ss 10(20) & 10(20A). Therefore, according to the assessee, no tax was deductible from the lease rent paid to them.
The AO rejected the explanation & held that the payments constituted “rent” within the meaning of section 194-I. The assessee was consequently treated as an assessee-in-default u/s 201(1) for failure to deduct TDS.
A demand of ₹4,26,799 u/s 201(1) was raised. Interest of ₹3,58,511 u/s 201(1A) was also charged, apparently for a period of 84 months. Penalty proceedings u/s 271C were separately initiated.
CIT(A) confirms the demand
The CIT(A) noticed that the Supreme Court, in New Okhla Industrial Development Authority v. CIT, had conclusively held that annual lease rent paid to development authorities was “rent” within the meaning of section 194-I & was subject to deduction of tax at source.
The assessee’s reliance on earlier appellate orders could not override the binding judgment of the Supreme Court. Accordingly, the CIT(A) confirmed both the application of section 194-I & the consequential demand raised u/s 201.
The assessee carried the matter to the ITAT.
Liability u/s 194-I settled against assessee
The Tribunal held that the controversy regarding the obligation to deduct tax from lease rent paid to NOIDA, Greater NOIDA & YEIDA was no longer open for debate.
The Supreme Court’s ruling in the case of NOIDA had settled that such annual lease rent fell within the statutory meaning of “rent” u/s 194-I. The payer was therefore required to deduct tax at source.
Consequently, the ITAT upheld the finding that the assessee was liable to deduct TDS u/s 194-I from the lease rent of ₹42,67,989 paid during FY 2013-14.
But failure to deduct does not automatically mean continuing default
The Tribunal, however, found that the AO had treated the assessee as an assessee-in-default without giving it an opportunity to claim the protection available under the first proviso to section 201(1).
Under the proviso, a payer who fails to deduct the whole or any part of tax from a payment shall not be deemed to be an assessee-in-default if the recipient has furnished its return of income u/s 139, taken the relevant payment into account while computing its income & paid the tax due on the income declared in that return.
The payer must additionally furnish an accountant’s certificate confirming fulfilment of these conditions in the prescribed form, namely Form No. 26A.
Thus, the obligation to deduct TDS & the consequence of being treated as an assessee-in-default are distinct questions. The first may exist, but the second can be avoided if the statutory conditions prescribed in the first proviso to section 201(1) are satisfied.
Matter restored to AO
The ITAT held that the AO ought to have provided the assessee an opportunity to demonstrate whether the payee authorities had filed their returns, considered the lease rent while computing their income & paid the tax due thereon.
In the interest of justice, the matter was restored to the AO for fresh consideration. The assessee was directed to furnish the requisite information & evidence in terms of the conditions prescribed in the first proviso to section 201(1).
The AO must reconsider the demand after examining whether the assessee is entitled to the benefit of the proviso. The appeal was accordingly allowed for statistical purposes.
Author’s comments
The order brings out the important difference between TDS liability & recovery of tax from the payer. The Supreme Court ruling establishes that lease rent paid to these development authorities attracts section 194-I. The assessee therefore cannot defend the non-deduction merely by describing the recipient as a local authority.
Nevertheless, section 201 is not intended to permit recovery of the same tax twice. If the recipient has already disclosed the payment & discharged the corresponding tax liability, the payer can escape the principal demand u/s 201(1) by obtaining & furnishing Form No. 26A.
The protection is conditional. The recipient must have filed its return u/s 139, included the relevant receipt while computing income & paid the tax due. A mere assertion that the recipient is a government-controlled body or that its income is exempt may not satisfy the specific statutory requirements.
Further, even where the principal demand u/s 201(1) is neutralised, interest u/s 201(1A) ordinarily remains payable from the date on which tax was deductible up to the date on which the recipient furnished its return. The AO must therefore recompute the consequences in accordance with the proviso.
The order also appears to mention issuance of notice u/s 201 on 28.10.2010 for FY 2013-14, which is chronologically impossible & seems to be a typographical error requiring verification from the assessment records.
The final message is simple: the Supreme Court has closed the door on “no TDS”, but Form No. 26A may still open the window against being branded an assessee-in-default.
Cases Discussed
- New Okhla Industrial Development Authority v. CIT [2018] 95 taxmann.com 80 (SC)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, DELHI BENCH
This appeal by the assessee is directed against the order dated 08.01.2026 of the Ld. Commissioner of Income Tax, (Appeal), ADDL/JCIT (A)-1 Pune, [hereinafter referred to as the ‘Ld. CIT(A)] arising out of the Order dated 03.03.2021 passed under section 201 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by ITO, ward-77(3), New Delhi (hereinafter referred to as the ‘AO’) pertaining to Assessment Year (A.Y.) 2014-15.
2. The Assessee has raised the following grounds of appeal:
“ 1. Action of Commissioner of Income Tax Appeal in confirming the addition under section 201(1) of Rs. 4,26,799, as made by the Income Tax Officer, without considering the explanation and information available on record is unjust, illegal, arbitrary and against the facts and circumstances of the case.
2. Action of Commissioner of Income Tax (A) in confirming the addition under section 201(1A) of Rs. 3,58,511 being interest 1 percent being interest in respect of default in making the payment of TDS by 84 months, as made by the Income Tax Officer, without considering the explanation and information available on record is unjust, illegal, arbitrary and against the facts and circumstances of the case.
3. The Appellant craves to add, amend, alter, submit and withdraw any ground before the appeal is heard.”
3. Brief facts are that the assessee company is engaged in the business of real estate development. It had paid lease rent to NOIDA / Greater NOIDA/ Yamuna Expressway Industrial Development Authority (YEIDA) amounting to Rs. 42,67,989/- on 31.03.2014 but no TDS was deducted.
Accordingly, notice u/s 201(1)/201(1A) was issued by the AO on 28.10.2010 calling for information regarding TDS compliance for the F.Y. 2013-14. Not satisfied with the assessee’s explanation that the deductee being a local authority is exempt u/s 10(20) & 10(20A), the AO treated the assessee in default for non-deduction of TDS u/s 194I of the Act. Interest u/s 201(1A) was charged at Rs. 3,58,511/- and penalty proceedings u/s 271C were alsoinitiated vide order dated 3.3.2021.
3.1 Aggrieved, the assessee preferred an appeal before the CIT(A).
Vide order dated 8.1.2026, the CIT(A) dismissed the appeal of the assessee holding as under:
“Ground Nos. 1, 2, 3, 5 and 7 These grounds relate to the applicability of section 194-I on lease rent paid to Noida Authority and the consequent demand raised under section 201(1). On examination of the judicial precedents placed on record, it is noted that the Hon’ble Supreme Court in New Okhla Industrial Development Authority v. CIT has conclusively held that annual lease rent paid to development authorities constitutes “rent” within the meaning of section 194-I and is liable for deduction of tax at source. The reliance placed by the appellant on earlier appellate orders does not override the binding nature of the judgment of the Hon’ble Supreme Court, which settles the issue against the assessee. Accordingly, the demand raised under section 201(1) is found to be in accordance with law. These grounds are dismissed.”
3.2 Further aggrieved, the assessee has filed the present appeal before the Tribunal contending that the demand of Rs. 426,799/- u/s 201(1) and interest of Rs. 3,58,511/- u/s 201(1A) has been upheld by CIT(A) without considering the assessee’s explanation.
4. We have heard the rival submissions and perused the material available on record. As regards the liability to deduct tax at source in respect of lease rent paid by the assessee to NOIDA / Greater NOIDA/ YEIDA, we note that the issue is decided against the assessee by the Hon’ble Supreme Court in assessee’s own case, NOIDA v CIT [2018] 95 taxmann.com 80 as has been correctly observed by the CIT(A). Thus, we hold that the assessee was liable to deduct TDS on the lease rent paid to NOIDA / G NOIDA / YEIDA amounting to Rs. 42,67,989/- during the F.Y. 2013-14. However, while treating the assessee in default u/s 201, the AO ought to have given it an opportunity to demonstrate whether its case is covered under the first proviso to section 201(1) which prescribes the circumstances under which the assessee should not be treated as assessee-in-default. The relevant section and its proviso is reproduced below:-
“Consequences of failure to deduct or pay.
201. (1) Where any person, including the principal officer of a company,— (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer,
does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax:
Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on the sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax if such payee— (i) has furnished his return of income under
section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income,
and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed:
(emphasis supplied)
4.1 In view of the above legal position and in the interest of justice, we deem it appropriate to restore the matter to the AO for fresh consideration after providing the assessee an opportunity to demonstrate whether the conditions of the first proviso are satisfied by it.
4.2 The assessee is also directed to furnish requisite information before the AO in terms of conditions prescribed in the aforesaid proviso to section 201(1) of the Act.
5. In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 09.09.2026
