EDC Payments to HUDA Not Liable for Section 194A TDS: ITAT Delhi

Sternal Buildcon Private Ltd. Vs DCIT (ITAT Delhi)

ITAT Clarifies No TDS on EDC under Section 194A: Disallowance Quashed in Sternal Buildcon

Facts:

• In the present case the assessee, Sternal Buildcon Private Ltd., engaged in the business of constructing affordable housing, filed its return for A.Y. 2017-18 declaring a loss and disclosed payment of External Development Charges (EDC) amounting to ₹99,80,000 to Haryana Urban Development Authority (HUDA).
• Pursuant to directions from the Directorate of Town and Country Planning (DTCP), Haryana, under a statutory license for developing group housing. The Assessing Officer, while framing the assessment, treated the EDC payment as one liable for deduction of tax at source under Section 194A of the Income Tax Act, and disallowed 30% of the EDC paid by invoking provisions of Section 40(a)(ia), resulting in an addition of ₹29,94,000.
• The assessee contended that the payment to HUDA was in discharge of a statutory obligation to DTCP, a government authority covered under Section 196, and that no contract existed with HUDA, thus no TDS was deductible under Section 194A; the nature of EDC as statutory dues was stressed, claiming that such payments do not attract TDS as “interest”.
• The appeal before the Commissioner of Income Tax (Appeals) resulted in upholding the addition, based on the Delhi High Court decision in Puri Construction Pvt. Ltd., which held EDC payments as being liable to TDS under Section 194C, and thus subject to disallowance if not deducted.

Issue: whether the provisions of Section 194A were validly invoked by the Assessing Officer for the payment of EDC to HUDA, and consequently, whether disallowance under Section 40(a)(ia) could be sustained.