Taxmann Daily

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Today’s newsletter analytically summarizes the top stories reported at taxmann.com.

AO can’t change nature of payment to attract a different TDS provision during appellate proceedings: HC

DLF Homes Panchkula Pvt Ltd. v. JCIT - [2023] 149 taxmann.com 176 (Delhi)

Assessee was a company incorporated in India and engaged in the business of developing real estate. During the relevant assessment year, the assessee entered into an agreement with the State Government of Haryana for setting up the Group Housing Colony in Gurgaon District. As per the agreement, assessee was required to pay External Development Charges (EDC) to Haryana Urban Development Authority (HUDA).

During the proceedings, the Assessing Officer (AO) demonstrated that said payments were in nature of rent, and the tax must have been deducted under section 194-I. Unsatisfied by the assessee’s response, the AO treated the assessee as “assessee-in-default” and quantified the demand under section 201(1) and section 201(1A).

Aggrieved by the order, the assessee filed a writ petition to the Delhi High Court wherein the counsel appearing for the department contended to withhold the tax under section 194C instead of 194I.

The High Court held that the department counsel readily admitted that Section 194-I was not applicable and the payment of EDC cannot be construed as rent attracting the obligation to deduct TDS at the rate of 10% on the said payment. According to him, the AO had erroneously mentioned that TDS was required to be deducted under Section 194-I instead of Section 194C.

The question as to the nature of EDC payment was squarely one of the issues that were required to be addressed by the AO. He had concluded that the same was ‘rent’ as it was in nature of an arrangement to use land. It is not open for the revenue to now contend that EDC charges are payments made to a contractor under a contract and not ‘rent’ under an arrangement to use land.

Revenue does not seek to support the decision of the AO that the charges are ‘rent’ or in the nature of ‘rent’. The fundamental reasoning on which the impugned order rests is fundamentally flawed.

The revenue appears to be approaching the issue from quite the reverse direction; it has, for an inexplicable reason, concluded that assessees ought to deduct tax and now seeks to find provisions of law to sustain the said conclusion. Thus, the order of AO was liable to be set aside.

Tax Dept. conducts searches on cooperative banks involved in routing funds of customers to abet them to evade taxes

Press Release, dated 11-04-2023

A search & seizure operation was conducted on some cooperative banks based in Karnataka on 31-03-2023. These Banks were engaged in routing funds of various business entities of their customers in a manner to abet them to evade their tax liabilities. A total of 16 premises were covered in the search action.

The seized evidence revealed that these Cooperative Banks were involved in rampantly discounting bearer cheques issued by various business entities in the name of various fictitious non-existing entities. No KYC norms were followed while discounting such bearer cheques. It was also detected that some Cooperative Societies subsequently withdrew funds in cash from their accounts and returned the cash to business entities. Cooperative Societies have been used as a conduit.

Bogus expenditure booked in this way by these beneficiary business entities could be about Rs 1,000 crore. Evidence seized during the search revealed that unaccounted cash loans of over Rs 15 crore had been given to certain persons/customers, unaccounted cash of over Rs 3.3 crore, and unaccounted gold jewellery worth over Rs. 2 crores. Further investigations are in progress.

That’s it from us for today! Stay Tuned for more updates from Taxmann.com.

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