No TDS u/s 194IA on advance security deposit under JDA as there was no transfer as conditions of Section 2(47)(v) of the Act was not complied
ABCAUS Case Law Citation
ABCAUS 3468 (2021) (03) ITAT
Important case law relied referred:
Keshub Mahindra v. CGT [1968] 70 ITR 1
CGT v Smt C K Nirmala 215 ITR 15
Vodafone International Holdings B.V. v UOI 341 ITR 1
Ishikawajma-Harima Heavy Industries Ltd vs. DIT 288 ITR 408]. CIT v Motors & General Stores (1967) 66 ITR 692 (SC)
ITO v Vikas Bahal (2010) 131 TTJ 229
DDIT v G Raghuram (2010) 134 TTJ 87
Maya Shenoy v ITO (2009) 124 TTJ 692
Vijay Ship Breaking Corp. v CIT [2009] 314 ITR 30
CIT v. George Henderson & Co. Ltd 66 ITR 622
CIT v Punjab Stainless Steel Industries Civil
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the order of the Assessing Officer (AO) treating assesee in default for non deduction of TDS u/s 194IA of the Income Tax Act, 1961 (the Act)
The assessee was an Indian Company engaged in the business of real estate development.
The assessee had entered into joint development agreements (JDA) with several land owners. As per the agreement, the assessee agreed to construct and deliver a share of the total built up area (31.66%) along with car parking spaces, terrace areas, private areas and all other built-up areas to the land owners in consideration of 68.34% of land being conveyed to it by the land owner.
In terms of the said JDA, the assessee company paid interest free ‘refundable security deposit’ to the land owners. The deposit was refundable to the assessee after 18 months of commencement of the construction. The security deposit paid was recoverable through sale of constructed area of the land owners. The Agreement also recognized that any deficit shall be made good by the land owners.
the AO issued notice to the assessee asking the assessee to show cause as to why it should not be treated as an assessee-in-default u/s 201(1) and 201(1A) of the Act in respect of default of not deducting tax u/s 194IA from refundable security deposit paid to the land owners.
Not satisfied with the replies of the assessee, the AO was of the opinion that refundable security deposit given to land owners constituted ‘consideration’ for the transfer of the immovable property (land) u/s 194IA. In arriving at this conclusion, the AO relied on the meaning of the term “consideration” as defined in section 2(d) of Indian Contract Act 1872.
The CIT(A) confirmed the order of the Assessing Officer.
Before the Tribunal, the assessee placed reliance on several judgments and claimed that there was no applicability of Section 194-IA of the Act since there was no transfer in terms of Section 2(47)(v) of the Act in relation to the JDA cum General Power of Attorney.
The case of the assessee was that the payment of refundable security deposit was nothing but a part of sale consideration for transfer of immovable property in favour of the assessee.
Further it was submitted that the refundable security deposit paid to the land owners which was actually not refundable and the same was to be adjusted with the sale proceeds of the constructed area. So, the nomenclature given by the assessee to such amount as refundable security deposit should not take away the essence of the transaction.
The issue before Tribunal was whether the amount paid by the assessee towards security deposit to various land owners whether it constituted as “Consideration” in terms of Transfer of Immovable Property.
The Tribunal observed that as per JDA cum General Power of Attorney, land owners had agreed to transfer a portion of land belonged to them in lieu of share in the super-structure which was to be constructed by the assessee.
The Tribunal noted that as per JDA, it was specifically mentioned that the permission to enter the land shall not be construed as delivery of position of the scheduled property in part performance of any conduct as defined ven if it is advance payment, it is not linked to the transfer of immovable property as enumerated in Section 194-IA of the Act, since the condition laid down in Section 2(47)(v) of the Act was not complied with within the meaning of Section 53A of the T.P. Act, so as to deduct TDS by the assessee on the said refundable security deposit. The assessee cannot be hold as the assessee in default u/s. 201(1) and 201(1A) of the Act. It is ordered accordingly.
Further there was a time limit to commence construction, there was a time limit to get permission from the competent authority.
The Tribunal noted that in the Assessment Year under consideration, the assessee did not get approval of the sanctioned plan vis-à-vis any construction was started. Being so, there could not be a transfer of immovable property in the assessment year under consideration. Because the transferee was not able to complete any act as mentioned in JDA cum General Power of Attorney.
The Tribunal also considered the CBDT Circular No. 718 dated 22.08.1995 which clarified provisions regarding deduction of tax at source from payment of rent.
The Tribunal held that even if it was an advance payment, it was not linked to the transfer of immovable property as enumerated in Section 194-IA of the Act, since the condition laid down in Section 2(47)(v) of the Act was not complied with within the meaning of Section 53A of the T.P. Act, so as to deduct TDS by the assessee on the said refundable security deposit.
Therefore, the Tribunal held that the assessee cannot be hold as the assessee in default u/s. 201(1) and 201(1A) of the Act.
Accordingly, the appeal was allowed in favour of the assessee.
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