TDS u/s 194IC is applicable for payment under JDA to transferor of land and building holding leasehold rights and not ownership.
In a recent judgment, ITAT Mumbai has held that it would be against the intent of the legislation to interpret that provisions of TDS under section 194IC is not applicable for payment under Joint Development Agreement to transferor of land and building holding leasehold rights and not ownership.
ABCAUS Case Law Citation:
4780 (2025) (10) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming levy of tax and interest under section 201(1) / 201(1A) due to alleged short deduction of TDS under section 194IC of the Act.
The appellant assessee was a limited liability partnership firm engaged in the business of development and construction of real estate project and redevelopment of old residential building.
A survey action under section 133A(2A) was undertaken in case of a business group including the assessee. During the course of survey various details and information related to the various real estate projects were called for in order to verify the compliance with regard to the issue of tax deduction under section 194IC.
On verification of the documents the Assessing Officer (AO) noticed that the assessee had entered into a joint development agreement (JDA) with one person (transferor) who was the owner of land on which the building apartment was constructed.
As per the agreement it was noticed by the AO that the owner had allowed the assessee to develop/ construct new buildings and to sell out saleable area to the prospective buyers and the owner was entitled to a share of area out of the total constructed area in the new building.
The AO further noticed that the owner was also entitled to receive a certain sum of cash / monetary consideration as per the agreement. The AO also noticed that the assessee has paid amounts to the said owner during the years under consideration on which the TDS was deducted at 1% as per the provisions of section 194IA of the Act and not under section 194IC of the Act.
The AO was of the view that the assessee should have deducted TDS under section 194IC at 10% since the payment is made as per “Specified Agreement” and the AO issued a show-cause notice to the assessee in this regard.
The assessee submitted before the AO that transferor was holding only the lease rights and not the owner and therefore the payment made cannot be considered as made under “Specified Agreement” since the term is applicable only to the person owning land or building or home.
The AO did not accept the submissions of the assessee regarding the ownership and levied tax under section 201 and 201(1A) for the differential tax of 9%.
The CIT(A) dismissed the appeal of the assessee.
Before the Tribunal, the assessee submitted that the definition of “Specified Agreement” as contained in section 45(5A) states that the term means a registered agreement in which a person owning land or building or both agrees to allow another person to develop a real estate project on such land or building or both in consideration of a share being land or building or both in such projects whether with or without payment of part of the consideration in cash.
The assessee therefore submitted that the ownership of the land / building / both is the criteria which need to be considered for applicability of section 194IC. The assessee drew attention to the relevant clauses in the Joint Development Agreement where it had been stated that transferor had acquired the leasehold right, title and interest in the said property and therefore he was not the owner of the land.
The Tribunal observed that definition of specified agreement under section 45(5A) of the Act as under,
“specified agreement” means a registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash.”
The Tribunal further noted that Sub section (5A) was introduced by Finance Act 2017 and as per the Memorandum explaining the intention behind introducing the said subclause and the consequential amendment in section 49 and introduction of section 194IC, it is clear that the legislative intention to introduce to sub section (5A) was to define the year of taxability for transfers under a JDA to minimise the genuine hardship of the assessee who may face capital gains in the year of transfer i.e. year of entering into JDA.
The Tribunal opined that if a narrower interpretation as contented by the assessee is to be accepted then it would lead to anomaly that transfer by the lease hold right owner under JDA would go out of the tax net as the transferor is not the owner as mentioned in the definition of specified agreement. Therefore, the interpretation as argued by the assessee cannot be accepted since the legislative intent behind introduction of subsection (5A) is to ease the tax burden on the assessee and such beneficial provision if interpreted as not applicable to transferor holding leasehold rights who has transferred under the JDA would go against the legislative intent.
The Tribunal also observed from the perusal of the JDA that the land had been given on perpetual lease in the year 1938 since then the land had been held by various persons and the transferor had acquired the land along with the conditions as prescribed for the perpetual lease. Also, the transferor was holding the right to give the land for development and is entitled to receive consideration in monetary as well non-monetary form.
Accordingly, the Tribunal upheld the in the present case, the provisions of section 194IC was squarely applicable.
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