Vipul Ltd., Gurgaon V. DCIT Circle-26(1), New Delhi

ITA 4866/DEL/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 9658 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2013-2014
• Appeal Filed On: 27-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: TDS
• Section: 43B; 139; 194C; 139(1); 73

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F : NEW DELHI BEFORE SHRI C.M. GARG, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ITA No.4866/Del/2019 Assessment Year: 2013-14 Vipul Ltd., Vipul Tech Square, Golf Course Road, Gurgaon. PAN: AAACA5396C Vs. DCIT, Circle-26(1), New Delhi. (Appellant) (Respondent) Assessee by : Shri Sidhant Arora, CA Revenue by : Shri ramdhan Meena, Sr. DR Date of Hearing : 31.08.2022 Date of Pronouncement : 29.09.2022 ORDER PER C.M. GARG, JM: This appeal filed by the assessee is directed against the order dated 29.03.2019 of the CIT(A)-28, New Delhi, relating to Assessment Year 2013-14. 2. The ground of appeal raised by the assessee read as under:- “1. The ld.CIT(A) has erred in law and facts of the case in confirming the action of the ld.AO in making an addition of Rs.1,61,70,056/- for External Development Charges alleging that the expenditure is covered under section 43B, ignoring the submission made by the appellant company, which is arbitrary, baseless, unjustified and bad in law. 2. The appellant craves the right to add, amend or modify any ground of appeal.” ITA No.4866/Del/2019 2 3. The ld. Counsel of the assessee submitted that the ld.CIT(A) has erred in law and facts of the case in confirming the action of the ld.AO in making an addition of Rs.1,61,70,056/- for External Development Charges (EDC) alleging that the expenditure is covered under section 43B, ignoring the submission made by the appellant company, which is arbitrary, baseless, unjustified and bad in law. The ld. Assessee’s representative reiterated its written submissions and placed reliance on various judgements including the judgement of the Hon’ble Supreme Court in the case of CIT vs. McDowell & Co. Ltd., 180 Taxmann 514 (SC) and the judgement of the Hon’ble Madras High Court in the case of Tamil Nadu Minerals Ltd. vs. JCIT (2019) 107 taxmann.com 214 (Madras) and submitted that the auditor on the basis of his own understanding, treated the EDC forming part of the items mentioned in Clause 4 (ix) (a) of CARO-2003. He further submitted that as per CARO-2003, there is a liability on the part of the auditor to report certain details in the CARO report on the basis of the audit conducted by him. The ld. AR also submitted that the auditor has also provided a representation to the appellant stating that the provisions of section 43B of the Act is not applicable to EDC paid by the company and, hence, any non-payment of EDC will not attract the provisions of section 43B of the Act. The ld. AR has also pointed out that the EDC paid by the appellant to Haryana Urban Development Authority (HUDA) are not in the nature of any tax, duty, cess or fee. Therefore, the authorities below have grossly erred in holding that such contractual payment fell within the ambit of section 43B of the Act. The ld. AR submitted that by ITA No.4866/Del/2019 3 applying the principles of ‘ejusdem generis’, the term ‘cess and fees’ should be in the nature of tax to be covered under section 43B of the Act. The ld. Counsel also drew our attention to the written synopsis of the assessee elaborating the distinction between the tax, cess, duty and fees covered under section 43B of the Act with the EDC charges payable by the assessee to HUDA. The relevant part of the synopsis reads as follows:- Taxes, Duty, Cess and Fees according to Section 43B of the Act External Development Charges (EDC) Taxes are compulsory exaction of money by public authority for public purpose enforceable by law. EDC are charges payable to the development authority for obtaining the right to develop the specific land acquired by the developer Duty such as Excise duty are primarily a duty on the production or manufacture of goods produced or manufactured within the country Taxes are imposition made for public purpose without any reference to any specific benefit to be conferred on the payer. EDC are specific charges charged by the designated authority for providing utilities such as sewerage, Street lighting etc. on the land allotted to the developer. No element of 'quid pro quo' exist between the tax payer and the Government. The element of 'quid pro quo' is required between the development authority and the developer. Taxes are part of the common burden, the quantum of imposition upon the taxpayer depends generally upon his capacity to pay. The development authority fixes EDC according to the location of the area where the land is located. ITA No.4866/Del/2019 4 From the above analysis, it is clearly evident that EDC paid to the development authority are not covered under the taxes, cess, duty or fees which are covered under the provisions of section 43B of the Act. At this juncture, reliance is placed on the decision of Hon'ble Supreme Court in the case of CIT v. Mcdowell & Co. Ltd. 180 Taxmann 514(SC) [2009], wherein the Hon'ble Supreme Court made the following observation:- i. The 'Tax', 'Duty', 'Cess' or 'Fee' constituting a class denote various kinds of imposts by the State in its sovereign power of taxation to raise revenue for the State. The expression fee' is not used in the State Excise laws or rules in the technical sense of the expression, meaning thereby that the expression fee is not to be termed as "fee" in technical terms and just because it is termed as fee' does not ipso facto partake the colour of statutory dues. Therefore, the said term should not be used in literal sense because the expression "fee" is used for various purposes. ii. The expressions used in section 43B(i)(a) is "Tax, Duty, Cess or fee or by whatever name called", must fall within the genus 'taxation' to which expression 'Tax', 'Duty', 'Cess' or 'Fee' as a group of its specie belong. In other words, compulsory exaction in the exercise of State's power of taxation, where levy and collection is duly authorised by law as distinct from amount chargeable in pursuance of a contract. The relevant extract of the judgement is as under: "10. It would be pertinent to note that the expression now used in Section 43B (i)(a) is "Tax, Duty, Cess or fee or by whatever name called". It denotes that items enumerated constitute species of the same genus and the expression 'by whatever name called' which follows preceding words 'Tax','Duty', 'Cess' or 'fee' has been used ejusdem generis to confine the application of the provisions not on the basis of mere nomenclatures, but notwithstanding name, they must fall within the genus 'taxation' to which expression 'Tax', 'Duty', 'Cess' or 'Fee' as a group of its specie belong vis. compulsory exaction in the exercise of State's power of taxation where levy and collection is duly authorised by law as distinct from amount chargeable on principle as consideration payable under contract. 11. The principle of statutory interpretation is well known and well settled that when particular words pertaining to a class, category or ITA No.4866/Del/2019 5 genus are followed by general words, the general words are construed as limited to things of the same kind as those specified. This ride is known as the rule of ejusdem generic. It applies when: (1) the statute contains an enumeration of specific words; (2) the subjects of enumeration constitute a class or category; (3) that class or category is not exhausted by the enumeration; (4) the general terms follow the enumeration; (5) there is no indication of a different legislative intent. 12. Reference in this connection may be made to Amar Chandra v. Collector of Excise, Tripura (AIR 1972 SC 1863) and Housing Board of Haryana v. Haryana (AIR 1996 SC 434). 13. The 'Tax', 'Duty', 'Cess' or 'fee' constituting a class denotes to various kinds of imposts by State in its sovereign power of taxation to raise revenue for the State. Within the expression of each specie each expression denotes different kind of impost depending on the purpose for which they are levied. This power can be exercised in any of its manifestation only under any law authorising levy and collection of tax as envisaged under Article 265 which uses only expression that no 'tax' shall be levied and collected except authorized by law. 14. It in its elementary meaning coveys that to support a tax legislative action is essential, it cannot be levied and collected in the absence of any legislative sanction by exercise of executive power of State under Article 73 by the Union or Article 162 by the State. Under Article 366(28) "Taxation" has been defined to include the imposition of any tax or impost whether general or local or special and tax shall be construed accordingly. "Impost" means compulsory levy. 15. The well known and well settled characteristic of 'Tax' in its wider sense includes all imposts. Imposts in the context have following characteristics: (i) The power to tax is an incident of sovereignty. (it) 'Law' in the context of Article 265 means an Act of legislature and cannot comprise an executive order or ride without express statutory authority. ITA No.4866/Del/2019 6 (iii) The term 'Tax' under Article 265 read with Article 366(28) includes imposts of every kind viz., tax, duty, cess or fees. (iv) As an incident of sovereignty and in the nature of compulsory exaction, a liability founded on principle of contract cannot be a "tax' in its technical sense as an impost, general, local or special." Accordingly, in the instant case, EDC has been paid as the price or consideration by the appellant for obtaining exclusive privilege/ right from HUD A and therefore does not fall in the category of 'statutory dues' or within the genus 'taxation'. Consequently, payment of EDC would not attract provision of 43B of the Act. The said judgement of Hon'ble Supreme Court, as supra has been relied upon by the Hon'ble Madras High Court in the case of Tamil Nadu Minerals Ltd. Vs. TCIT [2019] 107 taxmann.com 214 (Madras)held that nomination charges paid by assessee, engaged in quarrying granite blocks from mines, to State Government for allotment of land for quarrying of granite, could not be equated with terms ’tax, duty cess or fees' under section 43B(a). Therefore, the outstanding amount of EDC is development charges attributable to the charges towards the cost of contribution and are not in the nature of any amount by way of "tax, duty, cess, or fee or by whatever name called" and the same is allowable in nature.” 4. The ld. AR submitted that EDC are payable to the HUDA for obtaining the right to develop the specific land acquired by the developer which is charged by the authority to provide utilities such as sewage, street lights, etc. on the land allotted to the developer and EDC is fixed according to the location of the land. The ld. AR submitted that for applying the provision of section 43B of the Act, no element of quid pro quo is required to exist between the tax payer and the Government whereas for payment of EDC the element of quid pro quo is required between the development authority and the developer as the payment is made under contract between the HUDA and the developer towards the ITA No.4866/Del/2019 7 services/facilities provided by the authority to the developer. Therefore, the authorities below have grossly erred in making and confirming the addition in the hands of the assessee. The ld. AR also drew our attention to the ‘The Haryana Development and Regulation Of Urban Areas Rules, 1976 (hereinafter called, ‘HDRUA Rules’), Rule 4(a) & (b) and submitted that the EDC paid by the builder being a user charge can be refunded or adjusted if any of the services have not been availed by the colonizer/developer. This clearly reveals that this is not a payment in the nature of tax, duty, cess or fee, but, it is a charge to the development authority against the services provided by the authority to the developer/colonizer. The ld. AR also pointed out that even in the order dated 30.03.2021 passed u/s 201(1)/201(1A) of the IT Act for FY 2012-13, relevant to the present assessment year 2013-14, in para 5.4, the AO noted the entire facts regarding the payment of EDC by the assessee and categorically noted that EDC payment made by the assessee to HUDA is covered under service contract, therefore, a private builder is liable to deduct tax at source on such payment under the provisions of section 194C of the Act, hence, EDC ought to be subjected to TDS by payers @ 2% u/s 194C. The ld. AR submitted that in view of the above, the payment made by the assessee towards EDC is to be allowed to the assessee. 5. Placing reply to the above, the ld. Sr. DR strongly supported the first appellate as well as assessment order and submitted that the expenditure of EDC ITA No.4866/Del/2019 8 claimed by the appellant without making actual payment on or before filing the income-tax return is not allowable under the provisions of section 43B and, therefore, the disallowance made by the AO was rightly confirmed by the ld.CIT(A). He further submitted that the EDC is a statutory charge payable by the developer/colonizer as per the provisions of ‘HDRUA Rules’ which is covered under the provisions of section 43B of the Act. Therefore, the same has to be allowed only on the basis of the actual payment made by the assessee before filing the income-tax return on or before the due date provided u/s 139 of the Act. 6. Placing a rejoinder to the above, the ld. AR submitted that no TDS is required to be deducted on payment of any duty, tax, cess or feess where as the AO in assessee’s own case in the TDS order dated 30.03.2021 (supra) passed u/s 201(1) of the Act, in para 5.4, has noted that the EDC payment made by the builder to HUDA is under a service contract and, therefore, a private builder is liable to deduct tax at source on such payment under the provisions of section 194 of the Act which clearly reveals that it is a payment against the services received by the builder from HUDA. He again drew our attention to Rule 4(a) & (b) of the HDRUA Rules and submitted that if a colonizer does not avail the facility, then, the amount can be refunded or adjusted. Therefore, the authorities below were not correct in disallowing the claim of the assessee towards EDC payment only because the same was not made before filing of the return. ITA No.4866/Del/2019 9 7. On careful consideration of the above rival submissions, we note that undisputedly, the impugned payment was made to HUDA under HDRUA Rules. Rule 4(a) & (b) of the said Rules provides as follows:- “(4) External Development Charges (principal amount and interest) being a user charge shall be refunded/adjusted, if any of the services have not been availed by the colonizer. The colonizer shall have two options for the surrendered area qua External Development Charges when he applies for surrender of license: - (a) The colonizer may get 85% of this amount of External Development Charges refunded. (b) Get 100% of the amount refunded without interest but only upon a new license being granted in that particular sector. In such case, the External Development Charges to be demanded in the new license shall have to be more than or equal to the External Development Charges to be refunded in the surrendered area of the license :” 8. Further, in the TDS order dated 30.03.2021 (supra) in para 5.4, after considering the facts and circumstances of the payment made by the assessee to HUDA, the AO has noted as follows:- “5.4 HUDA is a taxable entity carrying out business activities to acquire, develop and dispose of land for residential, industrial, commercial and institutional purposes in urban estates developed in State of Haryana. Its income is taxable under the Income Tax Act including EDC. The payments received by HUDA as EDC are for external development works (EDWs) like water supply, sewerage, drains, sewage management, colleges, hospital etc. or any other works for the benefit of colony/area. EDC is charged from colonizers for using the developed urban infrastructure in urban estates wherein they are allowed to establish their commercial setup. The EDC is arising out of an agreement which is in the nature of service contract where colonizers pay EDC to HUDA for creation, development and maintenance of EDWs. Thus HUDA is rendering a service to colonizers for which EDC is paid and the work carried out is civil work in nature for providing amenities. The work is for creating and ITA No.4866/Del/2019 10 maintaining of infrastructure in order to make it suitable for urban habitation. EDWs enhance the value of property and the value addition fetch higher price prospective customers. Thus, EDC payment made by the builders to HUDA is covered under service contract. Therefore, a private builder is liable to deduct tax at source on such payments under the provisions of section 194C of Income Tax Act. Hence, EDC ought to be subjected to TDS by payers @) 2% u/s194C of the Income Tax Act, 1961.” 9. Furthermore, the Hon’ble Supreme Court in the case of CIT vs. McDowell & Co. (supra) explained the rule of ejusdem generis and also considered all the judgement relevant to this issue and, thereafter, held that the bottling fees for acquiring the right of bottling of IMFL, which is determined under the Excise Act and Rule, 1969 payable by the assessee as consideration for acquiring exclusive privilege which is neither fees nor tax, but, the consideration for grant of approval by the Government as terms of contract in exercise of its right to enter a contract in respect of exclusive right to deal in bottling of liquor or in its manifestations. The relevant part of this judgement read as follows:- “10. It would be pertinent to note that the expression now used in Section 43B (i)(a) is "Tax, Duty, Cess or fee or by whatever name called". It denotes that items enumerated constitute species of the same genus and the expression 'by whatever name called' which follows preceding words 'Tax', 'Duty', 'Cess' or 'fee' has been used ejusdem generis to confine the application of the provisions not on the basis of mere nomenclatures, but notwithstanding name, they must fall within the genus 'taxation' to which expression 'Tax', 'Duty', 'Cess' or 'Fee' as a. group of its specie belong vis. compulsory exaction in the exercise of State's power of taxation where levy and collection is duly authorised by law as distinct from amount chargeable on principle as consideration payable under contract. 11. The principle of statutory interpretation is well known and well settled that when particular words pertaining to a class, category or ITA No.4866/Del/2019 11 genus are followed by general words, the general words are construed as limited to things of the same kind as those specified. This rule is known as the rule of ejusdem generic. It applies when: (1) the statute contains an enumeration of specific words; (2) the subjects of enumeration constitute a class or category; (3) that class or category is not exhausted by the enumeration; (4) the general terms follow the enumeration; and (5) there is no indication of a different legislative intent. 12. Reference in this connection may be made to Amar Chandra v. Collector of Excise, Tripura (AIR 1972 SC 1863) and Housing Board of Haryana v. Haryana (AIR 1996 SC 434) 13. The 'Tax', 'Duty', 'Cess' or 'fee' constituting a class denotes to various kinds of imposts by State in its sovereign power of taxation to raise revenue for the State. Within the expression of each specie each expression denotes different kind of impost depending on the purpose for which they are levied. This power can be exercised in any of its manifestation only under any law authorising levy and collection of tax as envisaged under Article 265 which uses only expression that no 'tax' shall be levied and collected except authorized by law. 14. It in its elementary meaning coveys that to support a tax legislative action is essential, it cannot be levied and collected in the absence of any legislative sanction by exercise of executive power of State under Article 73 by the Union or Article 162 by the State. Under Article 366(28) "Taxation" has been defined to include the imposition of any tax or impost whether general or local or special and tax shall be construed accordingly. "Impost" means compulsory levy. 15. The well known and well settled characteristic of 'Tax' in its wider sense includes all imposts. Imposts in the context have following characteristics: (i) The power to tax is an incident of sovereignty. (ii) 'Law' in the context of Article 265 means an Act of legislature and cannot comprise an executive order or rule without express statutory authority. (iii) The term 'Tax' under Article 265 read with Article 366(28) includes imposts of every kind viz., tax, duty, cess or fees. ITA No.4866/Del/2019 12 (iv) As an incident of sovereignty and in the nature of compulsory exaction, a liability founded on principle of contract cannot be a "tax' in its technical sense as an impost, general, local or special. 16. This Court in the light of decisions starting from State of Bombay v. F.N. Balsara (AIR 1951 SC 318) held that the expression "fee" is not used in the State excise laws or rules in the technical sense of the expression. By `licence fee' or `fixed fee' under excise laws relating to potable liquors/intoxicant is meant the price or consideration which the Government charges to the licences for parting with its exclusive privilege and granting them to the licencees. There is no fundamental right to do trade or business in intoxicants. The State under its regulatory powers has the right to prohibit absolutely every form of activity in relation to intoxicants, its manufacture, storage, export, import, sale and possession in all their manifestations these rights are vested in the State. The decision was re-iterated in Har Shankar v. Dy. Excise and Taxation Commissioner (AIR 1975 SC 1121) and State of U.P. v. Sheopat Rai (AIR 1994 SC 813). 17. In Ahmedabad Urban Development Authority v. Sharad Kumar Jayantgi Kumar Pasawalla (AIR 1992 SC 2038) it was held that the crucial expression in Section 43B is "by way of". Therefore, it was the duty of revenue authorities to ascertain whether the deduction which is to be tested on the touchstone of Section 43B(a) is the amount payable is by way of tax or duty or fee or cess. The High Court was justified in holding that the amount does not fall within the purview of Section 43B. The High Court's view is correct. 18. The appeal is dismissed.” 10. The ld. Counsel has also placed vehement reliance on the judgement of the Hon’ble Madras High Court in the case of Tamil Nadu Minerals Limited (supra) wherein their Lordships held thus:- “41.In our opinion, the application of Section 43B depends upon the character of the levy being either statutory or contractual (non- statutory). Once the levy in the present case in the form of 'nomination charges' depending upon the quantum of land and the commercial exploitation of the minerals by the Assessee is held to be non-statutory contractual payment, then Section 43B of the Act will not cover the ITA No.4866/Del/2019 13 case in hand and therefore, the Assessee was entitled to deduction of such 'nomination charges' paid by the Assessee to the State Government on 09.12.2007 even in the present Assessment Year 2004- 05 on the basis of accrual of liability to pay the same arising for this relevant previous year only. The view that it is a contractual payment is further fortified by the enabling powers as provided under Clause-2 of the Annexure to the Lease Deed in question and the State Government was at liberty to fix the nomination charges or not to impose the same altogether. Therefore the said prescription of nomination charges cannot be held to be a compulsorily impost falling within the four corners of Section 43B of the Act. The State Government not only has the power to impose the same but also to waive, reduce or modify the same as well, depending upon the quantum of commercial exploitation and other relevant circumstances. It could also be treated as 'Royalty' payable by the Assessee TAMIN, to the State for parting with its exclusive rights by giving Leasehold right to the Assessee. Royalty is not a tax, is a settled legal position by the Constitution Bench decision. 42.The series of Government Orders produced before us also indicates that initially the State Government provided for this special levy of Rs.6 Crores for the Assessee as nomination charges to be levied for the Year 2001-2002, but later on, in its discretion, it was increased to 10% of turnover which was further increased to 15% of turnover. 43. The statutory levy in general, will apply to all subjects uniformly and not to a specific Assessee or a person. In the present case, therefore, the levy in question in the name of 'nomination charges' emanates only from the contract of Lease between the parties, a privately contracted levy. Even with reference to the statutory rule, it does not, in our considered opinion, fall within the mischief or the specified zone of Section 43B of the Act. It is neither tax nor a cess nor a duty nor a fee. Therefore, Section 43B of the Act does not stand attracted in the present case at all. 44.Once we come to the conclusion that Section 43B of the Act does not apply to the present payment, the question of applying the rigor of payment within the time schedule will not decide the allowability or otherwise of the said payment under Section 43B of the Act, which would then depend upon the method of accounting followed by the Assessee and if the Assessee has made a provision for this payment in its Books of Account and has claimed it as accrued liability in the Assessment Year 2004-2005, he is entitled to get that deduction in the ITA No.4866/Del/2019 14 Assessment Year 2004-2005 itself, without any application of Section 43B of the Act. 45.The reasons assigned by the authorities below in the present case on an incorrect interpretation for application of Section 43B of the Act made to the present levy in question, was not sustainable and therefore, in our opinion, the Assessee deserves to succeed in the present appeal.” 11. In the present case, from the Rules under which payments have been made by the assessee and the order of the AO, TDS, it is amply clear that it is a charge paid by the developer and builder for obtaining the services from the HUDA authority like sewage, roads, lighting, etc. and in case the assessee does not avail such facility, he is entitled for refund or adjustment of payment. The AO himself noted that the payment of EDC to HUDA is subject to TDS @ 2% u/s 194C of the Act which clearly characterize the payment as made against the facilities availed by the developer/builder/colonizer which cannot be put in the basket of mandatory or compulsory payment of duty, tax, cess or fee, therefore, section 43B of the Act does not stand attracted in the present case to the payment of EDC by the assessee. 12. In view of the foregoing, once we come to the conclusion that section 43B of the Act does not apply to the payment of EDC, the question of applying the rigor of payment within the time schedule viz., before filing the return of income u/s 139(1) of the Act will not decide the allowability or otherwise of such payment u/s 143B of the Act. It is pertinent to note that the allowability of such payment would then depend upon the method of accounting followed by the ITA No.4866/Del/2019 15 assessee and if the assessee has made provision for its payment in its books of account and has claimed it as accrued liability in the relevant financial period, then, he is entitled to get the deduction in the relevant assessment year itself without any bar or application of section 43B of the Act. 13. In view of the foregoing, we conclude that the impugned payment made by the assessee towards EDC under HDRUA Rules does not fall within the ambit of duty, tax, cess or fee. Per contra, the impugned payment has been made by the assessee for acquiring the facilities on the land allotted to it by HUDA, which is not in the nature of duty, tax, cess or fee. Therefore, the provisions of section 43B of the Act is not applicable to the said payment. Thus, we are incline to hold that the AO was not correct in characterizing the payment falling within the ambit of section 43B of the Act and the ld.CIT(A) was also not justified in confirming the same. Therefore, we are of the considered opinion that the impugned payment made by the assessee towards EDC does not attract the provisions of section 43B of the Act and the same is allowable to the assessee. The sole ground of the assessee is allowed. 14. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 29.09.2022. Sd/- Sd/- (PRADIP KUMAR KEDIA) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 29 th September, 2022. ITA No.4866/Del/2019 16 dk Copy forwarded to : 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi