taxsutra All rights reserved

$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 15 January 2024
Judgment pronounced on: 13 February 2024
+ W.P.(C) 9483/2019 & CM APPL 39041/2019
PURI CONSTRUCTIONS PRIVATE LIMITED ..... Petitioner
Through: Mr. Puneet Agarwal, Mr. Yuvraj
Singh & Mr. Chetan Kumar,
Advs.
versus

ADDITIONAL COMMISSIONER OF INCOME

TAX & ORS. .... Respondents
Through: Mr. Aseem Chawla, SSC with
Ms. Pratishtha Chaudhary, Mr.
Aditya Gupta & Mr. Navin
Rohila, Advs.

+ W.P.(C) 11232/2019 & CM APPL. 46219/2019

NATUREVILLE PROMOTERS
PRIVATE LIMITED ..... Petitioner
Through: Mr. Puneet Agarwal, Mr. Yuvraj
Singh, Mr. Chetan Kumar, Advs.
versus

UNION OF INDIA & ORS. ..... Respondents

Through: Mr. Zoheb Hossain, SSC with
Mr. Sanjeev Menon, JSC.

+ W.P.(C) 3850/2021
RPS INFRASTRUCTURE LIMITED ..... Petitioner
Through: Mr. Ved Jain, Mr. Nischay
Kantoor & Mr. Soniya Dodeja,
Advs.
versus

ASSISTANT COMMISSIONER OF INCOME TAX,

CIRCLE-78, TDS-02 ..... Respondent
Signature Not Verified
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Through: Mr. Sanjay Kumar, Ms. Easha &

Ms. Hemlata Rawat, Advs.

+ W.P.(C) 4909/2023
M/S RAMPRASTHA ESTATES PVT. LTD ..... Petitioner
Through: Mr. Puneet Agarwal, Mr. Yuvraj
Singh, Mr. Chetan Kumar, Advs.
versus

UNION OF INDIA & ORS. ..... Respondents

Through: Ms. Bakshi Vinita, SPC for R-1/
UOI.

+ W.P.(C) 4097/2021 & CM APPLs. 21620/2021, 21621/2021

NOVA REALTORS PVT LTD ..... Petitioner
Through: Mr. Satyen Sethi & Mr. Arta
Trana Panda, Advs.

versus

INCOME TAX OFFICER ..... Respondent

Through: Mr. Sanjay Kumar, Ms. Easha &
Ms. Hemlata Rawat, Advs.

+ W.P.(C) 4281/2021 & CM APPL. 47286/2021

M/S ALPHA CORP DEVELOPMENT
PVT LTD ..... Petitioner
Through: Mr. Debesh Panda & Mr.
Kanishk Aggrawal, Advs.

versus

ASSISTANT COMMISISONER OF
INCOME TAX & ANR. ..... Respondents
Through: Mr. Puneet Rai, Mr. Ashvini
Kumar, Mr. Rishabh Nangia,
Advs. for Income Tax.
Mr. Hemant Gupta, Ms. Shivang
Jain & Ms. Swati Tiwari, Advs.
for R-2.
Signature Not Verified
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+ W.P.(C) 11552/2021 & CM APPL. 35649/2021

M/S VIPUL SEZ DEVELOPERS PVT. LTD. ..... Petitioner
Through: Mr. Sumit K. Batra, Mr. Manish
Khurana, Ms. Priyanka Jindal,
Advs.
versus

UNION OF INDIA & ORS. ..... Respondents

Through: Mr. Asheesh Jain, CGSC with
Mr. Gaurav Jain, Adv. for R-1.
Mr. Zoheb Hossain, SSC with
Mr. Sanjeev Menon, JSC.

+ W.P.(C) 4778/2021 & CM APPLs. 14735/2021, 22303/2021

M/S ALPHA CORP DEVELOPMENT
PVT. LTD. ..... Petitioner
Through: Mr. Debesh Panda & Mr.
Kanishk Aggrawal, Advs.
versus

INCOME TAX OFFICER & ANR. ..... Respondent

Through: Mr. Puneet Rai, Mr. Ashvini
Kumar, Mr. Rishabh Nangia,
Advs. for Income Tax.
Mr. Hemant Gupta, Ms. Shivang
Jain & Ms. Swati Tiwari, Advs.
for R-2.

+ W.P.(C) 5319/2021 & CM APPL. 16386/2021

COUNTRYWIDE PROMOTERS PVT. LTD. ..... Petitioner
Through: Mr. Piyush Kaushik, Adv.
versus

COMMISSIONER OF INCOME TAX (TDS)-1, DELHI &

ANR. ..... Respondents
Through: Mr. Puneet Rai, Mr. Ashvini
Kumar, Mr. Rishabh Nangia,
Advs. for Income Tax.

Signature Not Verified

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+ W.P.(C) 5683/2021 & CM APPL. 17766/2021

M/S RAMPRASTHA ESTATES PVT. LTD. ..... Petitioner
Through: Mr. Puneet Agarwal, Mr. Yuvraj
Singh, Mr. Chetan Kumar, Advs.
versus

UNION OF INDIA & ORS. ..... Respondents

Through: Mr. Ravi Prakash, CGSC with
Ms. Usha Jamnal, Adv. for
Resp./UOI.
Mr. Sunil Agarwal, Sr. SC with
Mr. Shivansh Pandya, Mr.
Utkarsh Tiwari, Advs.

+ W.P.(C) 5715/2021 & CM APPL. 17894/2021

M/S FLORENTINE ESTATES OF INDIA LTD. ..... Petitioner
Through: Mr. Puneet Agarwal, Mr. Yuvraj
Singh, Mr. Chetan Kumar, Advs.
versus

UNION OF INDIA & ORS. ..... Respondents

Through: Mr. Ravi Prakash, CGSC with
Ms. Usha Jamnal, Adv. for
Resp./UOI.
Mr. Sunil Agarwal, Sr. SC with
Mr. Shivansh Pandya, Mr.
Utkarsh Tiwari, Advs.

+ W.P.(C) 11531/2021 & CM APPL. 35542/2021

M/S VIPUL SEZ DEVELOPERS PVT. LTD. ..... Petitioner
Through: Mr. Sumit Batra, Mr. Manish
Khurana, Ms. Priyanka Jindal,
Advs.
versus

UNION OF INDIA & ORS. ..... Respondents

Through: Mr. Asheesh Jain, CGSC with
Mr. Gaurav Jain, Adv. for R-1.
Mr. Zoheb Hossain, SSC with
Mr. Sanjeev Menon, JSC.
Signature Not Verified
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+ W.P.(C) 299/2022 & CM APPL. 848/2022

RAHEJA DEVELOPERS LIMITED ..... Petitioner
Through: Mr. Pratyush Raj & Ms. Riddhi
Jain, Advs.
versus

ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE

78(1) DELHI AND ORS. ..... Respondents
Through: Ms. Akanksha Kaul, Ms. Versha
Singh, Advs. for UOI.
Mr. Zoheb Hossain, SSC with
Mr. Sanjeev Menon, JSC.

+ W.P.(C) 4033/2022 & CM APPL. 12047/2022

RAHEJA DEVELOPERS LIMITED ..... Petitioner
Through: Mr. Pratyush Raj & Ms. Riddhi
Jain, Advs.

versus

ASSISTANT COMMISSIONER OF
INCOME TAX & ORS. ..... Respondents
Through: Ms. Akanksha Kaul, Ms. Versha
Singh, Advs. for UOI.
Mr. Zoheb Hossain, SSC with
Mr. Sanjeev Menon, JSC.

+ W.P.(C) 4498/2022 & CM APPL. 13457-13458/2022

BENCHMARK INFOTECH PVT LTD ..... Petitioner
Through: Mr. Satyen Sethi & Mr. Arta
Trana Panda, Advs.
versus

INCOME TAX OFFICER TDS WARD73(3) ..... Respondent

Through: Mr. Puneet Rai, Mr. Ashvini
Kumar, Mr. Rishabh Nangia,
Advs. for Income Tax.

Signature Not Verified

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+ W.P.(C) 4554/2022 & CM APPL. 13664-13665/2022

RPS INFRASTRUCTURE LIMITED ..... Petitioner
Through: Mr. Ved Jain, Mr. Nischay
Kantoor & Mr. Soniya Dodeja,
Advs.
versus

ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-

78-1 & ANR. ..... Respondents
Through: Mr. Sanjay Kumar, Ms. Easha &
Ms. Hemlata Rawat, Advs.

+ W.P.(C) 4647/2022 & CM APPL. 13960/2022

RPS INFRASTRUCTURE LIMITED ..... Petitioner
Through: Mr. Ved Jain, Mr. Nischay
Kantoor & Mr. Soniya Dodeja,
Advs.
versus

ASSISTANT COMMISSIONER OF INCOME TAX,

CIRCLE- 78-1 & ANR. ..... Respondents
Through: Mr. Sanjay Kumar, Ms. Easha &
Ms. Hemlata Rawat, Advs.

+ W.P.(C) 5365/2022 & CM APPL. 16059/2022

ONE POINT REALITY PVT LTD ..... Petitioner
Through: Mr. Salil Kapoor, Ms. Ananya
Kapoor, Mr. Utkarsh Kumar
Gupta, Mr. Tarun Chanana &
Mr. Sumit Lalchandani, Advs.
versus

INCOME TAX OFFICER, WARD

76(2) & ANR. ..... Respondents
Through: Mr. Kamal Kant Jha, Sr. PC with
Mr. Avinash Singh, Adv. for
UOI.
Mr. Zoheb Hossain, SSC with
Mr. Sanjeev Menon, JSC.
Signature Not Verified
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+ W.P.(C) 5367/2022 & CM APPL. 16062/2022

ONE HEIGHT COLONIZERS PVT. LTD. ..... Petitioner
Through: Mr. Ved Jain, Mr. Nischay
Kantoor & Ms. Soniya Dodeja,
Advs.

versus

INCOME TAX OFFICER, WARD

76(2) & ANR. ..... Respondents
Through: Mr. Sanjay Kumar, Ms. Easha &
Ms. Hemlata Rawat, Advs.

+ W.P.(C) 6552/2022 & CM APPL. 19907-19908/2022

JAGRAN DEVELOPERS PVT. LTD. ..... Petitioner
Through: Ms. Ananya Kapoor & Mr.
Utkarsh Kumar Gupta, Advs.
versus

NATIONAL FACELESS ASSESSMENT

CENTRE ..... Respondent
Through: None

+ W.P.(C) 6558/2022 & CM APPL. 19924-19925/2022

JAGRAN DEVELOPERS PVT. LTD. ..... Petitioner
Through: Ms. Ananya Kapoor & Mr.
Utkarsh Kumar Gupta, Advs.
versus

NATIONAL FACELESS ASSESSMENT

CENTRE ..... Respondent
Through: None

+ W.P.(C) 6631/2022 & CM APPL. 20143-20144/2022

ANSAL PROPERTIES AND
INFRASTRUCTURE LTD ..... Petitioner
Through: Mr. Tapas Ram Mishra, Adv.
Signature Not Verified
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versus

DY COMMISSIONER OF INCOME
TAX CIRCLE 73(1) ..... Respondent
Through: Mr. Aseem Chawla, Sr. SC with
Ms. Pratishtha Chaudhary, Mr.
Aditya Gupta, Mr. Navin Rohila,
Advs. for Revenue.

+ W.P.(C) 6694/2022 & CM APPL. 20332-20333/2022

M/S FLORENTINE ESTATES OF INDIA LTD. ..... Petitioner
Through: Mr. Puneet Agarwal, Mr. Yuvraj
Singh, Mr. Chetan Kumar, Advs.
versus

UNION OF INDIA & ORS. ..... Respondents

Through: Mr. Ravi Prakash, CGSC with
Ms. Usha Jamnal, Adv. for
Resp./UOI.
Mr. Sunil Agarwal, Sr. SC with
Mr. Shivansh Pandya, Mr.
Utkarsh Tiwari, Advs.

+ W.P.(C) 6737/2022 & CM APPL. 20450-20451/2022

ACTIVE PROMOTERS PRIVATE LIMITED ..... Petitioner
Through: Mr. Salil Kapoor, Ms. Ananya
Kapoor, Mr. Utkarsh Kumar
Gupta, Mr. Tarun Chanana &
Mr. Sumit Lalchandani, Advs.
versus

INCOME TAX OFFICER WARD

73(1), DELHI ..... Respondent
Through: Mr. Aseem Chawla, Sr. SC with
Ms. Pratishtha Chaudhary, Mr.
Aditya Gupta, Mr. Navin Rohila,
Advs. for Revenue.

Signature Not Verified

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+ W.P.(C) 6893/2022 & CM APPL. 21015/2022

M/S OMAXE LTD ..... Petitioner
Through: Mr. Puneet Agarwal, Mr. Yuvraj
Singh, Mr. Chetan Kumar, Advs.

versus
DEPUTY COMMISSIONER OF
INCOME TAX & ORS. ..... Respondents
Through: Mr. Vipul Agrawal, SSC with
Mr. Gibran Naushad & Ms.
Sakshi Shairwal, Adv. for R- 1 &
R-3.

+ W.P.(C) 7978/2022 & CM APPLs. 24381/2022, 36849/2022

RAHEJA DEVELOPERS LIMITED ..... Petitioner
Through: Mr. Pratyush Raj & Ms. Riddhi
Jain, Advs.
versus

ASSISTANT COMMISSIONER OF
INCOME TAX & ORS. ..... Respondents
Through: Ms. Akanksha Kaul, Ms. Versha
Singh, Advs. for UOI.
Mr. Zoheb Hossain, SSC with
Mr. Sanjeev Menon, JSC.

+ W.P.(C) 9236/2022 & CM APPL. 27686/2022

M/S TS REALTECH PVT. LTD ..... Petitioner
Through: Mr. Puneet Agarwal, Mr. Yuvraj
Singh, Mr. Chetan Kumar, Advs.
versus

UNION OF INDIA & ORS. ..... Respondents

Through: Mr. Gigi C. George & Mr.
Dheeraj Singh, Advs. for
Resp./UOI.
Mr. Aseem Chawla, Sr. SC with
Ms. Pratishtha Chaudhary, Mr.

Signature Not Verified

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Aditya Gupta, Mr. Navin Rohila,

Advs. for Revenue.

+ W.P.(C) 11184/2022 & CM APPL. 32877/2022

M/S ONE POINT REALITY PRIVATE LIMITED
..... Petitioner
Through: Mr. Salil Kapoor, Ms. Ananya
Kapoor, Mr. Utkarsh Kumar
Gupta, Mr. Tarun Chanana &
Mr. Sumit Lalchandani, Advs.
versus

INCOME TAX OFFICER WARD 76(2), DELHI .. Respondent

Through: Mr. Zoheb Hossain, SSC with
Mr. Sanjeev Menon, JSC.

+ W.P.(C) 11220/2022 & CM APPL. 32975/2022

M/S ONE POINT REALITY
PRIVATE LIMITED ..... Petitioner
Through: Mr. Salil Kapoor, Ms. Ananya
Kapoor, Mr. Utkarsh Kumar
Gupta, Mr. Tarun Chanana &
Mr. Sumit Lalchandani, Advs.
versus

INCOME TAX OFFICER WARD

76(2), DELHI ..... Respondent
Through: Mr. Zoheb Hossain, SSC with
Mr. Sanjeev Menon, JSC.

+ W.P.(C) 11706/2022 & CM APPL. 34819/2022 (Ex.)

M/S PURI CONSTRUCTION LIMITED ..... Petitioner
Through: Mr. Puneet Agarwal, Mr. Yuvraj
Singh, Mr. Chetan Kumar, Advs.
versus

UNION OF INDIA & ORS. ..... Respondents

Through: Mr. Bhagwan Swaroop Shukla,
Signature Not Verified
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CGSC with Mr. Vinay Shukla &

Mr. Sharvan Kumar Shukla,
Advs. for Resp./UOI.
Mr. Kunal Sharma, Ms. Zehra
Khan, SSCs with Mr. Shubhendu
Bhattacharyya, Adv.

+ W.P.(C) 4920/2023 & CM APPL. 19028-19029/2023

BRAHMA CITY PRIVATE LIMITED ..... Petitioner
Through: Mr. Salil Kapoor, Ms. Ananya
Kapoor, Mr. Utkarsh Kumar
Gupta, Mr. Tarun Chanana &
Mr. Sumit Lalchandani, Advs.
versus

INCOME TAX OFFICER WARD 73 3

DELHI & ANR. ..... Respondents
Through: Mr. Puneet Rai, Mr. Ashvini
Kumar, Mr. Rishabh Nangia,
Advs. for Income Tax
Mr. Bhagwan Swaroop Shukla,
CGSC with Mr. Vinay Shukla &
Mr. Sharvan Kumar Shukla,
Advs. for Resp./UOI.

+ W.P.(C) 5313/2023 & CM APPL 20713/2023

CHINTELS INDIA PVT LTD. ..... Petitioner
Through: Mr. Kapil Goel & Mr. Sandeep
Goel, Advs.
versus

DEPUTY COMMISSIONER OF INCOME

TAX CIRCLE 73(1), DELHI ..... Respondent
Through: Mr. Aseem Chawla, SSC with
Ms. Pratishtha Chaudhary, Mr.
Aditya Gupta & Mr. Navin
Rohila, Advs.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA

Signature Not Verified

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HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR

KAURAV
JUDGMENT
YASHWANT VARMA, J.

1. This batch of writ petitions assail the action initiated by the

respondents predicated upon a purported failure on the part of the writ
petitioners to deduct tax on payments made to the Haryana Shahari
Vikas Pradhikaran1 (earlier known as the Haryana Urban
Development Authority, for short ―HUDA‖) under Section 194C of the
Income Tax Act, 19612. The respondents assert that the External
Development Charges3 which were paid by the writ petitioners to
HSVP albeit on the directions of the Director General, Department of
Town and Country Planning4, Haryana, a department functioning
under the Government of Haryana, would clearly fall within the ambit
of Section 194C of the Act and as a consequence of default, the
petitioners are liable to be proceeded under Section 201 as also to
answer why penalty be not levied in terms of Section 271C of the Act.
2. We at the outset deem it appropriate to note and observe that we
have heard learned counsels for respective sides solely on the question
of whether the payment of EDC would fall within the ambit of Section
194C of the Act and whether the writ petitioners can be held liable to
have deducted tax at source in terms of that provision. We thus propose
to principally answer the primary question and consequentially leave it
open for the writ petitioners as well as the respondents to proceed
further in respect of notices that may have been issued referable to

1
HSVP
2
The Act
3
EDC
4
DTCP

Signature Not Verified

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Sections 201 and Section 271C of the Act in accordance with the
present judgment.
3. Since the questions raised were found to be common, we propose
to briefly notice the salient facts as they obtain in W.P.(C) 11232/2019
and W.P.(C) 3850/2021. It may also be noted that the facts of each writ
petition forming part of this batch and the status of individual cases has
been gleaned from a detailed chart which was placed by the
respondents and forms part of the record.
4. Natureville Promoters Private Limited5 has preferred the
aforenoted writ petition seeking the following reliefs:-
―(a) Quash and set aside the CIRCULAR F. NO. 370133/37/2017 -
TPL Dated 23.12.2017 (Annexure -12);
(b) Quash and set aside the Notices issued under Section 201(1)/
Section 201(1A) of the Income Tax Act dated 22.03.2017,
31.03.2017, 10.08.2017 and 19.07.2019 [(Annexure 3, 4, 8 ( colly)
and 16 ( colly)].
(c) Quash and set aside the provisions of Section 4(1), and Section
2(31)(vi) being violative of the Article 289 of the Constitution of
India imposing tax on income of State;
(d) Declare that the EDC is not leviable to Income tax, and there is
no liability to deduct TDS on the same under the Income Tax Act,
1961;
(e) Prohibit and restrain the respondents from proceeding further
with the matter;

Pass such other order(s) or further orders as this Hon'ble Court

deems fit and proper in the facts and circumstances of the case, for
which act of kindness the Petitioner as is duty bound shall ever
pray.‖

5. It must at the outset be noted that although a challenge to the

validity of Sections 4(1), Section 2(31)(vi) of the Act also appears to
form part of the writ petition, no arguments on that score were

5
Natureville Promoters

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addressed before us. RPS Infrastructure Limited6 raises a similar

challenge as would be evident from the reliefs which are sought in the
petition:

―A. Issuance of writ in the nature of Certiorari, Mandamus,

Prohibition or any other appropriate writ, order or direction for
quashing the impugned show cause notice dated 12.03.2021 issued
by the Respondent being illegal, arbitrary and not legally
sustainable in the eyes of law;
B. Issuance of a writ, order and/or directions in the nature of
certiorari, prohibition, mandamus or any other appropriate writ,
order or direction staying the operation of the impugned show
cause notice dated 12.03.2021 issued by the Respondent.
C. Issuance of a writ, order and/or directions in the nature of
certiorari, prohibition, mandamus or any other appropriate writ,
order or direction staying all consequential proceedings, that may
be initiated pursuant to the impugned notice under challenge issued
under section 201(1)/201(1A) by the Respondent in the case of
Petitioner for FY 2013-14.
D. Grant an ad-interim ex parte stay in terms of prayers (a), (b) and
(c) above;
E. Issuance of a writ in the nature of mandamus or any other writ,
order or direction, as deemed fit and proper in the facts and
circumstances of the present case.

It is further prayed that during the pendency of the present writ

petition, the further proceeding before the Respondent may kindly
be stayed in the interest of justice and equity.‖

6. Natureville Promoters is stated to be engaged in the business of

construction, promotion and development of land and real estate. It was
granted license no. 99 of 2010 in Form LC-V dated 30 November 2010
under the provisions of the Haryana Development and Regulation of
Urban Areas Act, 19757 for carrying out a development project in
collaboration with Puri Constructions Pvt. Ltd. It also appears to have
entered into a bilateral agreement in Form LC-IV with the DTCP in

6
RPS Infrastructure
7
HDRUA

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connection with the aforesaid project. On 22 March 2017, a notice

came to be issued by the Income Tax authorities calling upon
Natureville Promoters to explain why TDS had not been deducted on
EDC payments made to HSVP. That EDC payments were made directly
to HSVP is not questioned by the writ petitioners. Their challenge
essentially stems from the fact that the said payment was made on the
directions of the DTCP. Whether this aspect would have any material
bearing on their alleged liability to deduct tax is one which we propose
to deal with in the subsequent parts of this decision.
7. Reverting to the narration of facts, we note that the petitioner
upon receiving the aforesaid notice appears to have approached the
office of the DTCP seeking clarifications. The DTCP was asked by
Natureville Promoters to clarify whether TDS provisions were
applicable to payments made to HSVP. The aforesaid communication
was followed by a further letter addressed by the petitioner to DTCP
dated 31 July 2017 asking the concerned authority to clarify whether
developers are required to deduct TDS on EDC payments that have
been made. In the meanwhile, the Income Tax authorities issued yet
another notice dated 10 August 2017 calling for further information
from the writ petitioner. The DTCP on 06 October 2017 replied to the
collaborator of Natureville Promoters, Puri Constructions, stating that
EDC is a charge levied by the Government for carrying out external
development works and that the same is deposited in the receipt head of
the DTCP and would thus constitute Government receipt. It was further
stated that no tax is being deducted thereon since it was Government
receipt.

Signature Not Verified

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8. In the meanwhile, the Central Board of Direct Taxes8 appears

to have been approached by the Finance Secretary of the Government
of Haryana and called upon to clarify the position. In terms of an
Office Memorandum9 dated 23 December 2017, the CBDT took the
following position:-

―F. No.370133/372017-TPL
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Direct Taxes)
TPL Division
*******
New Delhi, 23rd December, 2017

OFFICE MEMORANDUM

Sub: Recommendations for relief from applicability of TDS

provisions on External Development Charges (EDC) payable to
Directorate of Town & Country Planning (DTCP) State
Government of Haryana-regarding.

Kindly refer to your letter dated 21st November, 2017 addressed to

the Finance Secretary, along with the enclosures on the captioned
subject.

2. In this regard it is submitted that provisions of non-deduction of

tax under Section 196 of the Income-tax Act, 1961, is applicable to
the Government and to the other authorities as mentioned under the
Section. Accordingly, External Development Charges (EDC) if
paid to Government of Haryana would be exempt from TDS
provisions. However, in the instant case, it appears that the
developer has made the payment in the nature of External
Development Charges (EDC) not to the Government but to HUDA
[Haryana Urban Development Authority) which is a development
authority of State Government of Haryana and is a taxable entity
under the income-tax Act, 1961. Hence, TDS provisions would be
applicable on EDC payable by the developer to HUDA

3. It may be mentioned here that section 194 of the Income as Act,

1961 provides for non- deduction of tax in suitable cases. The

8
CBDT
9
OM

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HUDA may resort to aforesaid provision for exemption of TDS

with regard to payment of EDC

4. This issues with the approval of Finance Secretary.

(Dr. Rishi Kumar)

DCIT (OSD) (TPL-III)
Shri Praveen Jain
Vice Chairman
National Real Estate Development Council
First Floor, 8, Community Centre,
East of Kailash, New Delhi-110065
Tele:01126225795, 01141608570
Fax:01126225796‖

9. Insofar as the DTCP is concerned, it vide its communication of

19 June 2018 while clarifying the position with respect to HSVP took
the following stand:-

―DIRECTORATE OF TOWN & COUNTRY PLANNING

HARYANA
SCO No. 71-75, Sector-17 /C, Chandigarh, Website
www.topharyana. gov .in
0172-2549347, E-mail: [email protected]

To
The Chief Administrator,
Haryana Shahri Vikas Pradhikaran,
Panchkula,

Memo No. DTCP /ACCTTS/AO(HQ)/CA0/2894/2018 Dated:

19.06.2018

Subject: Clarification on TDS Deductions on EDC Payments.

Please refer to the matter cited as subject above.

1. Section 2(g) of the Haryana Development and Regulation of

Urban Areas Act, 1975 defines that external development works
(hereinafter referred as EDW) shall includes any or all
infrastructure development works like water supply, sewerage,
drains, provisions of treatment and disposal of sewage, sullage and
storm water, roads, electrical works, solid complex, fire stations,
grid sub-stations etc and/or any other work which the Director may
specify to be executed in the periphery of or outside colony/area for
the benefit of the colony/area.
2. As per Section 3(3)(ii), license holder has to pay proportionate

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development charges if the external development works as defined

in clause (g) of section 2 are to be carried out by the Government or
any other local authority. The proportion in which and the time
within which, such payment is to be made, shall be determined by
the Director.
3. Presently, external development works in the periphery of or
outside colony/area for the benefit of the colony/area are being
executed by Haryana Shahri Vikas Pradhikaran (hereafter HSVP)
which is the Development Authority of State govt. Earlier upto
31.03.2017, Department of Town & Country Planning used to
collect the external development charges from the colonizer to
whom licences have been granted under Act No.8 of 1975 and the
persons to whom permission for change of Land use have been
granted under Act No. 41 of 1963, in the shape of bank draft drawn
in favour of CA, HSVP and sent the same to CA, HSVP.
4. As the receipt on account of EDC was not sufficient to carry out
the all development works under EDC for the urban estate as per
approved development plans, therefore, to meet out the shortfall, a
new scheme Swaran Jayanti Haryana Urban Infrastructure
Development Scheme (renamed as Mangal Nagar Vikas Yojana
was approved by the State Govt. and appropriate budget provision
for execution of development works has been made in the said
scheme. From Financial Year 2017-18, the receipts on account of
EDC is being deposited in the consolidated fund of the State under
Major Receipt Head 0217 receipts and all license / CLU holders
have also been directed vide order dated 12.05.2017 that payment
of EDC in respect of license/ CLU granted by TCP Deptt. May be
made online through e-payment gateway or in shape of demand
drafts favouring Director, Town & Country Planning, Haryana.
Required funds for execution of development works are released to
HSVP after granting the sanction from the Finance Department.

It is, therefore, clarified that HSVP is only an executing

agency working for and on behalf of State Govt. for carrying out
EDW for which funds are given to HSVP by the Govt. through
TCP Deptt. Since, payment for EDC has been made to TCP Deptt.
Of State Govt., no TDS was/is to be deducted out of payment made
to Govt. for EDW.

Endst No. DTCP/ ACCTTS/ AO(HQ)/CA0/2903-04/20 18

Dated: 19.06.2018

A copy with reference to representation on the subject cited

matter is forwarded to CREDAI, Haryana, 12A, First Floor, Omaxe
Square Building, District Center jasola, New Delhi-110044 &
Satya Developers Pvt. Ltd., 34, Babar Lane, Bengali Market, New
Delhi- 110004 for information please.

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Accounts Officer (HQ)

For: Director, Town & Country Planning
Haryana, Chandigarh‖

10. In the meanwhile and taking note of the controversy which had
arisen, DLF Utilities Limited, is stated to have approached the Punjab
and Haryana High Court by way of CWP No. 1866/2018. While
entertaining that writ petition, the High Court on 29 January 2018
passed the following interim order:-
―Issue notice of motion returnable on 27.03.2017.

One of the questions that arises is whether the petitioner is at all

liable to deduct tax at source. This in turn raises a question as to
whether the external development charges are payable by the
petitioner under the Haryana Development and Regulation of
Urban Areas Act, 1975 to the Government of Haryana or to any
other party. If it is to the Government of Haryana, it is possible
that the exemption under Section 196 of the Income Tax Act,
1961 would apply.

The petitioner states it entered into the agreements in Forms IV

and LC-IV A.

Prima facie, the agreements are with the Governor of Haryana.

In these circumstances, petitioner shall pursuant to the impugned

notice dated 22.01.2018 appear before the officer. Till further
orders, the order, if any, however, shall not be given effect to.‖

11. Writ petitions thereafter came to be filed before this Court

including W.P. (C) 9483/2019 by the collaborator of Natureville
Promoters and where upon taking note of the orders passed by the
Punjab and Haryana High Court in DLF Utilities Limited, interim
orders were passed providing that while proceedings may go on, any
orders adverse to the petitioner, if passed, would not be given effect to.
Similar orders operate on the various writ petitions forming part of this

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batch. It is this interim order which has continued on all the writ
petitions forming part of this batch.
12. The sequence of events insofar as RPS Infrastructure is
concerned follow a similar chronology. A notice under Section 201 and
Section 201(1A) of the Act came to be issued against that writ
petitioner on 16 December 2020. The charge in that notice was identical
to that laid against Natureville Promoters, namely, the liability to
deduct tax on EDC payments made to HSVP.
13. Responding to the aforesaid notice, RSP Infrastructure took the
position that TDS was not liable to be deducted and prayed for the
proceedings being dropped. Ultimately and by an order dated 12 March
2021, the Income Tax Department issued a final notice holding that
HSVP was a taxable entity and consequently there was an evident
failure on the part of RSP Infrastructure to deduct tax in accordance
with the provisions made in Chapter XVII-B of the Act.
14. It becomes pertinent to note that the present litigation stems from
the stand taken by the Income Tax Department that tax was liable to be
deducted by virtue of the provisions made in Section 194C. It would
further appear from the record that earlier also notices under Section
148 of the Act and based on a failure to deduct tax in respect of EDC
payments had been issued against various entities and at which stage
the respondents had taken the position that tax was liable to be
deducted under Section 194 of the Act. One of those notices came to be
challenged in BPTP Limited v. Principal Commissioner of Income
Tax (Central) – III & Anr.10 The Court in BPTP upheld that challenge
holding that no liability to deduct tax under Section 194 or 194I would

10
(2020) 421 ITR 59

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arise. We deem it apposite to extract the following passages from

BPTP:-
―26. The Assessing Officer in paragraph 2 of the recorded reasons
quotes that "External development charges is covered by the
provisions of section 194 of the Income-tax Act, 1961. The
assessee has failed to deduct tax at source on the payments made
to the Haryana Urban Development Authority". There is no
explanation or rationale for the aforesaid observation made by the
Assessing Officer. We, therefore, cannot understand as to how the
payment of external development charges being in the nature of
statutory fees, could be subject to withholding tax under section
194 of the Act, a provision that is applicable to dividends. The
nature of dividend payment is intrinsically different from external
development charges and, therefore, the apparent reason for
reopening seems to be erroneous, irrational and fallacious. The
subsequent observation in paragraph 2 "as per the provisions of
section 40(a)(ia) of the Income-tax Act, any sum payable on
which tax is deductible at source under Chapter XVII-B but the
same has not been deducted" appears to be based on the
understanding that the provisions of section 194 are attracted to
external development charges and, therefore, it is subject to
withholding tax and consequently the provisions of section
40(a)(ia) of the Act would be attracted. Even if one were to ignore
the provision of law quoted and relied upon by the Assessing
Officer, and we were to agree with the contention of Revenue that
while exercising the power, the source may not be specifically
referred to or if wrongly mentioned to, it would not render the
exercise of such power to be invalid, yet, we are unable to fathom
as to how the Assessing Officer has arrived at the conclusion that
the external development charges payment was subject to tax
deduction at source. The Revenue in its counter-affidavit has
sought to elaborate on the aforesaid reasons by contending that
the external development charges payment is akin to rent.
However, we are not impressed with this submission. Firstly, such
an understanding is not borne out from the recorded reasons and,
secondly, the Department cannot by way of a counter-affidavit
supplement the recorded reasons by introducing such legal
submissions. The source of the power in this case, as sought to be
argued, is not discernible.

27. If the Assessing Officer harboured a reason to believe that the

payment of external development charges requires deduction of
tax at source under the provisions of the Income-tax Act, it ought
to have disclosed the basis for such a view. The entire reasoning
disclosed in the recorded reasons, for initiating the proceedings is
completely silent on this aspect. It merely states that "Since,
external development charges has income character, therefore it
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should have been subjected to tax deducted at source by

assessee". The Assessing Officer has further proceeded to observe
since the assessee is a development authority of State Government
of Haryana and is a taxable entity, deduction of tax at source
provisions could be applicable on external development charges
payable by the assessee through Haryana Urban Development
Authority. Apart from making aforenoted observations and
referring to section 194 and section 40(a)(ia), there is no apparent
rationale for assumption of jurisdiction by the Assessing Officer.
The judgment in Greater Mohali Area (supra) is of no assistance
to the Revenue as the same is distinguishable on facts. In the said
case, the petitioner who was recipient of external development
charges had approached the court seeking quashing of the order
disposing of its objections to the reasons recorded for reopening
the assessment under sections 147 and 148 of the Act. In the
assessment under section 143 (3) of the Act, the effect of external
development charges upon petitioner's income was not referred to,
the Assessing Officer sought to reopen the assessment on the
basis of reason to believe that income on account of external
development charges had escaped assessment. In these
circumstances, since, the assessment order, did not deal with the
character of the income of external development charges or its
effect on petitioner's income, the court upheld the action of
reopening on the ground that the issue had not been considered at
the time of the assessment. Likewise, the other judgment relied
upon by the Revenue in the case of New Okhla Industrial
Development Authority (supra) is also distinct on facts. In the
said case, the court was examining as to whether Greater Noida
and Noida Authorities were local authorities within the meaning
of section 10(20) of the Income-tax Act and whether their income
was exempt from Income-tax. Deciding this question, the court
held that the Noida and Greater Noida are not local authorities for
the purpose of the Act. Therefore, the aforesaid decision has no
relevance to the facts of the present case.

28. We would also like to reflect on section 194-1 and its

Explanation which deals with rent and has been relied upon by
the Revenue to contend that the definition of "rent" is broad and
would also envisage the payment of external development charges
and is subject to withholding tax. In support of this provision, the
Revenue has relied upon the observations of the Supreme Court in
New Okhla Industrial Development Authority (No. 2) v. CIT
(Appeals) (2018) 406 ITR 209 (SC), the relevant portion whereof
is reproduced herein below (page 218 of 406 ITR):
"The definition of rent as contained in the Explanation is a very
wide definition. The Explanation states that 'rent' means any
payment, by whatever name called, under any lease, sub-lease,
tenancy or any other agreement or arrangement for the use of any

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land. The High Court has read the relevant clauses of the lease
deed and has rightly come to the conclusion that payment which
is to be made as annual rent is rent within the meaning of section
194-1, we do not find any infirmity in the aforesaid conclusion of
the High Court. The High Court has rightly held that tax deducted
at source shall be deducted on the payment of the lease rent to the
Greater Noida as per section 194-1. Reliance on circular dated
January 30, 1995 has been placed by the Noida/Greater Noida. A
perusal of the circular dated January 30, 1995 indicate that the
query which has been answered in the above circular is 'Whether
requirement of deduction of Income-tax at source under section
194-1 applies in case of payment by way of rent to the
Government, statutory authorities referred to in section 10(20A)
and local authorities whose income under the head 'Income from
house property‘ or 'Income from other sources' is exempt from
Income-tax."

29. We are unable to see as to how the above provision and

decision is of any assistance to the Revenue. It can be seen from
the quoted portion of the said judgment that in the said case, the
payment of annual rent was considered to be falling within the
ambit of section 194 -I , a conclusion drawn by the court on a
reading of the relevant clauses of the lease deed. In the present
case, the external development charges, on the aforesaid
rationality, cannot be subjected to section 194-1 of the Act.
Moreover, if such was the understanding of the Revenue, it should
have been well founded and disclosed in the reasons recorded by
the Assessing Officer. Deduction of tax at source is dealt with
under Chapter XVII of the Income- tax Act. The provisions
enumerated thereunder, stipulate requirement of deduction of tax
at source. The Revenue is unable to point out any specific
provision which deals with external development charges
payment except for alluding to section 194-1. We need not delve
into this question any further as we do not find this to be a ground
spelt out in the reasons for reopening the assessment under
section 147 of the Act. The statutory orders containing reasons
have to be judged on the basis of what is apparent and not what is
explained later. The Revenue cannot be permitted to improve the
same by offering better explanation during the course of the
proceedings. On this issue we would like to refer the view of the
Supreme Court in Mohinder Singh Gill v. Chief Election
Commissioner (1978) 1 SCC 405 where it has been held "The
second equally relevant matter is that when a statutory
functionary makes an order based on certain grounds, its validity
must be judged by the reasons so mentioned and cannot be
supplemented by fresh reasons in the shape of affidavit or
otherwise.‖

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15. Yet another challenge thereafter came to be laid before this Court
in DLF Homes Panchkula Pvt. Ltd. vs. Joint Commissioner of
Income Tax11 with the respondents this time taking the position that
TDS on EDC was liable to be deducted by virtue of Section 194I. This
stand came to be negatived with our Court holding that EDC could not
be termed as „rent‟ so as to fall within the ambit of Section 194I.
16. The writ petitioners have also referred to the views expressed by
different benches of the Income Tax Appellate Tribunal12 while
dealing with penalty proceedings. However, insofar as RPS
Infrastructure is concerned, it appears to have been placed on notice
with respect to a levy of penalty under Section 271C for Financial
Years13 2013-14, 2014-15 and 2015-16. While dealing with the
aforesaid issue the Additional Commissioner of Income Tax in terms of
an order made on 15 January 2018 took the following stand:-
―4.1. HUDA was constituted under Haryana Urban
Development Authority Act, 1977. The functions of HUDA
are:
a. To promote and secure development of urban areas with the
power to acquire. sell and dispose off property, both movable and
immovable.
b To acquire develop and dispose off land for residential.
Industrial. commercial and institutional purposes.
c To make available developed land to Haryana Housing board
and other bodies for providing houses to Economically Weaker
Sections of the society, and
d To undertake building works and other engineering works.

4.1 1 HUDA is developer of urban areas. It develops urban

infrastructure. It is doing business of development of large real
estate projects. During survey of HUDA, statement of Sh. Ram
Kumar. Sr. AO. HUDA. and relevant representative documents
showing entire gamut of business activities of HUDA were found
and taken on record. HUDA is the entity which is acquiring land,

11
2023:DHC:2401-DB
12
ITAT
13
FY

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developing and finally handing it over to consumers for a price.

Lands developed by HUDA is though identified and acquired by
the Urban Estate Department, Haryana Government yet the
ownership and possession of land is transferred to HUDA for
consideration paid by HUDA.

A) land to be developed is identified and surveyed by the

Director General Town & Country Planning Haryana the land
so identified and surveyed is ready for acquisition by LAO
(Land Acquisition Officer) of the Urban Estate Department
Haryana The relevant portion of the statement of Sh. Ram
Kumar was is as under:

"Q. Please explain the process by land ultimately comes

to HUDA for development starting from the point at
identification at land?

Ans In the first phase, Town & Country Planning survey

of the land which is required to be acquired. After survey
concerned land acquisition start, acquisition process as
per land Acquisition Act, and send the case file to the
Government of Haryana for its approval. After approval,
HUDA authorized the bank in the name at concerned
LAO, who make the payment to land owners on behalf
of HUDA. At the time of announcement at award, he
make the agreement with concerned state officers HUDA
for said land. Sample copy at Government approval and
bank authorization is submitted to. After making
payment HUDA start process for development at land
and thereafter start the process for development at land
And thereafter start the process at floatation. After
inviting applications from the applicants. Copy of
scheme branches and allotment letter is submitted as
Annexure-C and D.

B) LAO requests its superior authority, Director General

Urban Estate Department Haryana for administrative
approval for acquiring the land.

C) The urban Estate Department. Haryana conveys

administrative approval for acquisition of land to Director
General Urban Estate Department, Haryana. It asks LAO to
acquire land in question as per law. A copy of this approval is
marked to HUDA.

D) HUDA authorizes its bank to disburse payment for award

for land to the LAO.

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E) LAO transfers the ownership and possession of land to

HUDA.

4.2 Basis/Rationale for charging of EDC by HUDA-

4.2. 1 External Development Work (hereafter EDW) is defined in

the Haryana Development and Regulation of Urban Area Act.
1975 (hereafter HDRUA). Definition of EDW is given in section
2(g) of this Act It is as follows:
'External Development works include water supply. sewerage,
drains. necessary provisions of treatment and disposal of sewage,
sullage and storm water, roads, electrical works. solid waste
management and disposal slaughter houses, colleges, hospitals,
stadium/sports complex. fire stations grid sub-stations etc and any
other work which the directory may specify to the executed in the
periphery of or outside colony/area for the benefit of the
colony/area‘

4.2.2 HUDA charges EDC as per section 3(3)(a)(ii) of HDRUA,

which reads as under:
‗To pay proportionate development charges if the external
development works as defined in clause (g) of Section 2 are to be
carried out by the Government or any other local authority The
proportion in which and the time within which such payment is
to be made, shall be determined by the Director'

4.2.3 HUDA charges EDC for EDWs by issuing letters/circulars

which are documented from time to time:

Sr. Subject/ Dispatch Date of Issue

No. Description No.
a Fixation of 22860-72 14.08.2002
development charges of
released land and cases
of change of land use in
the Urban Estate/
Controlled area of the
state
b Fixation of EDC in 851-76 15.01.2022
cases of
released/change of land
use
c Fixation of External 16493- 08.07.2002
Development Charges 16518
in cases of
released/change of land

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use
d Fixation of External 33580-608 25.09.2009
Development Charges
in cases of released land

4.2.4 The gist of these letters/circulars is that EDC are levied as

per Section 2(g) for EDW on the beneficiaries to whom the
change of land use permission is granted for various purposes in
the Agricultural/Rural Zone and who are also availing the benefits
of the EDW like the town level facilities of major circulation
roads, stadiums, hospitals colleges, crematoriums town parks etc.
being provided by HUDA in the nearby urbanisable areas. Since
the change of land use holders avail the parts of the EDW, they
should also proportionately contribute towards the expenditure
incurred on EDW by HUDA This proportionate contribution is
called EDC.

4.2.5 The rationale for EDC received/charged by HUDA is further

strengthened by a noteworthy point Mentioned in the 'Notes to
The Accounts Forming Part of The Balance Sheet As on 31. 03
2016' having significant bearing on the nature EDC is as under:

2 (ii) other liabilities also include external developmental

charges received through DGTCP department Haryana for
execution of various EDC works. The expenditure against
which have been booked Development Work in Progress,
Enhancement compensation and Land cost.'

4.3 Determination of EDC to be paid by participating private

persons/builders, colonizers etc.-

4.3.1 A participating private builder is required to pay EDC as

provided in the license for setting up a commercial colony on
urbanisable land held by it in vicinity of land owned and
developed (EDWs) by HUDA The license is issued by the
Directorate of Town and Country Planning, Haryana, subject to
the undertaking as per the relevant conditions mention below:

To submit an undertaking to the effect that you shall make

arrangement for water supply, sewerage, drainage ere to the
satisfaction of DGTCP till these services are made available from
external infrastructure to be laid by HUDA "

4.3.2 Computation of External Development Charges (EDC) is

made as under:
A) Charges for Commercial area =Rs. X Lakhs
(@ Rs. Y lakhs/Acre)

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B) Total cost of Development = Rs. X Lakhs

C) 25% bank guarantee required = Rs. 0.25 X Lakhs
iv) The demand drafts of EDC amounts are drawn in favour of the
Chief Administrator, HUDA though routed through the Director
General Town and Country Planning, Sector 18, Chandigarh. This
state of affairs as for as the EDC is concerned is stated by HUDA
in the 'Notes to The Accounts Forming Part of The Balance Sheet
As on 31.03.2016' filed with the return of income. It reads as
under:

―2(i) Other liabilities also include external developmental

charges received through DGTCP Department Haryana for
execution of various EDC works. The expenditure against
whtch have been booked in Development Work in
Progress. Enhancement compensation and Land cost.

(iv) This establish the fact that the land is owned and developed
by HUDA which receives EDC as return/income on the money
invested in the EDWs. There is specific quid pro quo for EDC.
EDC would never be returnable and would never be returned
because it is a consideration paid by EDW users.

4. 3.3 EDC is worked out for a particular urban estate on the basis
of the cost of external development services such as master water
supply. Master Sewage, Master Roaos, Master Storm Water
Drainage, Master Horticulture. Master Community building and
other services is determined on the basis of a price index of a
particular year in respect of a particular urban estate. The cost is
determined by the Engineering Wing of HUDA keeping in view
the requirement of development plan of an urban estate. EDC is
charged from sectors floated by HUDA or the license granted by
the Town & Country Planning Department to the developers. To
say that there is no element of profit in EDC because EDC varies
depending upon requirement of development in each urban estate.
Therefore it is in the nature of liabilities is incorrect because the
payers of EDC are allowed to use EDWs for payment of fees
worked out On the basis of investments in EDWs. EDC is
charged from colonizers for using the developed urban
infrastructure in urban estates wherein they are allowed to
establish their commercial set ups The EDC IS a usar fee charged
by HUDA from colonizers.

4.3.4 The 1ncome nature of EDC would not change even though
it is received through DGTCP department Haryana The method of
accounting of payment EDC by private colonizer like M/s. XYZ
Pvt. Ltd. in its books of accounts as Current assets would also not
change the income nature of EDC in the hands of HUDA.

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4.3.5 Showng EDC as current liability by HUDA is incorrect for

the reasons narrated in the foregoing paras, based on specific
nature and flow of transactions, supported by specific evidences
in form of sample letters/documents, Therefore. EDC is a revenue
receipt having character of income of HUOA. This is also a
finding of assessing officer of HUDA which stands confirmed by
CIT(A) too. Therefore, ought to have been subjected to TDS by
payer of EDC.

4.4 Reasons for Applicability of TDS provisions on EDC paid

to HUDA:
i) HUDA is a taxable entity carrying out business activities to
acquire, develop and dispose off land for residential, industrial,
commercial and institutional purposes in urban estates so
developed in state of Haryana its business income is taxed by
1ncome tax department which includes EDC.

ii) In the Circular No. 681 dated 8.3.94 issued by the CBDT it has
been stated that a work done by one person is service rendered to
another. One of the dictionary meanings of the word 'service· is
work {Associate Cement Co. Ltd. Vs. CIT, 120 ITR 444 (Patna)].
The Circular at para (v) states that the ·service contract would be
covered by the provisions of this section since service means
doing any work. It further states at para (i) that 'the provisions of
section 194C shall apply to all types of contracts for carrying out
any work including transport contracts, service contracts. "

The relevant port1on of Circular No. 681 of CBDT dated 8/3/94

is as under:
" ..... ....... 3. Section 194C was introduced with effect
from 1st April, 1972. Shortly after its introduction, the
Board Issued Circulars No. 86, dated 29th May, 1972
(F.No. 275/9/72-ITJ), No. 93, dated 26 September, 1972
(F.No. 275/100/72-ITJ), and No. 108, dated 20 March,
1973 (F.No. 131(9)/73- TPL), in this regard.

4. Some of the issues raised in the above-mentioned

circulars need to be reviewed in the light of the
judgment dated March 23, 1993, delivered by the
Supreme Court of India in Civil Appeal No. 2860(NT) of
1979· Associated Cement Co. Ltd. Vs. CIT1993] 201
ITR 435.

5. The Supreme Court has held that " ... there is nothing
in the sub-.section which could make us hold that the
contract to carry out a work or the contract to supply
labour to carry out a work should be confined to 'works
contract'.... Their Lordships have further held that 'Any

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work' means; any work and not a 'work contract',

which has a special connotation in the tax law ... 'Work'
envisaged in the sub-section, therefore, has a wide
import and covers 'any work' which one or the other of
the organizations specified ln the sub-section can get
carried out through a contractor under a contract and
further it includes obtaining by any of such
organizations supply of labour under a contact with a
contractor for carrying out its work which would have
fallen outside the 'work' but for its specific inclusion in
the sub-section."
6. It may be pointed out that this appeal before the
Supreme Court was by virtue of a special leave petition
against the judgment in Writ Petition No. 2909 of 1978
of the Patna High Court in the case of Associated
Cement Co. Ltd. Vs. CIT [1979} 120 ITR 444. The Patna
High Court, while dismissing the writ petition of the
aforesaid company, observed that "In a very broad
sense, a work done by one person is service rendered to
another and indeed one of the dictionary meanings of
the word 'service' is work".
7. The conclusion flowing from the aforesaid judgments
of the supreme Court and the Patna High Court is that
the provisions of section 194C would apply to all types of
contracts including transport contacts, labour contracts,
service contracts, etc. In the light of these judgments, the
Board have decided to withdraw their above mentioned
Circulars Nos. 86 and 93 and para 11 of Circular No 108
and issue the following guidelines in regard to the
applicability of the provisions of section 194C:-

(i) The provisions of section 194C shall apply to all

types of contracts for carrying out any work
including transport contracts, service contracts,
advertisement contracts, broadcasting contracts.
Telecasting contracts, labour contracts, materials
contracts and works contracts ...... "
4.5 Payments received as EDC are for EDWs like water supply,
sewerage, drains, necessary provisions of treatment and disposal
of sewage, sullage and storm water, roads, electrical works, solid
waste management and disposal slaughter houses colleges.
Hospitals, stadium/sports complex, fire stations, grid sub-stations
etc. and any other work which the Director may specify to the
executed in the periphery of or outside colony/area for the benefit
of the colony/area.

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4.6 EDC is worked out for a particular urban estate on the basis of
the cost of external development services such as Master Water
Supply, Master Sewage, Master Roads. Master Storm Water
Drainage Master Horticulture. Master Community building and
other services is determined on the basis of a price index of a
particular year in respect of a particular urban estate. The cost is
determined by the Engineering Wing of HUDA keeping in view
the requirement of development plan of an urban estate. EDC is
charged from the sectors floated by HUDA or the license granted
by the Town & Country Planning Department to the developers.
EDC is charged from colonizers for using the developed urban
infrastructure in urban estates wherein they are allowed to
establish their commercial set ups. The EDC is arising out of an
agreement which is in the nature of service contract wherein
colonizers pay EDC to HUDA is rendering a service to
colonizers for which EDC is paid EDC is charged for
development work received by HUOA from private builders and
the work carried out is civil work in nature for providing
amenities. The work is for creating/maintaining and strengthening
of infrastructure created for urban areas in order to make it
suitable for urban habitations. EOWs enhance value of property
and the value additions fetch higher price from prospective
customers. Thus EDC payments made by the builders to HUDA
are 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
be subjected to TDS by payers @ 2 % u/s 194C of the Income tax
Act.‖

17. RPS Infrastructure challenged the aforesaid order before the

Tribunal and which by its order of 23 July 2019 ultimately allowed the
appeals holding that there was reasonable cause underlying failure on
the part of RPS Infrastructure to deduct TDS and in the absence of any
contumacious conduct, the penalty was liable to be deleted.
18. Mr. Jain, who led submissions on behalf of RPS Infrastructure
Ltd. took us in great detail through the relevant provisions of the
HDRUA. He referred firstly to the following definitions as set out in
Section 2:-

―(g) ―external development works‖ shall include any or all

infrastructure development works like water supply, sewerage,

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drains, provisions of treatment and disposal of sewage, sullage

and storm water, roads, electrical works, solid waste management
and disposal, slaughter houses, colleges, hospitals, stadium/sports
complex, fire stations, grid sub-stations etc. and/or any other work
which the Director may specify to be executed in the periphery of
or outside colony/area for the benefit of the colony/area;]
(h) ―Government‖ means the government of the State of
Haryana;
(hha) ―infrastructure development charges‖ include the cost of
development of major infrastructure projects;}
(i) ―internal development works‖ means-
(i) metalling of roads and paving of footpaths;
(ii) turfing and plantation with trees of open spaces;
(iii) street lighting;
(iv) adequate and wholesome water supply;
(v) sewers and drains both for storm and sullage water and
necessary provision for their treatment and disposal; and
(vi) any other work that the Director may think necessary in
the interest of proper development of a colony;

(j) ―local authority‖ means a Municipal Committee or Municipal

Council or municipal Corporation;"

19. Our attention was also drawn to Sections 3, 3A and 3AC of the
HDRUA which are reproduced hereinbelow:-

―3. Application for licence— [(1) Any owner desiring to convert

his land into a colony shall, unless exempted under section 9,
make an application to the Director, for the grant of license to
develop a colony in the prescribed form and pay for it such fee
and conversion charges as may be prescribed: [xxx];
Provided that if the conversion charges have already been paid
under the provisions of the Punjab Scheduled Roads and
Controlled Areas Restriction of Unregulated Development Act,
1963 (41 of 1963), no such charges shall be payable under this
section [Provided further that owner may enter into an agreement
jointly or severally with a developer for pooling of land for grant
of licence [Provided further that in case of migration of licence,
the colonizer shall pay the outstanding renewal fee with interest
accrued upto the date of payment. However, the external
development charges including interest paid thereon for the area
under migration shall be adjusted in the licence and the colonizer
shall not be liable to deposit the unpaid interest amount on
external development charges and infrastructure development
charges of the existing project.

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The conversion charges, licence fee, infrastructure development

charges already paid shall be adjusted in case the amount to be
paid for migration at the current rate is more than the earlier paid
in case of existing project [Provided further that for such colonies
located in such land use zones of various notified development
plans, where in the opinion of the Government, the licences are to
be issued after invitation of bids or following an auction
procedure in pursuance of the policy framed by the Government
in this regard from time to time, such application shall be
considered to be valid only if it is filed in response to a notice of
the Director and fulfils the prescribed terms and conditions] [(1A)
All such applications received in response to the notice issued by
the Director against policy for auction of licences that are
considered to be in order by the Director shall, in addition to the
prescribed requirements, also be liable for payment of location
premium, as determined through the bidding/auction process, in
such manner and in such time frame as conveyed by the Director.
The amount received against location premium shall be utilised
for provision, maintenance and augmentation of external
development works and shall be recovered in addition to the
prescribed rates of development charges received against external
development works from a colonizer]
(2) On receipt of the application under sub section (1), the
Director shall, among other things, enquire into the following
matters, namely :-
(a) title to the land;
(b) extent and situation of the land;
(c) capacity to develop a colony;
(d) the layout of a colony;
(e) plan regarding the development works to be executed in a
colony; and
(f) conformity of the development schemes of the colony land
to those of the neighboring areas
(3) After the enquiry under sub section (2), the Director, by an
order in writing, shall —
(a) grant a licence in the prescribed form, after the applicant
has furnished to the Director a bank guarantee equal to twenty
five per centum of the [estimated cost of development works in
case of area of land divided or proposed to be divided into
plots or flats for residential, commercial or industrial purposes
and a bank guarantee equal to thirty-seven and a half per
centum of the estimated cost of development works in case of
cyber city or cyber park purposes] as certified by the director
and has undertaken–

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(i) to enter into an agreement in the prescribed form for

carrying out and completion of development works in
accordance with licence granted;
(ii) to pay proportionate development charges if the
external development works as defined in clause (g) of
section 2 are to be carried out by the Government or any
other local authority. The proportion in which and the time
within which, such payment is to be made, shall be
determined by the Director.
(iii) the responsibility for the maintenance and upkeep of
all roads, open spaces, public park and public health
services for a period of five years from the date of issue of
the completion certificate unless earlier relieved of this
responsibility and thereupon to transfer all such roads,
open spaces, public parks and public health services free
of cost to the Government or the local authority, as the
case may be;
(iv) to construct at his own cost, or get constructed by any
other institution or individual at its cost, schools, hospitals,
community centres and other community buildings on the
lands set apart for this purpose, in a period as may be
specified, and failing which the land shall vest with the
Government after such specified period, free of cost, in
which case the Government shall be at liberty to transfer
such land to any person or institution including a local
authority, for the said purposes, on such terms and
conditions, as it may deem fit:
Provided that in case of licenses issued prior to the
notification of the Haryana Development and Regulation
of Urban Areas (Amendment and Validation) Act, 2012,
the licensee, the purchaser or the person claiming through
him shall construct the school, hospital, community
centres and other community buildings on the land set
apart for this purpose, within a period of four years,
extendable by the Director by another period of two years,
for reasons to be recorded in writing, from the notification
of the Haryana Development and Regulation of Urban
Area (Amendment and Validation) Act, 2012:
Provided further that at the end of the period as specified
under the proviso, if the site is not utilised for the purpose,
it was meant for, the land shall vest with the Government
and in which case, the Government shall be at liberty to
transfer such land to any person or institution including a
local authority, for the said purposes, on such terms and
conditions, as it may deem fit:

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Provided further that a show cause notice and an

opportunity of hearing shall be issued before vesting the
land in the Government
{Provided further that the applicant shall be exempted
from the provisions of this clause where compliance of
clause (iv-b) is sought by the Director.}
[(iv-a) to pay proportionate cost of construction of such
percentage of sites of such school, hospital, community
centre and other community buildings and at such rates as
specified by the Director;]
[(iv-b) to hand-over the possession and transfer the
ownership of such land, as demarcated and identified in
the approved layout plan, in such form and manner, as
may be specified by the Director and such land shall vest
with the Government to achieve the objective of creation
of community buildings, housing, commercial and other
physical and social urban infrastructure, in such colonies
where a condition to this effect is imposed by the Director,
before grant of licence;]
(v) to permit the Director or any other officer authorised
by him to inspect the execution of the layout and the
development works in the colony and to carry out all
directions issued by him for ensuring due compliance of
the execution of the layout and development works in
accordance with the licence granted;
[(vi) to fulfill such terms and conditions as may be
specified by the Director at the time of grant of licence
through bilateral agreement as may be prescribed:]
Provided that the Director, having regard to the amenities
which exist or are proposed to be provided in the locality,
is of the opinion that it is not necessary or possible to
provide one or more such amenities, may exempt the
licensee from providing such amenities either wholly or in
part [Provided further that the applicant shall have an
option to mortgage a part of the land for which licence has
been granted or being granted in lieu of submission of
bank guarantee against cost of internal development works
and external development works.]
(b) refuse to grant a licence, by means of speaking order, after
affording the applicant an opportunity of being heard.
(4) The license so granted shall be valid for a period of 44 [five
years], and will be renewable from time to time for a period of
[two years], on payment of prescribed fee:

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[Provided that in the licensed colony permitted as a special

project by the Government, the license shall be valid for a
maximum period of five years and shall be renewable for a period
of as decided by the Government.]
(5) Each colony may comprise of one or more licences with
contiguous land pockets.
(6) After the coloniser has laid out the colony in accordance with
the approved layout plan and executed the internal development
works in accordance with the approved design and specifications,
he may apply to the Director for grant of completion or part-
completion certificate. The Director may enquire into such
matters, as he deems necessary before granting such certificate.
(7) After enquiry under sub-section (6), the Director may, by an
order in writing, grant completion or part-completion certificate
on such terms and conditions and after recovery of infrastructure
augmentation charges, as may be prescribed:
Provided that where in the agreement executed to set up a colony,
a condition was incorporated for deposit of surplus amount
beyond maximum net profit @ 15% of the total project cost and
the coloniser has not taken the completion certificate of the said
project, then notwithstanding the said condition in the agreement,
the coloniser shall have the option either to deposit the
infrastructure augmentation charges as applicable from time to
time at any stage before the grant of such completion certificate
and get the exemption of the restriction of net profit beyond 15%
or deposit the amount as per terms of the agreement.

3A. Establishment of Fund— (1) Any colonizer to whom a

license has been given under this Act shall deposit as
50{infrastructure development charges} a sum, 51{at such rate as
may be prescribed by the Government from time to time, per
square metres of the gross area and of the covered area of all the
floors in case of flats proposed to be developed by him into a
colony} in two equal installments. The first installment shall be
deposited within 60 days from the date of grant of the license and
the second installment to be deposited within six months from the
date of grant of license.
(2) The Haryana Urban Development Authority {local authorities,
firms, undertakings of Government and other authorities involved
in land development} shall also be liable to deposit the
{infrastructure development charges} and shall be deemed to be
{colonizers}for this purpose only. The date of first inviting
applications for sale of plots in any colony by it shall be deemed
to be the date of granting of license under this Act for the purpose
of deposit of {infrastructure development charges}.

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(3) The {infrastructure development charges} shall be deposited

by the colonizer with such officer or person as may be appointed
by the government in this behalf.
(4) The colonizer shall in turn be entitled to pass on the
{infrastructure development charges} paid by him to the plot
holder.
(5) The amount of {infrastructure development charges} if not
paid within the prescribed period shall be recoverable as arrears
of land revenue.
[(6) The amount of infrastructure development charges so
deposited by the colonizer shall constitute a fund called the Fund,
for stimulating socio-economic growth and development of major
infrastructure projects for the benefit of the State of Haryana
(hereinafter referred to as the Fund)].
[(7) The Fund shall be collected and managed by the Director and
passed on for the purpose of its further utilisation to the Board to
be constituted by the Government for this purpose.]
(8) The amount of infrastructure development charges {and
infrastructure augmentation charges} deposited by the colonizers,
loans and grants from the Central/State Government or the local
authority, or loans and grant from national/international financial
institutions and any other money from such source as the state
Government may decided, shall be credited to the fund.
[(9) The Fund shall be utilized for stimulating socio-economic
growth and development of major infrastructure projects for the
benefit of the state of Haryana. The Fund may also be utilized to
meet the cost of administering the Fund.]}
(10) [XXX.]

3AC. Functions and Powers of Board.—(1) The Board shall be

the apex body for overall planning and development of
infrastructure sector and infrastructure projects for the benefit of
State of Haryana, subject to the limitations specified in sub-
section (3).
(2) The Board shall-
(i) act as a nodal agency to co-ordinate all efforts of the
Government regarding the development and implementation of
infrastructure sectors and infrastructure projects for the benefit
of State of Haryana, involving private participation and
funding from sources other than those provided by State
budget and shall,-
(a) identify infrastructure projects for private
participation;

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(b) promote competitiveness and progressively involve

private participation while ensuring fair deal to the end-
users;
(c) identify and promote technology initiatives in urban
development and infrastructure development sector for
improving efficiency in the system;
(d) identify bottlenecks in the infrastructure sectors and
recommend to the Government policy initiatives to
rectify the same;
(e) select, prioritise and determine sequencing of
infrastructure projects;
(f) formulate clear and transparent policies related to the
infrastructure sectors so as to ensure that project risks are
clearly identified and allocated between the stakeholders;
and
(g) identify the sectoral concessions to be offered to
concessionaires to attract private participation and secure
availability of viable infrastructure facilities to the
consumers;
Provided that where participation is sought by any
person by participating in disinvestment process, the
provisions of this Act shall not apply:
Provided further that any authority or body, constituted
to implement such disinvestment, may seek assistance
from the Board;
(ii) prepare internally or through external consultants or service
providers engaged for the purpose, all necessary documents
including the bid or tender documents, draft contracts including
the various contractual arrangements and incentives to be
offered by the Government;
(iii) assist public infrastructure agencies and concessionaires in
obtaining statutory and other approvals;
(iv) recommend the grant of concessions to a public
infrastructure agency in accordance with the provisions of this
Act, the rules and the bye-laws made there under;
(v) assist in determining the level and structuring of investments
of the Government and public bodies into infrastructure projects
with private participation including holding the investment or
part thereof;
(vi) create a special purpose vehicle for implementation of any
infrastructure project in co-ordination with the Government or
public infrastructure agencies; and

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(vii) administer the Fund and projects under this Act.

(3) The Board shall not play any role in the infrastructure projects
undertaken by the Government exclusively through its budgetary
provisions.
(4) In order to carry out its functions consistent with the
provisions of this Act, the Board shall have the powers to do all or
any of the following, namely:-
(i) acquire, hold, develop or construct such property, both
movable and immovable, as the Board may deem necessary for
the performance of any of its activities related to the
development of infrastructure sectors or infrastructure projects;
(ii) advise or recommend to the Government acquisition of
land under the Land Acquisition Act, 1894 for the purposes of
infrastructure projects;
(iii) lease, sell, exchange, or otherwise make allotments of the
property referred to in clause (i) to concessionaire and to
modify or rescind allotments, including the right and power to
evict the allottees concerned on breach of any of the terms or
conditions of such allotment;
(iv) borrow and raise money in such manner as the Board may
think fit and to secure the repayment of any money borrowed,
raised or owing by mortgage, charge, standard security, lien or
other security upon the whole or any part of the Board's
property or assets (whether present or future), and also by a
similar mortgage,
charge, standard security, lien or security to secure and
guarantee the performance by the Board of any obligation or
liability, it may have undertaken or which may become binding
on it;
(v) constitute a professional multi-disciplinary Project
Management Team and one or more Advisory Committee or
Committees or Sectoral Sub-Committee or Project
Implementation Sub-Committee, or engage suitable service
providers or advisors or consultants to advise the Board for the
efficient discharge of its functions;
(vi) enter into and perform all such contracts as it may think
necessary or expedient for performing any of its functions; and
(vii) do such other things and perform such other acts as it may
think necessary or expedient for the proper conduct of its
functions and for carrying into effect the purposes of creation
of the Board, as contained in this Act.‖

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20. The principal submission of Mr. Jain was that there exists no
privity of contract between the petitioners and HSVP. According to
learned counsel, a reading of the aforesaid provisions would clearly
establish that the application for permission and for development is
examined and evaluated only by the DTCP and that the HDRUA does
not contemplate any intervention or involvement of the HSVP.
According to learned counsel even the power to cancel a license for
development which may have been granted vests solely with the
Director as would be evident from Section 8 of the Act. That provision
reads thus:-

―8. Cancellation of license.— (1) A license granted under this

Act, shall be liable to be cancelled by the Director if the colonizer
contravenes any of the conditions of the license or the provisions
of the Act or the rules made thereunder; provided that before such
cancellation the coloniser shall be given an opportunity of being
heard.
[(2) After cancellation of the licence, the Director may himself,
carry out or cause to be carried out, the development works in the
colony and recover such charges as the Director may have to
incur on the said development works from the colonizer and the
plot-holders in the manner prescribed as arrears of land revenue.
(3) The liability of the colonizer for payment of such charges shall
not exceed the amount the colonizer has actually recovered from
the plot-holders less the amount actually spent on such
developments works, and that of the plot-holders shall not exceed
the amount which they would have to pay to the colonizer
towards the expenses of the said development works under the
terms of the agreement of sale or transfer entered into between
them:
Provided that Director may, recover from the plot holders with
their consent, an amount in excess of what may be admissible
under the aforesaid terms of agreement of sale or transfer.
(4) Notwithstanding anything contained in this Act after the
colony has been fully developed under sub-section (2), the
Director may, with a view to enabling the colonizer, to transfer
the possession of and the title to the land to the plot-holders
within a specified time, authorize the colonizer by an order to
receive the balance amount, if any, due from the plot holders,

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after adjustment of the amount which may have been recovered

by the Director towards the cost of the development works and
also transfer the possession of or the title to the land to the plot-
holder within aforesaid time. If the colonizer fails to do so, the
Director shall on behalf of the colonizer transfer the possession of
and the title to the land to the plot-holders on receipt of the
amount which was due from them.
(5) After meeting the expenses on development works under sub-
section (2), the balance amount shall be payable to the colonizer.‖

21. Mr. Jain further underlined the fact that even the imposition of
penalties is a subject which is regulated by the Director in the office of
the DTCP. He in this regard drew our attention to Section 10 of the
HDRUA which is reproduced hereinbelow:-

―10. Penalties.— (1) Any person who contravenes any of the

provisions of this Act or the rules made thereunder or any of the
conditions of a licence granted under section 3 shall be punishable
with imprisonment of either description for a term which may
extend to three years and shall also be liable to fine:
Provided that where only of the provisions of section 9 are
contravened the punishment of imprisonment shall not exceed six
months. 84[(2) Without prejudice to the provisions of sub-section
(1), the Director or any other officer authorized in writing by him
in this behalf may, by notice, served by post and if a person
avoids service, or is not available for service of notice, or refuses
to accept service, then by affixing a copy of it on the outer door or
some other conspicuous part of such premises, or in such other
manner as may be prescribed, call upon any person who has
committed a breach of the provisions referred to in the said sub-
section to stop further construction and to appear and show cause
why he should not be ordered to restore to its original state or to
bring it in conformity with the provisions of this Act or the rules
framed thereunder, as the case may be, any building or land in
respect of which a contravention such as is described in the said
subsection has been committed and if such person fails to show
cause to the satisfaction of the Director or such authorized officer
within a period of seven days, the Director or such authorized
officer may pass an order requiring him to restore such land or
building to its original state or to bring it in conformity with the
provisions of this Act or the rules framed there-under, as the case
may be, within a further period of seven day.
(3) If the order made under sub-section (2) is not carried out
within a specified period, the Director, or any other officer

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authorized in writing by him in this behalf may, himself at the

expiry of the specified period, take such measures, as may appear
necessary to give effect to the order and the cost of such measure
shall, if effect to the order and the cost of such measure shall, if
not paid on demand being made to him, be recoverable from such
person as arrears of land revenue:
Provided that even before the expiry of the period mentioned in
the order under subsection (2), if the Director or such authorized
officer is satisfied that instead of stopping the construction, the
person continues with the contravention, the Director or such
authorized officer may himself take such measures, as may appear
necessary, to give effect to the order and the cost of such
measures shall if not paid on demand being made to him, be
recoverable from such person as arrears of land revenue.]"

22. Mr. Jain then took us through the Haryana Development and
Regulation of Urban Area Rules, 197614 and more particularly Rules
3, 8, 9, 10 and 11 which are reproduced hereunder:-

―3. Application for licence [sections 3 and 24].— (1) Any

owner of land desirous of setting up a colony shall make an
application in writing to the Director in form LC-I and shall
furnish therewith;—
[(a) a demand draft for licence fee at the rates (given in the
Schedule to these rules) for the plotted colony, group housing
colony and commercial/office complexes in residential sectors
and for industrial colony;]
(b) income tax clearance certificate;
(c) particulars of experience as colonizer showing number and
details of colonies already established or being established;
(d) particulars about financial position [so as to determine the
capacity to develop the colony for which he is applying]; and
(e) the following plans and documents in triplicate ;—
(i) copy or copies of all title deeds and other documents
showing the interest of the applicant in the land under the
colony, along with a list of such deeds and documents;
(ii) a copy of the Shajra Plan showing the location of the
colony along with the names of revenue estate, Khasra number
and area of each field;

14
HDRUA Rules

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(iii) a guide map on a scale of not less than 10 centimetre to 1

Kilometre showing the location of the colony in relation to
surrounding geographical features to enable the identification
of the land;
(iv) a survey plan of the land under the proposed colony on a
scale of 1 centimetre to 10 metres showing the spot levels at a
distance of 30 metres and where necessary, contour plans. The
survey will also show the boundaries, and dimensions of the
said land, the location of streets, buildings, and premises
within a distance of at least 30 metres of the said land and
existing means of access to it from existing roads;
(v) layout plan of the colony on a scale of 1 centimetre to 10
metres showing the existing and proposed means of access to
the colony the width of streets, sizes and types of plots, sites
reserved for open spaces, community buildings and schools
with area under each and proposed building lines on the front
and sides of plots;
(vi) an explanatory note explaining the salient feature of the
colony, in particular the sources of wholesome water supply
arrangement and site for disposal and treatment of storm and
sullage water;
(vii) plans showing the cross-sections of the proposed roads
indicating in particular the width of the proposed carriage ways
cycle tracks and footpaths, green verges, position of electric
poles and of any other works connected with such roads;
(viii) plans as required under sub-clause (vii) indicating, in
addition the position of sewers, storm water channels, water
supply and any other public health services;
(ix) detailed specifications and designs of road works shown
under sub-clause (vii) and estimated costs thereof;
(x) detailed specifications and designs of sewerage, storm,
water and water supply schemes with estimated costs of each;
(xi) detailed specification and designs for disposal and
treatment of storm and sullage water and estimated costs of
works;
(xii) detailed specification and designs for electric supply
including street lighting. (2) The triplicate plans mentioned in
clause (e) of sub-rule (1) shall be clear and legible A0 prints
with one set mounted on cloth.
(3) If the applicant wants to be exempted from providing any one
or more of the amenities in a colony he shall furnish detailed
explanatory note in triplicate along with application if necessary,
indicating the reasons as to why the said amenity or amenities
need not or cannot be provided
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8. Enquiry by Director [Section 3(2)].— (1) On receipt of

application in the prescribed form and complete in all respects,
the Director shall enquire into the following matters and such
other matters as he may consider necessary;
(a) title to land;
(b) extent and situation of the land;
(c) capacity to develop the colony;
(d) layout plan of the colony;
(e) plan regarding the development works to be executed in the
colony;
(f) conformity with the development scheme of the land in
question and the neighbouring areas; and
[(g) conformity with the development plan.]
[(2) Before making enquiries under sub-rule (1), the Director
shall, by an order in writing, require the applicant {except
industrial colonies of Haryana Urban Development Authority and
Haryana State Industrial Development Corporation} to furnish,
within a period of thirty days from the date of service, of such
order, a scrutiny fee at the rate of [twenty rupees per square
meter, calculated for the gross area of the land, under low-density
eco-friendly colony] {ten rupees per square metre}, calculated for
the gross area of the land under low-density eco-friendly, {ten
rupees per square metre}, calculated for the gross area of the land
under the plotted colony, and 3{ten rupees per square metre}
calculated on the covered area of all the floors in a group housing
colony, in the form of a demand draft in favor of the Director,
Town and Country Planning, Haryana and drawn on any
scheduled bank {:}] [Provided that the scrutiny fee for the
projects under Transit Oriented Development shall be charged on
pro-rata basis for increased FAR from 1.5/1.75 to 2.5/3.5:
Provided further that the scrutiny fee under the New Integrated
Licensing Policy, 2016 shall be applicable on per square metre
basis for the permissible covered area.]
(3) If the applicant fails to furnish the requisite fee as provided in
sub-rule (2) above, the Director shall reject the application.

9. Rejection of application [Section 3].— The Director may

after making inquiry as mentioned in sub-rule(1) of rule 8 and
after giving reasonable opportunity of being heard to the applicant
by an order in writing reject the application to grant licence in
[form LC II], if—
(a) it does not conform to the inquirements of rule 3,4, and 5
and 8;

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(b) the plants and designs of the development works

submitted with the application are not technically sound and
workable; or
(c) the estimated expenditure on water-supply mains or
extramural and outfall sewers is not commensurate with the
size of the colony.

10. Applicant to be called upon to fulfill certain conditions for

grant of licence [Section 3 (3)].—(1) If after scrutiny for the
plans and other necessary inquiries which the Director may deem
fit, he is satisfied that the application is not for the grant of
licence, he shall before granting licence, call upon the applicant to
fulfill conditions laid down in rule 11 within a period of thirty
days from the date of the service of notice in form LC-III:
Provided that on an application within the aforesaid period, for
the extension of time limit, the Director, if satisfied of the reasons
given therein extend such time up to thirty days: [Provided further
that on the request of the applicant, for the extension of time limit
for submission of Bank guarantees under clause (a) of sub-rule (1)
of rule 11, the Director, if satisfied that the reasons for delay in
submission of the bank guarantee are beyond the control of the
applicant, extend such time upto further ninety days period.]
(2) If the applicant fails to fulfill the conditions under sub-rule (1)
within the specified orextended period, the grant of licence shall
be refused.

11. Conditions required to be fulfilled by applicant [Section

3(3)]— (1) the applicant shall:—
[(a) furnish to the Director either a bank guarantee equal to
twenty-five percent of the estimated cost of the development
works or mortgage a part of the licenced land, as determined
by the Director and enter into an agreement in form LC-IV
for carrying out and completion of development works in
accordance with the licence finally granted:
Provided that in case of affordable plotted residential colony
under Deen Dayal Jan Awas Yojana, the coloniser shall have
option to deposit the cost of internal development works with
the concerned municipal authority as per mutually agreed
rates or in the alternative, shall have option to mortgage
fifteen percent of the total area under all residential plots, in
favour of the Director, in lieu of depositing bank guarantee
equal to twenty-five percent of the estimated cost of
development works.]
(b) undertake to deposit thirty percent of the amount to be
realized by him from the plot-holders, from time to time,
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within ten days of its realization in a separate account to be

maintained in a scheduled bank and this amount shall only be
utilized towards meeting the cost of internal development
works in the colony;
(c) undertake to pay proportionate development charges if the
main lines of roads, drainage, sewerage, water supply and
electricity are to be laid out and constructed by the
Government or any other local authority. The proportion in
which and the time within which such payment is to be made
shall be determined by the Director;
(d) undertake responsibility for the maintenance and upkeep
of all roads, open spaces, public parks and public health
services for a period of five years from the date of issue of
the completion certificate under rule 16 unless earlier
relieved of this responsibility and there upon to transfer all
such roads, open spaces, public parks and public health
services free of cost to the Government or the local authority,
as the case may be;
(e) undertake to construct at his own cost, or get constructed
by any other institution or individual at its cost, schools,
hospitals, community centers and other community buildings
on the land set apart for this purpose, within a period of four
years from the date of grant of licence extendable by the
Director for another period of two years, for reasons to be
recorded in writing, failing which the land shall vest with the
Government after such specified period, free of cost, in which
case the Government shall be at liberty to transfer such land
to any person or institution including a local authority, for the
said purposes, on such terms and conditions, as it may deem
fit; Provided that a show cause notice and opportunity for
hearing shall be given before vesting the land in the
Government;]
(f) undertake to permit the Director or any other officer
authorized by him to inspect the execution of the layout and
the development works in the colony and to carry out all
directions issued by him for ensuring due compliance of the
execution of the layout and development works in accordance
with the licence granted.
(g) pay such development charges including the cost of
development of State/ National Highways, Transport,
Irrigation and Power facilities as determined by Director
(given in the {Schedule-A}to these rules); and
(h) execute bilateral agreement in Form LC-IV-A for group
housing colony, in Form LC-IV-B for plotted colony, in

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Form LC-IV-C for industrial colony and in Form LC-IV-D

for commercial colony.]
(2) If the Director, having regard to the amenities which exist or
are proposed to be provided in the locality, decides that it is not
necessary or possible to provide such amenity or amenities, the
applicant will be informed thereof and clauses (c), (d) and (e) of
sub-rule (1) shall be deemed to have been modified to that extent.
(3)In case of an application for grant of licence for low-density
eco-friendly colony, the applicant shall additionally undertake to-
(a) install solar farms aiming for meeting energy
requirements of the colony through solar energy, in
accordance with the technical parameters specified by the
Director, on at least five percent of the area of the colony that
shall be in addition to the five percent area reserved for open
spaces;
(b) provide integrated facility for storage, purification,
distribution and recycling of storm-water aiming for no
external source of water supply, minimum ground water
extraction and zero run-off. Independent distribution system
for separately fulfilling the farming, flushing and domestic
water requirements shall also be provided;
(c) install a bio-gas plant aimed at fulfilling requirements for
cooking gas and a compost plant for utilizing and recycling
of all bio-degradable waste, in accordance with the technical
parameters specified by the Director; and,
(d) restrict the residential density of the colony to a maximum
of twenty five persons per acre.]"

23. The submission essentially was that the application for

development is examined and regulated solely by the office of the
DTCP and nowhere contemplates the involvement of HSVP. It was
submitted that the bilateral agreements, templates of which are
embodied in Forms LC IV-A and LC IV-B, would also indicate that the
agreement is essentially between the owner/developer on the one hand
and the Director, DTCP on the other. It was his submission that this
supports the contention of the writ petitioner that the contractual
arrangement is only between the owner/developer and DTCP. Our

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attention was also drawn to Form LC IV-D as appended to the Rules

and which incorporates the following provisions:-
― FORM LC-IV-D
[See Rule 11(1)(h)]
Bilateral Agreement by owner of land intending to set up a
Commercial Colony
This agreement made on _____ day of_____ between Shri/M/s
___________ s/o Shri______________ resident of
____________ (hereinafter called the ―owner‖) of the one part
and the Governor of Haryana, acting through the Director, Town
and Country Planning, Haryana (hereinafter referred to as the
―Director‖) of the other part.
Whereas in additional to agreement executed in pursuance of the
provisions of rule-11 of the Haryana Development and Regulation
of Urban Areas Rules, 1976 (hereinafter referred to as the
―Rules‖) and the conditions laid down therein for grant of licence,
the owner shall enter into a bilateral agreement with the Director
for carrying out and completion of the development works in
accordance with the licence finally granted for setting up of a
Commercial colony on the land measuring _____acres
_______falling in the revenue estate of village______
district_______.
AND WHEREAS the bilateral agreement mutually agreed upon
and executed between the parties shall be binding on the owner:-
NOW THIS DEED OF BILATERAL AGREEMENT
WITNESSETH AS FOLLOWS:
1. In consideration of the Director agreeing to grant licence to the
owner to set up the said colony on the land mentioned in
Annexure hereto on the fulfillment of the conditions of this
bilateral agreement, the owner, his partners, legal representatives,
authorized agents, assignees, executers etc. shall be bound by the
terms and conditions of this bilateral agreement executed by the
owner hereunder covenanted by him as follows:
(i) That the owner undertakes to pay proportionate external
development charges as per rate, schedule, terms and conditions
hereunder:-
(ii) That the owner shall pay the proportionate external
development charges at the tentative rate of Rs._____ lacs per
gross acre for commercial colony. These charges shall be payable
to Haryana Urban Development Authority through the Director,
Town and Country Planning, Haryana either in lumpsum within
thirty days from the date of grant of licence or in eight equal
quarterly installments of 12.5% each in the following manner:-

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(a) First installment shall be payable within a period of

thirty days from the date of grant of licence.
(b) Balance 87.5% in seven equal quarterly installments
along with interest at the rate of 15% per annum which
shall be charged on unpaid portion of the amount worked
out at the tentative rate of Rs. _______ lacs per gross
acre.
(c) The owner shall furnish bank guarantee equal to 25%
of the amount worked out at the tentative rate of
Rs.______ lacs per gross acre.
(iii) The external development charges rates are under
finalization. In the event of increase tentative external
development charges rates, the owner shall pay the enhanced
amount of external development charges and the interest on
installment, if any, from the date of grant of licence.
(iv) For grant of completion certificate, the payment of external
development charges shall be pre-requisite along with valid
licence and bank guarantee.
(v) The unpaid amount of external development charges would
carry an interest at a rate of 15% per annum and in case of any
delay in the payment of installments on the due date an additional
penal interest of 3% per annum (making the total payable interest
18% simple per annum) would be chargeable upto a period of
three months and an additional three months with the permission
of Director.
(vi) That the owner shall derive maximum net profit @ 15% of
the total project cost of development of the above noted industrial
colony after making provisions of statutory taxes. In case, the net
profit exceeds 15% after completion of the project period, surplus
amount shall be deposited, within two months in the State
Government Treasury by the Owner.
(vii) The owner shall submit the certificate to the Director within
thirty days of the full and final completion of the project from a
Chartered Accountant that the overall net profits (after making
provisions for the payment of taxes) have not exceeded 15% of
the total project cost of the scheme.

(viii) In case Haryana Urban Development Authority executes

external development works before final payment of external
development charges, the Director, shall be empowered to call
upon the owner to pay the balance amount of external
development charges in lumpsum even before the completion of
licence period and the owner shall be bound to make the payment
within the period so specified.

(a) Enhanced compensation on land cost, if any, shall be

payable extra as decided by Director from time to time.

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(b) The owner shall arrange the electric connection from

the outside source for electrification of their colony from
Haryana Vidhyut Parsaran Nigam. If the owner fails to
seek electric connection from Haryana Vidhyut Parsaran
Nigam the Director, shall recover the cost of from the
owner and deposit the same with Haryana Vidhyut
Parsaran Nigam. However, the installation of internal
electricity distribution infrastructure as per the peak load
requirement of the colony shall be the responsibility of
the colonizer, for which the colonizer will be required to
get the ―electric (distribution) services plan/estimates‖
approved from the agency responsible for installation of
―external electrical services‖ i.e. Haryana Vidhyut
Parsaran Nigam/Uttari Haryana Vidhyut Nigam
Limited/Dakshin Haryana Bijlee Vitran Nigam Limited,
Haryana and complete the same before obtaining
completion certificate for the colony.
(c) That the rates, schedule and terms and conditions of
external development charges may be revised by the
Director during the period of licence as and when
necessary and owner shall be bound to pay the balance
enhanced charges, if any, in accordance with the rates,
schedule and terms and conditions so determined by the
Director.
(d) That the owner shall be responsible for the
maintenance and upkeep of the colony for a period of five
years from the date of issue of completion certificate
under rule16 of the Rules, unless earlier relieved of this
responsibility.
(e) That the owner shall be individually as well as jointly
be responsible for the development of commercial
colony.
(f) That the owner shall complete the internal
development works within one year of the grant of the
licence.
(g) That the owner shall deposit service charges @ Rs.
10/- square meters of the total covered area of the colony
in two equal installments. The first instalment of the
service charges would be deposited by the owner within
sixty days from the date of grant of licence and the
second instilment within six months from the date of
grant of the licence. The unpaid amount of service
charges shall carry an interest @ 18% (simple) per annum
for the delay in the payment of installments.
(h) That the owner shall carry out at his own expenses
any other works which the Director may think necessary
and reasonable in the interest of proper development of
the colony.

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(i) That the owner shall permit the Director or any other
officer authorized by him in his behalf to inspect the
execution of the development works and the owner shall
carry out all direction issued to him for ensuring due
compliance of the execution of the development works in
accordance with the licence granted.
(j) That without prejudice to anything contained in this
agreement, all provisions contained in the Act and the
Rules shall be binding on the owner.
(k) That the owner shall make his own arrangement for
disposal of sewerage till the external sewerage system is
provided by Haryana Urban Development Authority and
the same is made functional.
2. Provided always and it is hereby agreed that if the owner
commits any breach of the terms and conditions of this bilateral
agreement or violate any provisions of the Act or the Rules, then
and in any such cases notwithstanding the waiver of any previous
clause or right, the Director, may cancel the licence granted to
the owner.
3. Upon cancellation of the licence under clause2 above, action
shall be taken as provided in the Haryana Development and
Regulation of Urban Areas Act, 1975 and the Haryana
Development and Regulation of Urban Areas Rules, 1976, as
amended up to date, the bank guarantee in that event shall stand
forfeited in favour of the Director.
4. The Stamp duty and registration charges on this deed shall be
borne by the owner.
5. After the layout plans and development in respect of the
commercial colony have been completed by owner in accordance
with the approved plans and specifications and a completion
certificate in respect thereof issued, the Director may, on an
application in this behalf, from the owner, release she bank
guarantee or part thereof as the case may be, provided that the
bank guarantee equivalent to 1/5th amount thereof shall be kept
unreleased to ensure upkeep and maintenance of the colony for a
period of 5 years from the date of issue of the completion
certificate under rule16 or earlier in case the owner is relieved of
the responsibility in this behalf by the Government. However, the
bank guarantee regarding the external development charges shall
be released by the Director in proportion to the payment of the
external development charges received from the owner.
6. That any other condition which the Director may think
necessary in public interest can be imposed.‖

24. It was submitted by Mr. Jain that although the aforesaid bilateral
agreement requires EDC payment being made over to HSVP, the said

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agreement itself indicates that it is a payment which is liable to be

routed through the DTCP. According to learned counsel, this aspect
reinforces the stand of the petitioners of a contractual relationship
existing only between the owner/developer and DTCP. According to
learned counsel, since all aspects relating to the proposed development
and the carrying out of external development under the HDRUA and
the HDRUA Rules is regulated by the DTCP and the payment to HSVP
is merely routed through that department of the Government of
Haryana, the invocation of Section 194C is clearly misconceived.
25. It was then submitted that EDC is liable to be acknowledged as
being a statutory levy since in case of a default in payment thereof, it is
open to the DTCP to recover the same as areas of land revenue. Our
attention in this respect was drawn to Section 10A of the HDRUA
which reads as follows:-

―10A. Recovery of dues.—All dues payable under the Act, which

have not been deposited within the time specified, shall be
recovered as arrears of land revenue.‖

26. According to learned counsel since EDC is a payment which is

imbued with statutory character, no tax is liable to be deducted thereon.
Mr. Jain relied upon the following observations as appearing in the
decision of the Calcutta High Court in Star Paper Mills Ltd. vs.
Commissioner of Income Tax15:

―14. Now it brings us to the issue whether the royalty payable by

the assessee in pursuance of the order dated April 30, 1979, is a
statutory liability. To consider this issue first we would like to
refer to some observations, decisions, relevant to the issue.
15. In the case of CIT v. Gorelal Dubey, [1998] 232 ITR 246 the
issue before the Madhya Pradesh High Court was whether royalty
is a tax. Following the decision of their Lordships in India

15
2001 SCC OnLine Cal 851

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Cement Ltd. v. State of Tamil Nadu, [1991] 188 ITR 690 (SC), the
Madhya Pradesh High Court has taken the view that royalty is a
tax.
The Madhya Pradesh High Court has observed at page 248 as
under:
―In paragraph 31 (at page 707 of 188 ITR) of the
judgment, their Lordships, after referring to the views
expressed by the Rajasthan, Punjab, Gujarat and Orissa
High Courts that the royalty cannot be said to be a tax
because this is something which is being paid in lieu of
minerals extracted, in paragraph 34 (at page 707 of 188
ITR), concluded by saying that the royalty is a tax and
thus the decisions of the High Courts cannot hold good.‖

16. When the royalty is treated as a tax that cannot be a

contractual liability. The view taken by the Madhya Pradesh High
Court in Gorelal's case, [1998] 232 ITR 246 has been affirmed by
their Lordships of the Supreme Court reported in Gorelal
Dubey v. CIT, [2001] 248 ITR 3. Their Lordships in para. 3
observed that the Constitution Bench judgment in India Cement
Ltd.'s case, [1991] 188 ITR 690 lays down the law, namely, that
royalty is tax, and it is a tax for all purposes including section 43B
of the Income-tax Act, 1961.
17. While considering the provisions of sections 82 and 83 of the
Forest Act, the Madhya Pradesh High Court has held in the case
of Dulichand Agarwal v. State of M.P., [1980] MPLJ 465, that
section 82 of the Forest Act as substituted by the Madhya Pradesh
Act No. 9 of 1965 creates a statutory liability for recovery of the
amount payable to the Government under terms of a notice
relating to the sale of forest produce by auction. The statutory
liability can be enforced even though there is no contract as
envisaged under article 299 of the Constitution of India. The
relevant discussion whether section 82 creates a statutory liability
the court has discussed at page 470. The relevant observations
read as under:
―It was argued by learned counsel for the petitioner that
section 82 does not create a new liability and that is only
provides for a procedure for enforcing a liability and that in
the absence of any contract in the manner provided in article
299(1) there could be no liability to pay the deficiency. In
our opinion, this argument cannot be accepted. Section 82
properly construed creates a statutory liability for recovery
of the amount payable to the Government under the terms of
a notice relating to the sale of forest produce by auction.
This statutory liability can be enforced even though there is

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no contract as envisaged under article 299 of the

Constitution. This construction of section 82 is strongly
supported by the decision of the Supreme Court in A.
Damodaran v. State of Kerala, (1976) 3 SCC 61 : AIR 1976
SC 1533.‖
18. Now the question is when the Madhya Pradesh High Court
has taken a view that section 82 of the Forest Act creates a
statutory liability and their Lordships of the Supreme Court have
taken the view in the case of Gorelal, [2001] 248 ITR 3 that
royalty is a tax, how it can be said that royalty liability is not a
statutory liability.
19. Once a particular status is conferred to the nature of liability
that cannot be changed unless otherwise warranted under the
provisions of the Act. In the case of contractual liability, if the
liability is disputed that cannot be recovered as land revenue or to
enforce the terms of the agreement, for that one has to approach
the court. If it is a statutory liability like royalty in this case that
royalty liability which is fixed by the Government can be
recovered as land revenue without approaching the court.‖

In view of the above, according to Mr. Jain, the payment of EDC is

liable to be viewed as a payment to the Government of Haryana itself
and consequently being exempted in terms of Section 196 of the Act.
27. While reiterating the submissions addressed by Mr. Jain, Mr.
Agarwal appearing in Natureville Promoters additionally addressed the
following submissions. It was firstly contended that Section 196 of the
Act is liable to be read alongside Article 289 of the Constitution and
thus the Court declaring that payments made to HSVP would clearly be
exempt from TDS. Mr. Agarwal took us through the LC- I, II, III, IV,
IV-D and V formats and submitted that the application by a developer is
made to the DTCP and which is the solitary authority empowered to
either accept or refuse the grant of a licence. It was further submitted
that once the DTCP comes to form a provisional opinion that a grant of
licence would be merited, it calls upon the owner to fulfil various
conditions laid down in Rule 11. Rule 11 is extracted hereinbelow:

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―11. Conditions required to be fulfilled by applicant [Section

3(3)]— (1) the applicant shall:—
(a) furnish to the Director either a bank guarantee equal to
twenty-five percent of the estimated cost of the development
works or mortgage a part of the licenced land, as determined by
the Director and enter into an agreement in form LC-IV for
carrying out and completion of development works in
accordance with the licence finally granted:
Provided that in case of affordable plotted residential colony
under Deen Dayal Jan Awas Yojana, the coloniser shall have
option to deposit the cost of internal development works with
the concerned municipal authority as per mutually agreed rates
or in the alternative, shall have option to mortgage fifteen
percent of the total area under all residential plots, in favour of
the Director, in lieu of depositing bank guarantee equal to
twenty-five percent of the estimated cost of development
works.]
(b) undertake to deposit thirty percent of the amount to be
realized by him from the plot-holders, from time to time, within
ten days of its realization in a separate account to be maintained
in a scheduled bank and this amount shall only be utilized
towards meeting the cost of internal development works in the
colony;
(c) undertake to pay proportionate development charges if the
main lines of roads, drainage, sewerage, water supply and
electricity are to be laid out and constructed by the Government
or any other local authority. The proportion in which and the
time within which such payment is to be made shall be
determined by the Director;
(d) undertake responsibility for the maintenance and upkeep of
all roads, open spaces, public parks and public health services
for a period of five years from the date of issue of the
completion certificate under rule 16 unless earlier relieved of
this responsibility and there upon to transfer all such roads, open
spaces, public parks and public health services free of cost to the
Government or the local authority, as the case may be;
(e) undertake to construct at his own cost, or get constructed by
any other institution or individual at its cost, schools, hospitals,
community centers and other community buildings on the land
set apart for this purpose, within a period of four years from the
date of grant of licence extendable by the Director for another
period of two years, for reasons to be recorded in writing, failing
which the land shall vest with the Government after such
specified period, free of cost, in which case the Government
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shall be at liberty to transfer such land to any person or

institution including a local authority, for the said purposes, on
such terms and conditions, as it may deem fit;
Provided that a show cause notice and opportunity for hearing
shall be given before vesting the land in the Government;]
(f) undertake to permit the Director or any other officer
authorized by him to inspect the execution of the layout and the
development works in the colony and to carry out all directions
issued by him for ensuring due compliance of the execution of
the layout and development works in accordance with the
licence granted.
(g) pay such development charges including the cost of
development of State/National Highways, Transport, Irrigation
and Power facilities as determined by Director (given in the
128{Schedule-A}to these rules); and
(h) execute bilateral agreement in Form LC-IV-A for group
housing colony, in Form LC-IV-B for plotted colony, in Form
LC-IV-C for industrial colony and in Form LC-IV-D for
commercial colony.]
(2) If the Director, having regard to the amenities which exist or
are proposed to be provided in the locality, decides that it is not
necessary or possible to provide such amenity or amenities, the
applicant will be informed thereof and clauses (c), (d) and (e) of
sub-rule (1) shall be deemed to have been modified to that extent.
(3)In case of an application for grant of licence for low-density
eco-friendly colony, the applicant shall additionally undertake to-
(a) install solar farms aiming for meeting energy requirements of
the colony through solar energy, in accordance with the
technical parameters specified by the Director, on at least five
percent of the area of the colony that shall be in addition to the
five percent area reserved for open spaces;
(b) provide integrated facility for storage, purification,
distribution and recycling of storm-water aiming for no external
source of water supply, minimum ground water extraction and
zero run-off. Independent distribution system for separately
fulfilling the farming, flushing and domestic water requirements
shall also be provided;
(c) install a bio-gas plant aimed at fulfilling requirements for
cooking gas and a compost plant for utilizing and recycling of
all bio-degradable waste, in accordance with the technical
parameters specified by the Director; and,

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(d) restrict the residential density of the colony to a maximum of

twenty five persons per acre.‖

28. Mr. Agarwal laid emphasis on the fact that even this provision
does not obligate the owner to make any payments to HSVP. Learned
counsel submitted that a reading of the bilateral agreement which
ultimately comes to be executed in Form LC IV-D clearly places the
onus of paying EDC upon the owner. It was pointed out that the
payment of an EDC is envisaged to be made to HSVP through the
DTCP. Taking us through the various clauses of the bilateral agreement,
Mr. Agarwal highlighted the clauses which, according to him, establish
that the rate of EDC, schedule of payment, and all other terms and
conditions in connection therewith are regulated by the Director. It was
submitted that even if the owner were to seek condonation of delay in
the payment of EDC, permission in that respect is to be obtained from
the Director. It was further submitted that the Bank Guarantee
equivalent to 25% of EDC is made out in favour of the Governor of
Haryana. Mr. Agarwal further contended that the LC-V format would
unerringly point towards the substance of the agreement being one
between the owner and the DTCP.
29. It was pointed out that although the demand drafts representing
EDC liability were drawn in the name of HSVP, they were physically
furnished to the DTCP, Haryana. According to learned counsel when
the contract is viewed in its entirety, it would be apparent that the
owner is under no contractual or other obligation towards HSVP. It was
submitted that while EDC payments may be forwarded to the HSVP,
the said authority is not empowered in law to take any steps against the
owner in case of default.

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30. It was then submitted that the communications issued by the

DTCP and HSVP would themselves establish that the payments made
to HSVP would fall within the ambit of Section 196. Our attention was
specifically drawn to the Memo dated 06 October 2017 in which the
DTCP had disclosed that EDC is a charge levied by the Government for
carrying out external development works. Mr. Agarwal also took us
through the reply of HSVP dated 20 November 2017 in terms of which
its Accounts Officer had categorically averred that it is not receiving
any EDC payments. Reliance was also placed on the Memo dated 19
June 2018 issued by DTCP and where it had clarified that HSVP is only
an executing agency working for and on behalf of the State
Government. According to learned counsel, once the aforesaid facts are
cumulatively taken into consideration, it would be apparent that EDC is
a payment made to the Government.
31. Mr. Agarwal also placed reliance on the judgment of the
Supreme Court in New Delhi Municipal Corporation v. State of
Punjab and Ors.16 wherein it was held income earned or received by a
State as a Government, cannot be subjected to tax by virtue of Article
289 of the Constitution. It was his submission that principles laid down
in New Delhi Municipal Corporation are squarely applicable in the
present case as the EDC charges have been received by the DTCP and
the same is income of the State and thus not taxable.
32. According to Mr. Agarwal, factors such as the foundational
agreement being between the owner and the developer, the licence
having been issued by the Government, fixation and enhancement of
EDC rates by the Government, the furnishing of a Bank Guarantee in
the name of the Government of Haryana, powers of its invocation and
16
(1997) 7 SCC 339

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release vesting in that Government, all clearly evidence the fulcrum of

the contract being between the owner and the Government of Haryana.
It was in that backdrop that Mr. Agarwal contended that EDC is liable
to be viewed as an amount which was payable to the Government and
consequently the case squarely falling within the scope of Section 196.
33. Proceeding to deconstruct Section 194C, Mr. Agarwal submitted
that the said provision would be attracted only if there be a person
responsible for paying a sum to any resident for carrying out work in
pursuance of a contract between the contractor and a specified person.
According to learned counsel, the petitioner is not responsible to pay
any sums to HSVP who would be liable to be viewed as the contractor
in terms of Section 194C. Emphasis was laid on the fact that there is no
contractual relationship between the petitioner and the HSVP.
According to Mr. Agarwal merely because the sum is routed to the
HSVP through the DTCP, the same would be insufficient to attract the
provisions of Section 194C.
34. It was further contended by Mr. Agarwal that in some of the
cases the respondents had also sought to invoke Section 194I of the Act.
According to learned counsel, Section 194I on its plain reading would
be wholly inapplicable. Learned counsel pointed out that the said
provision is concerned with income earned by way of rent. According
to learned counsel undisputedly the land over which the development is
to be undertaken belonged to the petitioner and, therefore, there was no
question of an aspect of rent arising in connection therewith. It was
submitted that in any case since the land neither vested in HSVP nor
was it taken on rent from that authority, Section 194I would clearly not
stand attracted. In any event according to Mr. Agarwal this issue stands

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concluded in favour of the petitioners in light of the decision of the

Court rendered in DLF Homes Panchkula.
35. Insofar as the OM dated 23 December 2017 is concerned, Mr.
Agarwal submitted that the same incorrectly proceeds on the basis that
EDC is an amount payable to HSVP and thus the provisions of Section
194C being attracted. Learned counsel pointed out that Section 194C is
not founded on an amount being payable to a person. It was contended
that as per the provision itself, tax is liable to be deducted either at the
time of credit of such sum to the account of the contractor or at the time
of its payment in cash. It was in the aforesaid light that learned counsel
argued that Section 194C pre-supposes a sum being paid to a contractor
as opposed to amounts being payable to an authority.
36. It was further submitted by Mr. Agarwal that the provisions of
Section 201 of the Act cannot be invoked since it would be wholly
incorrect to treat the petitioners as being an assessee in default.
Learned counsel argued that it is well settled that where an issue is
debatable or even arguable, Section 201 would be inapplicable. In
support of his aforenoted submission, learned counsel relied upon the
following decisions:

(I) CIT v. British Airways17

―3. Having heard the learned counsel on both sides, we are of the
view that, on the facts and circumstances of these cases, the
question on the point of limitation formulated by the Income Tax
Appellate Tribunal in the present cases need not be gone into for
the simple reason that, at the relevant time, there was a debate on
the question as to whether TDS was deductible under the Income
Tax Act, 1961, on foreign salary payment as a component of the
total salary paid to an expatriate working in India. This
controversy came to an end vide judgment of this Court

17
(2010) 13 SCC 44

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in CIT v. Eli Lilly & Co. (India) (P) Ltd. [(2009) 15 SCC 1 :
(2009) 312 ITR 225] The question on limitation has become
academic in these cases because, even assuming that the
Department is right on the issue of limitation still the question
would arise whether on such debatable points, the assessee(s)
could be declared as assessee(s) in default under Section 192 read
with Section 201 of the Income Tax Act, 1961.‖

(II) Chennai Port Trust Rajaji Salai Chennai v. The Income Tax

Officer18

―12. The Supreme Court observed that till the decision of the
Apex Court reported in (2009) 312 ITR 225 (CIT v. Eli Lilly &
Company (India) (P) Ltd.), there was a debate on the question as
to whether TDS was deductible on foreign salary payment as a
component of total salary paid to an expatriate working in India.
In the face of such debatable issue, the assessee could not be
declared as an assessee in default under Section 192 read with
Section 201 of the Income Tax Act. Further, the Apex Court
pointed out that since the foreign company-assessees therein had
paid the differential tax and the interest and had further undertook
not to claim refund for the amount paid, the Supreme Court held
that the orders passed under Section 201(1) and 201(1A) could
not be upheld. Applying the decision of the Apex Court to the
case on hand, which we had already narrated in the preceding
paragraph, with the debate on the status of the assessee existing at
least till 2000 and the assessee not having any information as
regards the order passed by the Advance Ruling Authority, we
have no hesitation in accepting the plea of the assessee that the
assessee herein could not be declared as an assessee in default for
the purpose of interest under Section 201(1A) of the Income Tax
Act. It may be of relevance to note herein that the assessee had
deducted tax at 2%. The foreign company had paid tax under
Section 44BBB at 4.8% and sought for a refund. Taking note of
the decision of the Apex Court reported in (2009) 312 ITR 225
(CIT v. Eli Lilly & Company (India) (P) Ltd.) and the object
underlying Section 201 to recover the taxes where there is a
shortfall, it is but necessary to find out whether the foreign
company had already remitted the tax as per Section 44BBB.‖

37. In any case, and without prejudice to the above, Mr. Agarwal
submitted that the respondents are yet to ascertain and clarify whether

18
2012 SCC OnLine Mad 2272

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HSVP has shown EDC as its income and has been assessed to tax on
the same. It was on the aforesaid basis that learned counsel contended
that if ultimately upon assessment it is shown that EDC was treated as
income and had been so assessed to tax, then by virtue of the First
Proviso to Section 201 the petitioner cannot be treated to be an assessee
in default. It was argued by Mr. Agarwal that the ITAT itself has in
various decisions held that TDS provisions are inapplicable on payment
of EDC. Our attention was drawn to the following judgments rendered
by the ITAT:-

(I) Santur Infrastructure Pvt. Ltd. Vs Assistant Commissioner of

Income Tax, Range 77, New Delhi19.

―5. Undisputedly, demand drafts for payment of EDC were issued

in the name of Chief Administrator, HUDA for an amount of Rs.
10,11,00,000/- for the year under assessment. It is also not in
dispute that HUDA has shown EDC as current liability in the
balance sheet but, in the notice of accounts forming part of the
balance sheet, it has shown that the EDC has been received for
execution of various external development works, as and when
the development works are carried out the EDC liabilities are
reduced accordingly. It is also not in dispute that HUDA is
engaged in acquiring land, developing it and finally handing over
to the customers for a price. It is also not in dispute that EDC are
fixed by HUDA from time to time by issuing letters/circulars. It is
also not in dispute that the assessee has not credited the amount of
EDC paid to Shri Vardhman Infra Heights Pvt. Ltd. in its P & L
account. It is also not in dispute that Agreement between the land
owners intended to set up a Group Housing Society dated
30.11.2010 was entered into between M/s. Dial Softech Pvt. Ltd.,
Shri Tek Ram, Smt. Saroj Singhal, Smt. Luxmi Devi and Smt.
Sunehra Devi c/o M/s. Santur Infrastructure Pvt. Ltd. and the
Governor of Haryana acting through the Director, Town &
Country Planning (DTCP), Haryana, whereby owner undertakes
to pay proportionate EDC as per rate, schedule, terms and
conditions contained in the Agreement.

19
2019 SCC OnLine ITAT 24457

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6. When we examine the question ―as to whether TDS on payment

of EDC to HUDA was not to be deducted by assessee because
levy is made by DTCP having control over the EDC and not
HUDA as contended by the ld. AR for the assessee‖ in the light of
the aforesaid undisputed facts, we are of the considered view that
the assessee has no liability to deduct TDS in respect of the
payment made to a Government Department, DTCP in this case,
u/s 196 of the Act as the payment was made to HUDA on behalf
of DTCP only
xxxx xxxx xxxx
9. We are of the considered view that when payment of EDC has
been made by the assessee in accordance with licence granted by
the DTCP, the payment made to HUDA was not made in
pursuance of any work contract or under statutory obligation
meaning thereby that when the assessee has no privity of contract
with HUDA rather the assessee has privity of contract with
DTCP, a Government Department of Haryana, as per Agreement
(supra) and the HUDA has merely received the payment for and
on behalf of DTCP, the assessee was not required to deduct the
TDS.‖

(II) Satya Developers Pvt. Ltd. Vs Joint Commissioner Of

Income Tax, Range-77 New Delhi20

―2. As per Section 3(3)(ii), license holder has to pay proportionate

development charges if the external development works as
defined in clause (g) of section 2 are to be carried out by the
Government or any other local authority. The proportion in which
and the time within which, such payment is to be made, shall be
determined by the Director.
3. Presently, external development works in the periphery of or
outside colony/area for the benefit of the colony/area are being
executed by Haryana Shahari Vikas Pradhikaran thereafter
HSVP) which is the Development Authority or state Govt. Earlier
upto 31.03.2017, Department of Town 8t Country Planning used
to collect the external development charges from the colonizer to
whom licences have been granted under Act No. 8 of 1975 and
the persons to whom permission for change of land use have been
granted under Act No. 41 of 1963, in the shape of bank draft
drawn in favour of CA, HSVP and send the same to CA, HSVP.‖

20
2022 (6) TMI 687 ITAT Delhi

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(III) Spaze Tower Pvt. Ltd. Versus JCIT, Range-77, New Delhi21.

―6. We have carefully considered the rival submissions. The

Assessing Officer/JCIT levied penalty of Rs.6,14,460/- under
Section 271C for short deduction/non deduction of tax at source
alleging default committed by the assessee under Section 194C on
payment of External Development Charges (EDC) to Haryana
Urban Development Authority (HUDA). With the assistance of
the ld. counsel, we find that the Directorate of Town and Country
Planning, Haryana (Haryana Government) has issued clarification
on TDS deduction on EDC payments vide letter dated 19.06.2018
which is self explanatory and thus reproduced herein for ready
reference:
―To
The Chief Administrator,
Haryana Shahari Vikas Pradhikaran,
Panchkula,
Memo No.DTCP/ACCTTS/Assessing Officer (HQ)/CAO/
2894/2018 Date: 19.6.2018
Subject: Clarification on TDS Deductions on EDC
Payments.
Please refer to the matter cited as subject above.
1. Section 2(g) of the Haryana Development and Regulation
of Urban Areas Act, 1975 defines that external development
works (hereinafter referred as EDW) shall includes any or
all infrastructure development works like water supply,
sewerage, drains, provisions of treatment and disposal of
sewage, sullage and storm water, roads, electrical works,
solid waste management and disposal, slaughter houses,
colleges, hospitals, stadium/sports complex, fire stations,
grid sub-stations etc. and/or any other work which the
Director may specify to be executed in the periphery of or
outside colony/area for the benefit of the colony/area.
2- As per Section 3(3)(ii), license holder has to pay
proportionate development charges if the external
development works as defined in clause (g) of section 2 are
to be carried out by the Government or any other local
authority. The proportion in which and the time within
which, such payment is to be made, shall be determined by
the Director.

21
2022 (5) TMI 1344 ITAT Delhi

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3. Presently, external development works in the periphery of

or outside colony/area for the benefit of the colony/area are
being executed by Haryana Shahari Vikas Pradhikaran
thereafter HSVP) which is the Development Authority or
state Govt. Earlier upto 31.03.2017, Department of Town 8t
Country Planning used to collect the external development
charges from the colonizer to whom licences have been
granted under Act No. 8 of 1975 and the persons to whom
permission for change of land use have been granted under
Act No. 41 of 1963, in the shape of bank draft drawn in
favour of CA, HSVP and send the same to CA, HSVP.
4. As the receipt on account of EDC was not sufficient to
carry out the all development works under EDC for the
urban estate as per approved development plans, therefore
to meet out the shortfall, a new scheme Swaran Jayanti
Haryana Urban Infrastructure Development Scheme
(renamed as Mangal Nagar Vikas Yojana was approved by
the State Govt. and appropriate budget provision for
execution of development works has been made in the said
scheme. From Financial Year 2017-18, the receipts on
account of EDC is being deposited in the consolidated fund
of the State under Major Receipt Head-0217 receipts and all
license/CLU holders have also been directed vide order
dated 12.05,2017 that payment of EDC in respect of
license/CLU granted by TCP Deptt. may be made online
through epayment gateway or in shape of demand drafts
favouring Director, Town 6 Country Planning, Haryana.
Required funds for execution of development works are
released to HSVP after granting the sanction from the
Finance Department.
It is, therefore, clarified that HSVP is only an executing
agency for and on behalf of State Govt. For carrying out
EDW for which funds are given to HSVP by the Govt.
through TCP Deptt. Since, payment for EDC has been made
to TCP Deptt. of State Govt., no TDS was/is to be deducted
out of payment made to Govt. for EDW.
Accounts officer (HO)
For: Director Town & Country Planning
Haryana, Chandigarh

7. On the basis of the aforesaid clarification, the assessee

contends that the payment to HUDA is, in effect, payment to
State Government and therefore such payment is exempt from
obligations to deduct TDS in view of Section 196 of the Act.‖

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(IV) M/S Perfect Constech Pvt. Ltd. Versus Addl. CIT22

―5.0 We have heard the rival submissions and have also perused
the material on record. It is seen that in Para 4.3.2, subparagraph
(iv) of the order passed u/s 271C of the Act, the AO has himself
noted that the demanddraft of the EDC amounts are drawn in
favour of the Chief Administrator, HUDA though routed through
the Director General, Town and Country Planning, Sector-18,
Chandigarh. He has also referred to the notes to accounts to the
financial statements of HUDA wherein it has been stated that
―other liabilities also include external development charges
received through DGTCP, Department of Haryana for execution
of various EDC works. The expenditure against which have been
booked in Development Work in Progress, Enhancement
compensation and Land cost.‖ Undisputedly, the payment of EDC
was issued in the name of Chief Administrator, HUDA. It is also
not in dispute that HUDA has shown EDC as current liability in
the balance sheet, but in the ‗Notes‘ to the Accounts Forming part
of the Balance Sheet, it has been shown that EDC has been
received for execution of various external development works and
as and when the development works are carried out, the EDC‘s
liabilities are reduced accordingly. It is also not in dispute that
HUDA is engaged in acquiring land, developing it and finally
handing it over for a price. It is also not in dispute that EDC is
fixed by HUDA from time to time. However, the fact of the
matter remains that payment has been made to HUDA through
DTCP which is a Government Department and the same is not in
pursuance to any contract between the assessee and HUDA. Thus,
the payment of EDC is not for carrying out any specific work to
be done by HUDA for and on behalf of the assessee but rather
DTCP which is a Government Department which levies these
charges for carrying out external development and engages the
services of HUDA for execution of the work. Therefore, it is our
considered view that the assessee was not required to deduct tax
at source at the time of payment of EDC as the same was not out
of any statutory or contractual liability towards HUDA and,
therefore, the impugned penalty was not leviable. We note that
similar view has been taken by the Co-ordinate Benches of ITAT
Delhi in the cases of Santur Infrastructure Pvt. Ltd. vs. ACIT in
ITA 6844/Del/2019 vide order dated 18.12.2019, Sarv Estate Pvt.
Ltd. vs. JCIT in ITA No.5337 & 5338/Del/2019 vide order dated
13.09.2019 and Shiv Sai Infrastructure (Pvt.) Ltd. vs. ACIT in
ITA No.5713/Del/2019 vide order dated 11.09.2019. A similar
view was also taken by the Co-ordinate Bench of ITAT Delhi in
case of R.P.S Infrastructure Ltd. vs. ACIT in 5805, 5806 &
5349/Del/2019 vide order dated 23.07.2019. Therefore, on an
22
2020 (12) TMI 1158 ITAT Delhi

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identical facts and respectfully following the orders of the Co-

ordinate Benches as aforesaid, we hold that the impugned penalty
u/s 271C of the Act is not sustainable. The order of the Ld. CIT
(A) is set aside and the penalty is directed to be deleted.
6.0 In the final result, the appeal of the assessee stands allowed.‖

38. Leading submissions on behalf of the respondents, Mr. Zoheb

Hossain firstly submitted that payments made to HSVP cannot be
equated with payments made to the Government. Mr. Hossain pointed
out that HSVP has come to be constituted by virtue of the provisions of
the Haryana Urban Development Authority Act, 197723, a State
legislation, and thus clearly placing that authority outside the ambit of
Section 196 of the Act. It was his submission that authorities
constituted under State legislations cannot claim coverage under
Section 196, since the same is confined to sums payable to either the
Government, the Reserve Bank or a corporation established by or under
a Central Act. Mr. Hossain cited for our consideration the decision of
the Supreme Court in Adityapur Industrial Area Development
Authority v. Union of India24 where a contention that an authority
constituted under a State Legislation would be exempt from taxation by
virtue of Article 289 of the Constitution, came to be negatived in
unequivocal terms. Mr. Hossain laid emphasis on the following
passages from that decision:
―11. It is true, as submitted by Shri Venugopal, that clause (2) of
Article 289 empowers Parliament to make a law imposing a tax
on income earned only from trade or business of any kind carried
by or on behalf of the State. It does not authorise Parliament to
impose a tax on the income of a State if such income is not earned
in the manner contemplated by clause (2) of Article 289. This, to
our mind, does not answer the question which arises for our
consideration in this appeal. Clause (2) of Article 289
presupposes that the income sought to be taxed by the Union is

23
1977 Act
24
(2006) SCC OnLine SC 530

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the income of the State, but the question to be answered at the

threshold is whether in terms of clause (1) of Article 289, the
income of the appellant Authority is the income of the State.
Having regard to the provisions of the Bihar Industrial Area
Development Authority Act, 1974, particularly Section 17
thereof, we have no manner of doubt that the income of the
appellant Authority constituted under the said Act is its own
income and that the appellant Authority manages its own funds. It
has its own assets and liabilities. It can sue or be sued in its own
name. Even though, it does not carry on any trade or business
within the contemplation of clause (2) of Article 289, it still is an
authority constituted under an Act of the legislature of the State
having a distinct legal personality, being a body corporate, as
distinct from the State. Section 17 of the Act further clarifies that
only upon its dissolution its assets, funds and liabilities devolve
upon the State Government. Necessarily therefore, before its
dissolution, its assets, funds and liabilities are its own. It is,
therefore, futile to contend that the income of the appellant
Authority is the income of the State Government, even though the
Authority is constituted under an Act enacted by the State
Legislature by issuance of a notification by the Government
thereunder.

12. According to Basu's Commentary on the Constitution of India,

(6th Edn., p. 50, Vol. ‗L‘) Articles 285 and 289 are analogous to
each other inasmuch as while Article 285 exempts the Union
property from State taxation, Article 289 exempts the State
property from Union taxation. While clause (1) of Article 289
exempts from Union taxation any income of a State, derived from
governmental or non-governmental activities, clause (2) provides
an exception, namely, that income derived by a State from trade
or business will be taxable, provided a law is made by Parliament
in that behalf. Clause (3) of Article 289 is an exception of the
exception prescribed by clause (2) of Article 289 and it provides
that income derived from particular trade or business may be
made immune from Union taxation if Parliament declares such
trade or business as incidental to the ordinary functions of the
Government (emphasis supplied). The reason is obvious. Under
the Constitution, the State has no power to tax any income other
than agricultural income. Under the Constitution, power to tax
―income‖ is vested only in the Union. Therefore, while any
property of the Union is immune from State taxation under Article
285(1), income derived by the State from business, as
distinguished from governmental purposes, shall not have
exemption from Union taxation unless Parliament declares such
trade or business as incidental to the ordinary functions of the
Government of the State [see Article 289(3)]
(emphasis supplied)

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xxxx xxxx xxxx

14. In A.P. SRTC v. ITO [(1964) 7 SCR 17 : AIR 1964 SC 1486]

the question arose as to whether the income derived from trading
activity by the Andhra Pradesh Road Transport Corporation
established under the Road Transport Corporation Act, 1950 was
not the income of the State of Andhra Pradesh within the meaning
of Article 289(1) of the Constitution and hence exempted from
Union taxation. This Court considered the scheme of Article 289
and observed as follows: (SCR p. 25)
―The scheme of Article 289 appears to be that ordinarily,
the income derived by a State both from governmental and
non-governmental or commercial activities shall be
immune from income tax levied by the Union, provided,
of course, the income in question can be said to be the
income of the State. This general proposition flows from
clause (1).
Clause (2) then provides an exception and authorises the
Union to impose a tax in respect of the income derived by
the Government of a State from trade or business carried
on by it, or on its behalf; that is to say, the income from
trade or business carried on by the Government of a State
or on its behalf which would not have been taxable under
clause (1), can be taxed, provided a law is made by
Parliament in that behalf. If clause (1) had stood by itself,
it may not have been easy to include within its purview
income derived by a State from commercial activities, but
since clause (2), in terms, empowers Parliament to make a
law levying a tax on commercial activities carried on by or
on behalf of a State, the conclusion is inescapable that
these activities were deemed to have been included in
clause (1) and that alone can be the justification for the
words in which clause (2) has been adopted by the
Constitution. It is plain that clause (2) proceeds on the
basis that but for its provision, the trading activity which is
covered by it would have claimed exemption from Union
taxation under clause (1). That is the result of reading
clauses (1) and (2) together.
Clause (3) then empowers Parliament to declare by law
that any trade or business would be taken out of the
purview of clause (2) and restored to the area covered by
clause (1) by declaring that the said trade or business is
incidental to the ordinary functions of the Government. In
other words, clause (3) is an exception to the exception
prescribed by clause (2). Whatever trade or business is
declared to be incidental to the ordinary functions of the
Government, would cease to be governed by clause (2)

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and would then be exempt from Union taxation. That,

broadly stated, appears to be the result of the scheme
adopted by the three clauses of Article 289.‖

15. Reading these three clauses together this Court held that the
property as well as the income in respect of which exemption is
claimed under clause (1) must be the property and income of the
State, and thus the crucial question to be answered is: ―Is the
income derived by the State from its transport activities the
income of the State?‖ It was observed that if a trade or business is
carried on by a State departmentally or through its agents
appointed exclusively for that purpose, there would be no
difficulty in holding that the income made from such trade or
business is the income of the State. Difficulties arise when one is
dealing with trade or business carried on by a corporation
established by a State by issuing a notification under the relevant
provisions of the Act. In this context, the Court observed: (SCR p.
26)
―The corporation, though statutory, has a personality of
its own and this personality is distinct from that of the
State or other shareholders. It cannot be said that a
shareholder owns the property of the corporation or
carries on the business with which the corporation is
concerned. The doctrine that a corporation has a
separate legal entity of its own is so firmly rooted in
our notions derived from common law that it is hardly
necessary to deal with it elaborately; and so, prima
facie, the income derived by the appellant from its
trading activity cannot be claimed by the State which is
one of the shareholders of the corporation.‖

xxxx xxxx xxxx

17. Considerable reliance was placed on the principles laid down

in the aforesaid decision by learned counsel appearing for the
Union of India. He submitted that having regard to the provisions
of the Act under which the appellant Authority is established, the
same conclusion may be reached. In particular, emphasising the
fact that as in A.P. SRTC case [(1964) 7 SCR 17 : AIR 1964 SC
1486] so in the instant case as well, Section 17 of the Act provides
that upon dissolution of the appellant Authority, the properties,
funds and dues realisable by the Authority along with its liabilities
shall devolve upon the State Government. Impliedly, therefore,
such properties, funds and dues vest in the Authority till its
dissolution, and only thereafter it vests in the State Government.
He also referred to various other provisions of the Act and
submitted that there was nothing in the Act which attempted to lift
the veil from the face of the Corporation. Even though the

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Authority was created under an Act of the Legislature, it was still

an authority which had a distinct personality of its own, having
perpetual succession and a common seal, with powers to acquire,
hold and dispose of property, and to contract, and could sue and
be sued in its own name. Shri Venugopal, on the other hand, tried
to distinguish the judgment on the ground that the Andhra Pradesh
Road Transport Corporation is being run on business lines, and a
corporation that runs on business lines is distinguishable and
different from a corporation which is not run on those lines. Even
if such a distinction is drawn, that will not have the effect of
making the income of the Corporation the income of the State
Government having regard to the other features noticed above.

xxxx xxxx xxx

20. Similarly, the decision in New Delhi Municipal

Council v. State of Punjab [(1997) 7 SCC 339] does not advance
the case of the appellant. It was held that the property/municipal
taxes levied by the New Delhi Municipal Council under the
relevant Act constituted Union taxation within the meaning of
clause (1) of Article 289 of the Constitution. The levy of property
taxes under the aforesaid enactments on lands or buildings
belonging to the State Government was invalid and incompetent
by virtue of the mandate contained in clause (1) of Article 289.
However, if any land or building is used or occupied for the
purpose of any trade or business, meaning thereby a trade or
business carried on with profit motive, by or on behalf of the
State Government, such land or building shall be subject to the
levy of the property taxes levied by the said enactments. In other
words, State property exempted under clause (1) means such
property as is used for the purpose of the Government and not for
the purpose of trade or business. That was a case where the
question arose in relation to the levy of property tax on lands and
buildings owned by the State Governments which was ―property
of the State Government‖. In the instant case, we are concerned
with the income of the appellant Authority and the same
principles apply. The exemption can be claimed only if the
income can be said to be the income of the State Government. In
the facts of this case, it is not possible to hold that the income of
the appellant Authority is the income of the State Government.‖

39. According to learned counsel, the statutory scheme in the context

of which Adityapur Industrial Area came to be rendered, is similar to
that which underlies the 1977 Act. Mr. Hossain laid emphasis on the
right of HSVP to manage its own funds, its right to independently own

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assets, as well as the right to sue/ be sued in its own name. According to
learned counsel, all of the above would tend to establish and evidence
the conferral of a distinct legal personality upon HSVP. It was
additionally pointed out that in terms of the 1977 Act in case HSVP
were to be dissolved, its assets, funds and liabilities would devolve
upon the State Government. According to learned counsel, all of the
above places HSVP in a position identical to Adityapur Industrial Area.
In view of the above, according to Mr. Hossain, the submission that the
income of HSVP would be exempt by virtue of Article 289 of the
Constitution deserves outright rejection.
40. Mr. Hossain also submitted that while considering the
applicability of the provisions of the 1977 Act, the nature of functions
that may be performed or discharged by HSVP is wholly irrelevant.
According to learned counsel taxability is not dependent upon the
functions or duties that may be discharged by an authority. According
to Mr. Hossain even if the functions performed by HSVP were to be
viewed as being akin to basic governmental functions, the same would
have no bearing on the question of taxability.
41. It was submitted that the petitioners also incorrectly assert HSVP
to be a local authority. This argument, according to Mr. Hossain, is
liable to be turned down on the plain language of Section 10(20) of the
Act and which defines a ―local authority‖ as under:

―10. Incomes not included in total income

(20) the income of a local authority which is chargeable under
the head, ―Income from house property‖, ―Capital gains‖, or
―Income from other sources‖ or from a trade or business
carried on by it which accrues or arises from the supply of a
commodity or service (not being water or electricity) within
its own jurisdictional area or from the supply of water or
electricity within or outside its own jurisdictional area;

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[Explanation.—For the purposes of this clause, the

expression ―local authority‖ means—
(i) Panchayat as referred to in clause (d) of Article 243
of the Constitution; or
(ii) Municipality as referred to in clause (e) of Article
243-P of the Constitution; or
(iii) Municipal Committee and District Board, legally
entitled to, or entrusted by the Government with, the
control or management of a Municipal or local
fund; or
(iv) Cantonment Board as defined in Section 3 of the
Cantonments Act, 1924;]‖

42. According to learned counsel, a plain reading of Section 10(20)

of the Act would establish that HSVP cannot be treated to be a local
authority. In any case according to Mr. Hossain this aspect stands
conclusively settled and answered against the writ petitioners by the
Supreme Court in terms of its decision rendered in New Okhla
Industrial Development Authority v. CIT25. Mr. Hossain relied upon
the following observations as rendered in that judgment:
―27. The KishansingTomar v. Municipal Corpn., Ahmedabad
[Kishansing Tomar v. Municipal Corpn., Ahmedabad, (2006) 8
SCC 352] , noticing the object and purpose of the Constitution
(74th Amendment) Act, 1992, stated the following: (SCC p. 358,
para 12)
―12. It may be noted that Part IX-A was inserted in the
Constitution by virtue of the Constitution (Seventy-fourth)
Amendment Act, 1992. The object of introducing these
provisions was that in many States the local bodies were not
working properly and the timely elections were not being
held and the nominated bodies were continuing for long
periods. Elections had been irregular and many times
unnecessarily delayed or postponed and the elected bodies
had been superseded or suspended without adequate
justification at the whims and fancies of the State
authorities. These views were expressed by the then
Minister of State for Urban Development while introducing
the Constitution Amendment Bill before Parliament and

25
(2018) 9 SCC 351

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thus the new provisions were added in the Constitution with

a view to restore the rightful place in political governance
for local bodies. It was considered necessary to provide a
constitutional status to such bodies and to ensure regular
and fair conduct of elections. In the Statement of Objects
and Reasons in the Constitution Amendment Bill relating to
urban local bodies, it was stated….‖
28. The constitutional provisions as contained in Part IX-A
delineate that the Constitution itself provided for constitution of
Municipalities, duration of Municipalities, powers of Authorities
and responsibilities of the Municipalities. The Municipalities are
created as vibrant democratic units of self-government. The
duration of Municipality was provided for five years
contemplating regular election for electing representatives to
represent the Municipality. The special features of the
Municipality as was contemplated by the constitutional provisions
contained in Part IX-A cannot be said to be present in the
Authority as delineated by the statutory scheme of the 1976 Act.
It is true that various municipal functions are also being
performed by the Authority as per the 1976 Act but the mere facts
that certain municipal functions were also performed by the
authority it cannot acquire the essential features of the
Municipality which are contemplated by Part IX-A of the
Constitution. The main thrust of the argument of the learned
counsel for the appellant that the High Court having not adverted
to the Notification dated 24-12-2001 issued under the proviso to
Article 243-Q(1) the judgments relied on by the High Court for
dismissing the writ petition are not sustainable. We thus have to
focus on the proviso to Article 243-Q(1). For the purpose and
object of the industrial township referred to therein whether
industrial township mentioned therein can be equated with
Municipality as defined under Article 243-P(e). Article 243-P(e)
provides that the ―Municipality‖ means an institution of self-
government constituted under Article 243-Q. Whether the
appellant is an institution of self-government constituted under
Article 243-Q is the main question to be answered? Clause (1) of
Article 243-Q provides that there shall be constituted in every
State, a Nagar Panchayat, a Municipal Council and a Municipal
Corporation, in accordance with the provisions of this Part. The
proviso to clause (1) provides that:
―Provided that a Municipality under this clause may not be
constituted in such urban area or part thereof as the
Governor may, having regard to the size of the area and
the municipal services being provided or proposed to be
provided by an industrial establishment in that area and
such other factors as he may deem fit, by public
notification, specify to be an industrial township.‖
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29. Thus, the proviso does not contemplate constitution of an

industrial establishment as a Municipality rather clarifies an
exception where Municipality under clause (1) of Article 243-Q
may not be constituted in an urban area. The proviso is an
exception to the constitution of Municipality as contemplated by
clause (1) of Article 243-Q. No other interpretation of the proviso
conforms to the constitution scheme.
30. A Constitution Bench of this Court had noticed the principles
of statutory interpretation of a proviso in S. Sundaram
Pillai v. V.R. Pattabiraman [S. Sundaram Pillai v. V.R.
Pattabiraman, (1985) 1 SCC 591] . The following has been laid
down by this Court in paras 37 to 43: (SCC pp. 609-10)
―37. In short, generally speaking, a proviso is intended to
limit the enacted provision so as to except something
which would have otherwise been within it or in some
measure to modify the enacting clause. Sometimes a
proviso may be embedded in the main provision and
becomes an integral part of it so as to amount to a
substantive provision itself.
38. Apart from the authorities referred to above, this Court
has in a long course of decisions explained and
adumbrated the various shades, aspects and elements of a
proviso. In State of Rajasthan v. Leela Jain [State of
Rajasthan v. Leela Jain, AIR 1965 SC 1296] , the
following observations were made: (AIR p. 1300, para 14)
‗14. … So far as a general principle of construction
of a proviso is concerned, it has been broadly stated
that the function of a proviso is to limit the main part
of the section and carve out something which but for
the proviso would have been within the operative
part.‘
39. In STO v. Hanuman Prasad [STO v. Hanuman
Prasad, AIR 1967 SC 565], Bhargava, J. observed thus:
(AIR p. 567, para 5)
‗5. … It is well recognised that a proviso is added to
a principal clause primarily with the object of taking
out of the scope of that principal clause what is
included in it and what the legislature desires should
be excluded.‘
40. In CCT v. Ramkishan Shri kishan Jhaver
[CCT v. Ramkishan Shrikishan Jhaver, AIR 1968 SC 59] ,
this Court made the following observations: (AIR p. 63,
para 8)

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‗8. … Generally speaking, it is true that the proviso

is an exception to the main part of the section; but it
is recognised that in exceptional cases a proviso may
be a substantive provision itself.‘
41. In Dwarka Prasad v. Dwarka Das Saraf [Dwarka
Prasad v. Dwarka Das Saraf, (1976) 1 SCC 128] Krishna
Iyer, J. speaking for the Court observed thus: (SCC pp.
136-37, paras 16 & 18)
‗16. There is some validity in this submission but if,
on a fair construction, the principal provision is
clear, a proviso cannot expand or limit it. Sometimes
a proviso is engrafted by an apprehensive draftsman
to remove possible doubts, to make matters plain, to
light up ambiguous edges. Here, such is the case.
***
18. … If the rule of construction is that prima facie a
proviso should be limited in its operation to the
subject-matter of the enacting clause, the stand we
have taken is sound. To expand the enacting clause,
inflated by the proviso, sins against the fundamental
rule of construction that a proviso must be
considered in relation to the principal matter to
which it stands as a proviso. A proviso ordinarily is
but a proviso, although the golden rule is to read the
whole section, inclusive of the proviso, in such
manner that they mutually throw light on each other
and result in a harmonious construction.‘
42. In Hiralal Rattanlal v. State of U.P. [Hiralal
Rattanlal v. State of U.P., (1973) 1 SCC 216 : 1973 SCC
(Tax) 307 : AIR 1973 SC 1034] , this Court made the
following observations: [SCC p. 224, para 22: SCC (Tax)
p. 315]
‗22. … Ordinarily a proviso to a section is intended
to take out a part of the main section for special
treatment. It is not expected to enlarge the scope of
the main section. But cases have arisen in which this
Court has held that despite the fact that a provision
is called proviso, it is really a separate provision and
the so-called proviso has substantially altered the
main section.‘
43. We need not multiply authorities after authorities on
this point because the legal position seems to be clearly

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and manifestly well established. To sum up, a proviso may

serve four different purposes:
(1) qualifying or excepting certain provisions from the
main enactment;
(2) it may entirely change the very concept of the
intendment of the enactment by insisting on certain
mandatory conditions to be fulfilled in order to make
the enactment workable;
(3) it may be so embedded in the Act itself as to
become an integral part of the enactment and thus
acquire the tenor and colour of the substantive
enactment itself; and
(4) it may be used merely to act as an optional
addenda to the enactment with the sole object of
explaining the real intendment of the statutory
provision.‖
31. Applying the rules of interpretation as laid down by this
Court, it is clear that the proviso is an exception to the
constitutional provisions which provide that there shall be
constituted in every State a Nagar Panchayat, a Municipal
Council and a Municipal Corporation. Exception is covered by
the proviso that where an industrial township is providing
municipal services the Governor having regard to the size of the
area and the municipal services either being provided or proposed
to be provided by an industrial establishment specify it to be an
industrial township. The words ―industrial township‖ have been
used in contradiction of a Nagar Panchayat, a Municipal Council
and a Municipal Corporation. The object of issuance of
notification is to relieve the mandatory requirement of
constitution of a Municipality in a State in the circumstances as
mentioned in the proviso but exemption from constituting
Municipality does not lead to mean that the industrial
establishment which is providing municipal services to an
industrial township is same as Municipality as defined in Article
243-P(e). We have already noticed that Article 243-P(e) defines
―Municipality‖ as an institution of self-government constituted
under Article 243-Q, the word ―constituted‖ used under Article
243-P(e) read with Article 243-Q clearly refers to the constitution
in every State of a Nagar Panchayat, a Municipal Council or a
Municipal Corporation. Further, the words in the proviso ―a
Municipality under this clause may not be constituted‖ clearly
means that the words ―may not be constituted‖ used in the proviso
are clearly in contradistinction with the word ―constituted‖ as
used in Article 243-P(e) and Article 243-Q. Thus, notification

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under the proviso to Article 243-Q(1) is not akin to constitution of

Municipality. We, thus, are clear in our mind that industrial
township as specified under the Notification dated 24-12-2001 is
not akin to Municipality as contemplated under Article 243-Q.
32. At this juncture, we may also notice the two judgments as
relied on by the High Court and three more judgments where
Article 243-Q came for consideration. The first judgment which
needs to be noticed is Adityapur Industrial Area Development
Authority [Adityapur Industrial Area Development
Authority v. Union of India, (2006) 5 SCC 100] . The Adityapur
Industrial Development Authority was constituted under the Bihar
Industrial Area Development Authority Act, 1974. In para 2 of
the judgment the constitution of the authority was noticed which
is to the following effect: (SCC p. 103)
―2. The appellant Authority has been constituted under the
Bihar Industrial Area Development Authority Act, 1974 to
provide for planned development of industrial area, for
promotion of industries and matters appurtenant thereto.
The appellant Authority is a body corporate having
perpetual succession and a common seal with power to
acquire, hold and dispose of properties, both movable and
immovable, to contract, and by the said name sue or be
sued. The Authority consists of a Chairman, a Managing
Director and five other Directors appointed by the State
Government. The Authority is responsible for the planned
development of the industrial area including preparation of
the master plan of the area and promotion of industries in
the area and other amenities incidental thereto. The
Authority has its own establishment for which it is
authorised to frame regulations with prior approval of the
State Government. The State Government is authorised to
entrust the Authority from time to time with any work
connected with planned development, or maintenance of
the industrial area and its amenities and matters connected
thereto. Section 7 of the Act obliges the Authority to
maintain its own fund to which shall be credited monies
received by the Authority from the State Government by
way of grants, loans, advances or otherwise, all fees, rents,
charges, levies and fines received by the Authority under
the Act, all monies received by the Authority from
disposal of its movable or immovable assets and all
monies received by the Authority by way of loan from
financial and other institutions and debentures floated for
the execution of a scheme or schemes of the Authority
duly approved by the State Government. Unless the State
Government directs otherwise, all monies received by the
Authority shall be credited to its funds which shall be kept
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with State Bank of India and/or one or more of the

nationalised banks and drawn as and when required by the
Authority.‖
33. On the question as to whether the Adityapur Industrial Area
Development Authority was covered within the meaning of local
authority as per Section 10(20) as amended by the Finance Act,
2002, the High Court held that the appellant Authority could not
have claimed benefit under the provisions after 1-4-2003. In paras
6 and 7, the following was held: (Adityapur Industrial Area
Development Authority case [Adityapur Industrial Area
Development Authority v. Union of India, (2006) 5 SCC 100] ,
SCC pp. 104-05)
―6. It would thus be seen that the income of a local
authority chargeable under the head ―Income from house
property‖, ―Capital gains‖ or ―Income from other sources‖
or from a trade or business carried on by it was earlier
excluded in computing the total income of the Authority
of a previous year. However, in view of the amendment,
with effect from 1-4-2003 the Explanation ―local
authority‖ was defined to include only the authorities
enumerated in the Explanation, which does not include an
authority such as the appellant. At the same time Section
10(20-A) which related to income of an authority
constituted in India by or under any law enacted for the
purpose of dealing with and satisfying the need for
housing accommodation or for the purpose of planning,
development or improvement of cities, towns and villages,
which before the amendment was not included in
computing the total income, was omitted. Consequently,
the benefit conferred by clause (20-A) on such an
authority was taken away.
7. The High Court by its impugned judgment [Adityapur
Industrial Area Development Authority v. Union of India,
2003 SCC OnLineJhar 227 : 2003 AIR Jhar R 876] and
order held that in view of the fact that Section 10(20-A)
was omitted and an Explanation was added to Section
10(20) enumerating the ―local authorities‖ contemplated
by Section 10(20), the appellant Authority could not claim
any benefit under those provisions after 1-4-2003. It
further held that the exemption under Article 289(1) was
also not available to the appellant Authority as it was a
distinct legal entity, and its income could not be said to be
the income of the State so as to be exempt from Union
taxation. The said decision of the High Court is impugned
in this appeal.‖

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38. The Court further held that the Explanation under Section
10(20) provides an exhaustive definition and the tests laid down
by this Court in an earlier case i.e. Union of India v. R.C.
Jain [Union of India v. R.C. Jain, (1981) 2 SCC 308 : 1981 SCC
(L&S) 323] , are no longer applicable. In para 35 the following
was stated: (Agricultural Produce Market Committee
case [Agricultural Produce Market Committee v. CIT, (2008) 9
SCC 434] , SCC p. 451)
―35. One more aspect needs to be mentioned. In R.C.
Jain [Union of India v. R.C. Jain, (1981) 2 SCC 308 :
1981 SCC (L&S) 323] the test of ―like nature‖ was
adopted as the words ―other authority‖ came after the
words ―Municipal Committee, District Board, Body of
Port Commissioners‖. Therefore, the words ―other
authority‖ in Section 3(31) took colour from the earlier
words, namely, ―Municipal Committee, District Board or
Body of Port Commissioners‖. This is how the functional
test is evolved in R.C. Jain [Union of India v. R.C. Jain,
(1981) 2 SCC 308 : 1981 SCC (L&S) 323] . However, as
stated earlier, Parliament in its legislative wisdom has
omitted the words ―other authority‖ from the said
Explanation to Section 10(20) of the 1961 Act. The said
Explanation to Section 10(20) provides a definition to the
word ―local authority‖. It is an exhaustive definition. It is
not an inclusive definition. The words ―other authority‖ do
not find place in the said Explanation. Even, according to
the appellant(s), AMC(s) is neither a Municipal
Committee nor a District Board nor a Municipal
Committee nor a panchayat. Therefore, in our view
functional test and the test of incorporation as laid down
in R.C. Jain [Union of India v. R.C. Jain, (1981) 2 SCC
308 : 1981 SCC (L&S) 323] is no more applicable to the
Explanation to Section 10(20) of the 1961 Act. Therefore,
in our view the judgment of this Court in R.C. Jain [Union
of India v. R.C. Jain, (1981) 2 SCC 308 : 1981 SCC
(L&S) 323] followed by judgments of various High Courts
on the status and character of AMC(s) is no more
applicable to the provisions of Section 10(20) after the
insertion of the Explanation/definition clause to that sub-
section vide the Finance Act, 2002.‖
B. Section 10(20) as amended by the Finance Act, 2002
44. We have already noticed that by the Finance Act, 2002 an
Explanation has been added to Section 10(20) of the 1961 IT Act
and Section 10(20-A) has been omitted. Prior to the Finance Act,
2002 there being no definition of ―local authority‖ under the IT
Act, the provisions of Section 3(31) of the General Clauses Act,

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1897 were pressed into service while interpreting the extent and
meaning of local authority. The Explanation having now
contained the exhaustive definition of local authority, the
definition of local authority as contained in Section 3(31) of the
General Clauses Act, 1897 is no more applicable. Section 3 of the
General Clauses Act begins with the words ―In this Act, and in all
Central Acts and Regulations made after the commencement of
this Act, unless there is anything repugnant in the subject or
context…‖. The definition given of the local authority under
Section 3(31) does not now govern the field in view of the
express omission of the expression ―all other authority‖. This
Court has already in Agricultural Produce Market
Committee [Agricultural Produce Market Committee v. CIT,
(2008) 9 SCC 434] held that the definition under Section 3(31) of
the General Clauses Act is now no more applicable to interpret
local authority under Section 10(20) of the IT Act. Before we
proceed further it shall be useful to notice certain well-settled
principles of statutory interpretation of fiscal statutes.
45. This Court in A.V. Fernandez v. State of Kerala [A.V.
Fernandez v. State of Kerala, AIR 1957 SC 657] laid down the
following: (AIR p. 661, para 29)
―29. It is no doubt true that in construing fiscal statutes
and in determining the liability of a subject to tax one
must have regard to the strict letter of the law and not
merely to the spirit of the statute or the substance of the
law. If the Revenue satisfies the court that the case falls
strictly within the provisions of the law, the subject can be
taxed. If, on the other hand, the case is not covered within
the four corners of the provisions of the taxing statute, no
tax can be imposed by inference or by analogy or by
trying to probe into the intentions of the legislature and by
considering what was the substance of the matter. We
must of necessity, therefore, have regard to the actual
provisions of the Act and the rules made thereunder before
we can come to the conclusion that the appellant was
liable to assessment as contended by the Sales Tax
Authorities.‖
46. This Court in Rajasthan Rajya SahakariSpg. & Ginning Mills
Federation Ltd. v. CIT [Rajasthan Rajya SahakariSpg. & Ginning
Mills Federation Ltd. v. CIT, (2014) 11 SCC 672] again reiterated
that there has to be strict interpretation of taxing statutes and
further the fact that one class of legal entities is given some
benefit which is specifically stated in the Act does not mean that
the legal entities not referred to in the Act would also get the same
benefit. The following was laid down in para 23: (SCC p. 678)

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―23. We are also of the view that in all the tax matters one
has to interpret the taxation statute strictly. Simply
because one class of legal entities are given some benefit
which is specifically stated in the Act does not mean that
the legal entities not referred to in the Act would also get
the same benefit. As stated by this Court on several
occasions, there is no equity in matters of taxation. One
cannot read into a section which has not been specifically
provided for and therefore, we do not agree with the
submissions of the learned counsel appearing for the
appellant and we are not prepared to read something in the
section which has not been provided for. The judgments
referred to hereinabove support the view which we have
expressed here.‖
47. It shall be useful to refer to the Explanatory Notes on the
Finance Act, 2002. Explanatory Notes both on Section 10(20) and
Section 10(20-A) are relevant and contained in paras 12.2 to 12.4
and 13.1 to 13.4. Paras 12.2. to 12.4 under the heading: Income of
certain local authorities to become taxable are to the following
effect:
―12.2. Through the Finance Act, 2002, this exemption has
been restricted to the Panchayats and Municipalities as
referred to in Articles 243(d) and 243-P(e) of the
Constitution of India respectively. Municipal Committees
and District Boards, legally entitled to or entrusted by the
Government with the control or management of a
Municipal or a local fund and Cantonment Boards as
defined under Section 3 of the Cantonments Act, 1924.
12.3. The exemption under clause (20) of Section 10
would, therefore, not be available to Agricultural
Marketing Societies and Agricultural Marketing Boards,
etc., despite the fact that they may be deemed to be treated
as local authorities under any other Central or State
Legislation. Exemption under this clause would not be
available to port trusts also.
12.4. This amendment will take effect from 1-4-2003 and
will, accordingly, apply in relation to Assessment Year
2003-2004 and subsequent assessment years.‖
48. Further paras 13.1 to 13.4 of the Explanatory Notes contained
heading: ―Income of certain Housing Boards, etc. to become
taxable‖ on deletion of clause (20-A), are as stated below:
―13.1. Under the existing provisions contained in clause
(20-A) of Section 10, income of the Housing Boards or
other statutory authorities set up for the purpose of dealing
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with or satisfying the need for housing accommodations or

for the purpose of planning, development or improvement
of cities, towns and villages is exempt from payment of
income tax.
13.2. Through the Finance Act, 2002, clause (20-A) of
Section 10 has been deleted so as to withdraw exemption
available to the abovementioned bodies. The income of
Housing Boards of the States and of Development
Authorities would, therefore, also become taxable.
13.3. Under Section 80-G, donation made to housing
authorities, etc. referred to in clause (20-A) of Section 10
is eligible for 50% deduction from total income in the
hands of the donors. Since clause (20-A) of Section 10 has
been deleted, donation to the housing authorities, etc.
would not be eligible for deduction in the hands of the
donors and this may result in drying up of donations. To
continue the incentive to donation made to housing
authorities, etc., Section 80-G has been amended so as to
provide that 50% of the sum paid by an assessee to an
authority constituted in India by or under any law enacted
either for the purpose of dealing with and satisfying the
need for housing accommodation or for the purpose of
planning, development or improvement of cities, towns
and villages, or for both, shall be deducted from the total
income of such assessee.
13.4. These amendments will take effect from 1-4-2003
and will, accordingly, apply in relation to Assessment
Year 2003-2004 and subsequent assessment years.‖
49. The Explanatory Note clearly indicates that by the Finance
Act, 2002 the exemption under Section 10(20) has been restricted
to the Panchayats and Municipalities as referred to in Articles
243-P(d) and 243-P(e). Further by deletion of clause (20-A), the
income of the Housing Boards of the States and of Development
Authorities became taxable.
50. On a writ petition filed by the appellant before the Allahabad
High Court where the notices issued in the year 1998 under
Section 142 of the Income Tax Act were challenged vide its
judgment dated 14-2-2000, the High Court held that the
appellant's case comes squarely under Section 10(20-A) of the
Income Tax Act, hence, the appellant was liable to be exempted
under the said Act, although, the High Court did not express any
opinion on the question whether the appellant was exempted
under Section 10(20) in that judgment.

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51. After omission of Section 10(20-A), the only provision under

which a body or authority can claim exemption is Section 10(20).
Local authority having been exhaustively defined in the
Explanation to Section 10(20) an entity has to fall under Section
10(20) to claim exemption. It is also useful to notice that this
Court laid down in State of Gujarat v. Essar Oil Ltd. [State of
Gujarat v. Essar Oil Ltd., (2012) 3 SCC 522 : (2012) 2 SCC (Civ)
182] that a person invoking an exception or an exemption
provision to relieve him of the tax liability must establish clearly
that he is covered by the said provision. It is useful to extract para
88 which is to the following effect: (SCC p. 547)
―88. This Court in Novopan case [Novopan India
Ltd. v. CCE, 1994 Supp (3) SCC 606] , held that the
principle that in case of ambiguity, a taxing statute should
be construed in favour of the assessee, does not apply to
the construction of an exception or an exempting
provision, as the same have to be construed strictly.
Further this Court also held that a person invoking an
exception or an exemption provision to relieve him of the
tax liability must establish clearly that he is covered by the
said provision and in case of doubt or ambiguity, benefit
of it must go to the State.‖
52. For interpreting an explanation this Court in S. Sundaram
Pillai v. V.R. Pattabiraman [S. Sundaram Pillai v. V.R.
Pattabiraman, (1985) 1 SCC 591] , laid down in paras 47 and 53
as follows: (SCC pp. 611 & 613)
―47. Swarup in Legislation and Interpretation very aptly
sums up the scope and effect of an Explanation thus:
‗Sometimes an Explanation is appended to stress upon a
particular thing which ordinarily would not appear clearly
from the provisions of the section. The proper function of
an Explanation is to make plain or elucidate what is
enacted in the substantive provision and not to add or
subtract from it. Thus an Explanation does not either
restrict or extend the enacting part; it does not enlarge or
narrow down the scope of the original section that it is
supposed to explain…. The Explanation must be
interpreted according to its own tenor; that it is meant to
explain and not vice versa.‘ (pp. 297-98)
***
53. Thus, from a conspectus of the authorities referred to
above, it is manifest that the object of an Explanation to a
statutory provision is—

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‗(a) to explain the meaning and intendment of the

Act itself,
(b) where there is any obscurity or vagueness in the
main enactment, to clarify the same so as to make it
consistent with the dominant object which it seems
to subserve,
(c) to provide an additional support to the dominant
object of the Act in order to make it meaningful and
purposeful,
(d) an Explanation cannot in any way interfere with
or change the enactment or any part thereof but
where some gap is left which is relevant for the
purpose of the Explanation, in order to suppress the
mischief and advance the object of the Act it can
help or assist the court in interpreting the true
purport and intendment of the enactment, and
(e) it cannot, however, take away a statutory right
with which any person under a statute has been
clothed or set at naught the working of an Act by
becoming a hindrance in the interpretation of the
same.‘‖
53. This Court in Adityapur Industrial Area Development
Authority [Adityapur Industrial Area Development
Authority v. Union of India, (2006) 5 SCC 100] after considering
Section 10(20) as amended by the Finance Act, 2002 and
consequences of deletion of Section 10(20-A) has laid down the
following in para 13: (SCC p. 107)
―13. Applying the above test to the facts of the present
case, it is clear that the benefit, conferred by Section
10(20-A) of the Income Tax Act, 1961 on the assessee
herein, has been expressly taken away. Moreover, the
Explanation added to Section 10(20) enumerates the ―local
authorities‖ which do not cover the assessee herein.
Therefore, we do not find any merit in the submission
advanced on behalf of the assessee.‖
54. It is also relevant to notice that this Court in Gujarat
Industrial Development Corpn. v. CIT [Gujarat Industrial
Development Corpn. v. CIT, (1997) 7 SCC 17] , after considering
the provisions of Section 10(20-A) of the IT Act held that Gujarat
Industrial Development Corporation is entitled for exemption
under Section 10(20-A). The Gujarat Industrial Development
Corporation was held to be entitled for exemption under Section
10(20-A) at the time when the provision was in existence in the

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statute book and after its deletion from the statute book the
exemption is no more available. Now, reverting back to Section
10(20) as amended by the Finance Act, 2002, the same has also
come for consideration before different High Courts. A Division
Bench of the Allahabad High Court in Krishi Utpadan Mandi
Samiti v. Union of India [Krishi Utpadan Mandi Samiti v. Union
of India, 2004 SCC OnLine All 2152 : (2004) 267 ITR 460]
stated the following: (SCC OnLine All paras 7-10)
―7. A bare perusal of the Explanation to Section 10(20)
shows that now only four entities are local authorities for
the purpose of Section 10(20), namely, (i) Panchayat; (ii)
Municipality; (iii) Municipal Committee and District
Board; (iv) Cantonment Board. Krishi Utpadan Mandi
Samiti is not one of the entities mentioned in the
Explanation to Section 10(20).
8. It may be noted that the Explanation to Section 10(20)
uses the word ―means‖ and not the word ―includes‖.
Hence, it is not possible for this Court to extend the
definition of ―local authority‖ as contained in the
Explanation to Section 10(20), vide P.
Kasilingam v. P.S.G. College of Technology [P.
Kasilingam v. P.S.G. College of Technology, 1995 Supp
(2) SCC 348, para 19 : AIR 1995 SC 1395, para 19] . It is
also not possible to refer to the definitions in other Acts, as
the IT Act now specifically defines ―local authority‖.
9. It is well settled that in tax matters the literal rule of
interpretation applies and it is not open to the court to
extend the language of a provision in the Act by relying on
equity, inference, etc.
10. It is the first principle of interpretation that a statute
should be read in its ordinary, natural and grammatical
sense. As observed by the Supreme Court of India:
‗22. … In construing a statutory provision, the first
and the foremost rule of construction is the literary
construction. All that [the Court has] to see at the
very outset is what does the provision say? If the
provision is unambiguous and if from that provision,
the legislative intent is clear, [the Court] need not
call into aid the other rules of construction of
statutes. The other rules of construction of statutes
are called into aid only when the legislative intent is
not clear.‘
Vide HiralalRattanlal v. State of
U.P. [HiralalRattanlal v. State of U.P., (1973) 1
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SCC 216 : 1973 SCC (Tax) 307 : AIR 1973 SC

1034] , SCC p. 224, para 22.‖
55. A Division Bench of the Delhi High Court also
in Agricultural Produce Market Committee v. CIT [Agricultural
Produce Market Committee v. CIT, 2006 SCC OnLine Del 1722 :
(2007) 294 ITR 549] had occasion to consider Section 10(20) as
amended w.e.f. 1-4-2003 where the High Court in para 5 has
stated the following: (SCC OnLine Del)
―5. The most striking feature of the Explanation is that the
same provides an exhaustive meaning to the expression
―local authority‖. The word ―means‖ used in the
Explanation leaves no scope for addition of any other
entity as a ―local authority‖ to those enlisted in the
Explanation. In other words, even if an entity constitutes a
―local authority‖ for purposes of the General Clauses Act,
1897, or for purposes of any other enactment for that
matter, it would not be so construed for purposes of
Section 10(20) of the Act unless it answers the description
of one of those entities enumerated in the Explanation.
Mrs Ahlawat did not make any attempt to bring her case
under clauses (i), (ii) and (iv) of the Explanation and, in
our opinion, rightly so because the appellant Committee
cannot by any process of reasoning be construed as a
Panchayat as referred to in clause (d) of Article 243 of the
Constitution of India, a municipality in terms of clause (e)
of Article 243-P of the Constitution of India or a
Cantonment Board as defined under Section 3 of the
Cantonments Act, 1924. What she argued was that looking
to the nature of the functions enjoined upon the appellant
Committee, it must be deemed to be a Municipal
Committee within the meaning of that expression in clause
(iii) of the Explanation. We regret our inability to accept
that submission. We say so for two distinct reasons.
Firstly, because the expression ―Municipal Committee‖
appears in a taxing statute and must, therefore, be
construed strictly. It is fairly well settled by a long line of
decisions rendered by the Supreme Court that while
interpreting a taxing statute, one has simply to look to
what is clearly stated therein. There is, in fiscal statutes,
no room for any intendment nor is there any equity about
the levy sanctioned under the same. The following passage
from Cape Brandy Syndicate v. IRC [Cape Brandy
Syndicate v. IRC, (1921) 1 KB 64] has been approved by
the Apex Court in the decisions rendered by their
Lordships: (KB p. 71)

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‗… in a taxing Act one has to look merely at what is

clearly said. There is no room for any intendment.
There is no equity about a tax. There is no
presumption as to a tax. Nothing is to be read in,
nothing is to be implied. One can only look fairly at
the language used.‘‖
56. We fully endorse the views taken by the High Court in the
above two judgments [Krishi Utpadan Mandi Samiti v. Union of
India, 2004 SCC OnLine All 2152 : (2004) 267 ITR
460] , [Agricultural Produce Market Committee v. CIT, 2006
SCC OnLine Del 1722 : (2007) 294 ITR 549] .
57. Now, reverting back to the Explanation to Section 10(20),
these are entities which mean the local authority. The submission
of the appellant is that the appellant is covered by clause (ii) of
the Explanation i.e. ―Municipality as referred to in clause (e) of
Article 243-P of the Constitution‖. We, while discussing the
above provisions, have already held that the appellant is not
covered by the word/expression of ―Municipality‖ in clause (e) of
Article 243-P. Thus, the appellant is not clearly included in clause
(ii) of the Explanation. It is not even the case of the appellant that
the appellant is covered by Section 10(20) except clause (ii).

43. Proceeding to the facts of the case, Mr. Hossain pointed out that
Form LC IV-D in unambiguous terms provides for the EDC being paid
to HSVP. The aforesaid clause as contained in the bilateral agreement,
according to Mr. Hossain, is incontrovertible proof of the obligation of
the petitioner to pay EDC to HSVP, albeit “through” the DTCP. In any
event, according to learned counsel, the payment of EDC is “not to”
the DTCP. It was submitted that the petitioners have at no stage
questioned HSVP as being the ultimate recipient of the EDC.
44. Learned counsel also questioned the reliance which was sought
to be placed on the OM dated 06 October 2017 and contended that
merely because the EDC payments were ultimately placed under a
‗receipt‘ head of the DTCP, the same does not detract from the payment
having been made directly to HSVP. According to Mr. Hossain how
that payment is ultimately accounted for in the books of HSVP and

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DTCP is an issue which is of little relevance or significance insofar as

Section 194C is concerned.
45. Mr. Hossain also questioned the correctness of the arguments and
which were addressed on the basis of the judgment of the Supreme
Court in New Delhi Municipal Council. It was his submission that the
arguments addressed on this score were thoroughly misconceived since
this is clearly not a case where properties of the State were being sought
to be taxed. In fact, according to learned counsel, the decision of the
Supreme Court is a resounding negation of the arguments addressed on
the anvil of Article 289 of the Constitution.
46. It was then submitted that a reading of the provisions of the
1977 Act would clearly point towards statutory obligations placed upon
HSVP to carry out external development work in accordance with
directives that may be issued by the DTCP and the Government of
Haryana. According to learned counsel, the aforesaid would clearly fall
within the ambit of an agreement or an arrangement between the DTCP
and HSVP and would thus qualify the prerequisites of Section 194C.
Mr. Hossain pointed out that for the purposes of Section 194C it is not
imperative that the payment to the contractor be based on a written or
explicit contract. According to learned counsel, the existence of an
agreement or an arrangement can always be gathered from the conduct
of parties. Viewed in that light, it was his submission that it would be
apparent that the payments which were made by the petitioners was for
the carrying out of works pursuant to an agreement between the
contractor (HSVP) and a specified person (DTCP). In support of the
aforenoted contention Mr. Hossain laid reliance on the following
pertinent observations as appearing in the decision of the Supreme

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Court in Shree Choudhary Transport Company v. Income Tax

Officer26:-
―15. In order to maintain that the appellant was under no
obligation to make any deduction of tax at source, it has been
argued that there was no oral or written contract of the appellant
with the truck operators/owners, whose vehicles were engaged to
execute the work of transportation of the goods only on freelance
and need basis. The submission has been that the question of TDS
under Section 194-C(2) would have arisen only if the payment
was made to a ―sub-contractor‖ and that too, in pursuance of a
contract for the purpose of ―carrying whole or any part of work
undertaken by the contractor‖. In our view, the submissions so
made remain entirely baseless.
15.1. The nature of contract entered into by the appellant with the
consignor company makes it clear that the appellant was to
transport the goods (cement) of the consignor company; and in
order to execute this contract, the appellant hired the transport
vehicles, namely, the trucks from different operators/owners. The
appellant received freight charges from the consignor company,
who indeed deducted tax at source while making such payment to
the appellant. Thereafter, the appellant paid the charges to the
persons whose vehicles were hired for the purpose of the said
work of transportation of goods. Thus, the goods in question were
transported through the trucks employed by the appellant but,
there was no privity of contract between the truck
operators/owners and the said consignor company. Indisputably,
it was the responsibility of the appellant to transport the goods
(cement) of the company; and how to accomplish this task of
transportation was a matter exclusively within the domain of the
appellant. Hence, hiring the services of truck operators/owners for
this purpose could have only been under a contract between the
appellant and the said truck operators/owners. Whether such a
contract was reduced into writing or not carries hardly any
relevance. In the given scenario and set up, the said truck
operators/owners answered to the description of ―sub-contractor‖
for carrying out the whole or part of the work undertaken by the
contractor (i.e. the appellant) for the purpose of Section 194-C(2)
of the Act.
15.2. The suggestions on behalf of the appellant that the said
truck operators/owners were not bound to supply the trucks as per
the need of the appellant nor the freight payable to them was pre-
determined, in our view, carry no meaning at all. Needless to

26
(2021) 13 SCC 401

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observe that if a particular truck was not engaged, there existed no

contract but, when any truck got engaged for the purpose of
execution of the work undertaken by the appellant and freight
charges were payable to its operator/owner upon execution of the
work i.e. transportation of the goods, all the essentials of making
of a contract existed; and, as aforesaid, the said truck
operator/owner became a sub-contractor for the purpose of the
work in question. The AO, CIT(A) and ITAT have concurrently
decided this issue against the appellant with reference to the facts
of the case, particularly after appreciating the nature of contract of
the appellant with the consignor company as also the nature of
dealing of the appellant, while holding that the truck
operators/owners were engaged by the appellant as sub-
contractors. The same findings have been endorsed by the High
Court in its short order [Shree Choudhary Transport Co. v. CIT,
2009 SCC OnLine Raj 5525 : (2009) 225 CTR 125] dismissing
the appeal of the appellant. We are unable to find anything of
error or infirmity in these findings.
15.3. The decision of the Delhi High Court in Hardarshan
Singh [CIT v. Hardarshan Singh, 2013 SCC OnLine Del 128 :
(2013) 350 ITR 427] , in our view, has no application whatsoever
to the facts of the present case. The assessee therein, who was in
the business of transporting goods, had four trucks of his own and
was also acting as a commission agent by arranging for
transportation through other transporters. As regards the income
of assessee relatable to transportation through other transporters,
it was found that the assessee had merely acted as a facilitator or
as an intermediary between the two parties (i.e. the consignor
company and the transporter) and had no privity of contract with
either of such parties inasmuch as he only collected freight
charges from the clients who intended to transport their goods
through other transporters; and the amount thus collected from the
clients was paid to those transporters by the assessee while
deducting his commission. Looking to the nature of such
dealings, the said assessee was held to be ―not the person
responsible‖ for making payments in terms of Section 194-C of
the Act and hence, having no obligation to deduct tax at source. In
contradistinction to the said case of Hardarshan
Singh [CIT v. Hardarshan Singh, 2013 SCC OnLine Del 128 :
(2013) 350 ITR 427] , the appellant of the present case was not
acting as a facilitator or intermediary between the consignor
company and the truck operators/owners because those two
parties had no privity of contract between them. The contract of
the company, for transportation of its goods, had only been with
the appellant and it was the appellant who hired the services of
the trucks. The payment made by the appellant to such a truck
operator/owner was clearly a payment made to a sub-contractor.

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15.4. Though the decision of this Court in Palam Gas

Service [Palam Gas Service v. CIT, (2017) 7 SCC 613 : (2017)
394 ITR 300] essentially relates to the interpretation of Section
40(a)(i-a) of the Act and while the relevant aspects concerning
the said provision shall be examined in the next question but, for
the present purpose, the facts of that case could be usefully
noticed, for being akin to the facts of the present case and being
of apposite illustration. Therein, the assessee was engaged in the
business of purchase and sale of LPG cylinders whose main
contract for carriage of LPG cylinders was with Indian Oil
Corporation, Baddi wherefor, the assessee received freight
payments from the principal. The assessee got the transportation
of LPG done through three persons to whom he made the freight
payments. The assessing officer held that the assessee had entered
into a sub-contract with the said three persons within the meaning
of Section 194-C of the Act. Such findings of AO were
concurrently upheld up to the High Court and, after interpretation
of Section 40(a)(i-a), this Court also approved the decision
[Palam Gas Service v. CIT, 2014 SCC OnLine HP 2388 : (2015)
370 ITR 740] of the High Court while dismissing the appeal with
costs. The learned counsel for the appellant has made an attempt
to distinguish the nature of contract in Palam Gas Service [Palam
Gas Service v. CIT, (2017) 7 SCC 613 : (2017) 394 ITR 300] by
suggesting that therein, the assessee's sub-contractors were
specific and identified persons with whom the assessee had
entered into contract whereas the present appellant was free to
hire the service of any truck operator/owner and, in fact, the
appellant hired the trucks only on need basis. In our view, such an
attempt of differentiation is totally baseless and futile. Whether
the appellant had specific and identified trucks on its rolls or had
been picking them up on freelance basis, the legal effect on the
status of parties had been the same that once a particular truck
was engaged by the appellant on hire charges for carrying out the
part of work undertaken by it (i.e. transportation of the goods of
the company), the operator/owner of that truck became the sub-
contractor and all the requirements of Section 194-C came into
operation.‖
15.5. Thus, we have no hesitation in affirming the concurrent
findings in regard to the applicability of Section 194-C to the
present case. Question 1 is, therefore, answered in the negative;
against the appellant assessee and in favour of the Revenue.‖

47. We at the outset note that Mr. Hossain apart from addressing
submissions noticed hereinbefore had also raised an objection to the
maintainability of the writ petitions asserting that orders passed under

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Section 201 are appealable under the provisions of the Act. It was his
submission, therefore, that these writ petitions should be dismissed on
this score. We, however, find ourselves unable to sustain that objection
bearing in mind the undisputed fact that most of these writ petitions
were entertained as far back as in 2019 and 2021 and on which, and
after hearing counsels for respective sides, the Court had entertained the
writ petitions and passed interim orders. It would thus be wholly
inequitable to relegate parties to pursue an alternative remedy. We
additionally note from the initial orders passed on these writ petitions,
that an objection to their maintainability in the face of an alternative
remedy does not appear to have been raised or addressed in the first
instance. In any case and since parties have addressed submissions at
great length on the merits of the questions which arise and the
jurisdictional challenge that stands raised, we find no justification to
accept the objection as is raised.
48. As was clarified by us in the prefatory parts of this judgment, we
propose to decide and rule upon the applicability of Section 194C of the
Act principally and leave it open for the writ petitioners as well as the
respondents to proceed further in respect of notices that may have been
issued referable to Sections 201 and Section 271C of the Act in
accordance with the present judgment. We shall also while examining
the challenge which stands raised deal with an additional ground which
has been urged in some of the writ petitions and which had questioned
the validity of the show cause notices not even referring to the
appropriate provision comprised in Chapter XVII-B which was sought
to be invoked and thus asserting that those notices are liable to be
quashed on the ground of lacking in material particulars and being
wholly vague.
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49. The principal question which stands raised would have to be

answered on an understanding of the scope the scope and ambit of
Section 194C. We at the outset note that the aforesaid provision places
an obligation on any person responsible for paying a sum to any
resident for carrying out any work pursuant to a contract between the
resident and a specified person, to deduct tax at source at the time of
crediting such sum to the account of the resident or at the time of
payment. The resident, who is envisaged to have a contract with a
specified person, is referred to in that provision as the ―contractor‖.
The liability to deduct tax, on an ex facie reading of Section 194C,
stands attracted at the time of payment of any sum or the credit thereof
to the account of the contractor. The existence of a contract which is
spoken of in Section 194C is between the contractor and a specified
person. The provision thus does not construct a contractual relationship
between the person responsible for paying the sum and deducting tax
with the contractor as a precondition. This is clearly not a prerequisite
for Section 194C being attracted. For the purposes of Section 194C, all
that is required is a payment being effected to a contractor who has a
contractual relationship with a specified person.
50. HSVP, according to the respondents, has an arrangement with the
Government of Haryana to undertake external development work.
Undisputedly the Government of Haryana, by virtue of being the State
Government, would fall within the meaning of the expression ‗specified
person‘ as per the Explanation appended to Section 194C. The critical
question which thus arises is whether the arrangement between HSVP
and the Government of Haryana could be said to fall within the
meaning of the phrase ―in pursuance of a contract‖ as occurring in that
provision.
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51. The HDRUA Act in Section 2(g) defines EDC to include all
infrastructure development work, such as water supply, sewerage,
drains, treatment and disposal of sewage, storm water, roads, electrical
works and other activities including those which may be additionally
specified by the Director, to be executed in the periphery or outside a
colony or an area for the benefit thereof. A ‗colony‘ has been defined in
Section 2(c) to mean an area of land divided or proposed to be divided
into plots for residential, commercial, industrial development or for the
establishment of a cyber-city, cyber-park, integrated commercial
complexes or for construction of flats in a group housing project or for
creation of a low density eco-friendly colony. Section 3(3)(a)(ii) casts
an obligation upon an owner/ applicant to pay proportionate
development charges if its external development work is to be carried
out by the Government or any other local authority. The aforesaid
statutory obligation as placed is again reiterated in Rule 11(1)(c) and
which requires the applicant to submit an undertaking agreeing to pay
proportionate development charges if activities comprised in external
development are to be constructed, developed and undertaken by the
Government or other local authority. The aforesaid obligation again
finds specific mention in Form LC IV-D, which is the bilateral
agreement that the applicant has to execute with the DTCP. Clause 1(ii)
of Form LC IV-D stipulates that the proportionate EDC is to be paid to
HSVP through the DTCP within 30 days from the date of grant of the
licence or in ten equal six monthly instalments as per the schedule
prescribed therein. The bilateral agreement clearly places the
owner/developer under an unerring obligation to pay EDC to the HSVP.
52. The 1977 Act came to be promulgated with the avowed objective
of establishing HSVP for undertaking urban development and for it to
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act as a local development authority for the development of local areas

in the State of Haryana. The expression ―amenities‖ and ―basic
amenities‖ are defined therein in the following terms:
―(a) amenity" includes roads, water supply, street lighting,
drainage, [sewerage, treatment and disposal of sewage, sullage
and storm water] Public works, tourist spots, open spaces,
Parks, landscaping and Play fields, and such other conveniences
as the State Government may, by notification, specify to be an
amenity for the purposes of this Act;

(ai) "basic amenities" include metalled roads, wholesome water,

sewerage and electrification;‖

53. The objects of HSVP are set out in Section 13 of the 1977 Act
and which explains it to include the promotion and securing the
development of all or any of the areas comprised in an urban area. By
virtue of Section 21, HSVP is enjoined to create and maintain a fund to
which, amongst others, would be credited all monies received by it
from the State Government or the Central Government by way of
grants, loans, advances ―or otherwise‖. The aforesaid fund is liable to
be applied towards meeting expenditure for development of land and
for such other purposes as the State Government might direct or permit.
Section 21 of the 1977 Act reads as follows:

―(21). Fund of authority

(1) the authority shall have and maintain its own fund to which
shall be credited –
(a) all moneys received by the authority from the State
Government and the Central Government by way of grants,
loans, advances or otherwise;
(b) all moneys borrowed by the authority from source other
than the Government, by way of loans or debentures;
(c) all fees received by the authority under this Act;
(d) all moneys received by the authority from the disposal
of lands, building and other properties, movable and
immovable; and

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(e) all moneys received by the authority by way of rents and

profits or in any other manner or from any other source.
(2) The fund shall be applied towards meeting-
(a) expenditure incurred in the administration of this Act;
(b) cost of acquisition of land for purposes of this Act;
(c) expenditure for development of land;
(d) expenditure for such other purposes as the State
Government may direct or permit.
(3) The authority shall keep its fund in any Scheduled Bank.
(4) The authority may invest any portion of its fund in such
securities or in such other manner as may be prescribed.
(5) The income resulting from investments mentioned in sub-
section (4) and proceeds of the sale of the same shall be credited
to the fund of the authority.‖
54. Apart from the above, Section 22 of the 1977 Act recognizes the
power of the State Government to provide grants, advances and loans to
the HSVP as it may consider necessary to enable it to discharge its
functions under the Act. Section 22 reads as follows:

―22. Power of State Government to make grants, advances

and loans to authority

- The State Government may make such grants, advances and

loans to the authority as the State Government may deem
necessary, for the performance of the functions under this Act and
all grants, loans and advances so made shall be on such terms and
conditions, as the State Government may determine.‖

55. Section 30 then places HSVP under a binding obligation to carry

out such directions as may be issued to it from time to time by the State
Government. The 1977 Act thus clearly envisages HSVP as being an
authority which is charged with undertaking external development
works in all areas falling within an urban area. The authority thus
appears to have been constituted as a specialised agency which would
carry out external development works in colonies and areas. A statutory

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obligation to carry out external development, thus, cannot possibly be

doubted.
56. Of critical significance is the communication of the DTCP dated
19 June 2018. A reading of that communication evidences an
acknowledgement by that authority of HSVP undertaking external
development work in and around a colony/ area. The aforesaid
communication also admits to an arrangement which was in existence
upto 31 March 2017 in terms of which the DTCP used to collect EDC
from colonisers in the shape of a bank draft drawn in favour of and sent
to HSVP. The communication further asserts that HSVP is thus an
executing agency working for and on behalf of the State Government
for carrying out external development works for which funds are
provided to HSVP through the DTCP.
57. In para 4 of this communication, the DTCP discloses that since
receipts on account of EDC were found to be insufficient to bear the
cost of development work, it had formulated a new scheme and for
which appropriate budgetary provisions were made for execution of all
external development works by it. It was on the promulgation of the
aforesaid scheme titled as the ―Swarn Jyanti Haryana Urban
Infrastructure Development Scheme‖ that EDC w.e.f. FY 2017-18 was
deposited directly with the State Government and constituted a part of
the Consolidated Fund of that State. It is further admitted that it was
post the promulgation of that scheme and the issuance of an order dated
12 May 2017 that all payments towards EDC were made online through
the State Government‘s e-payment gateway or in the shape of demand
drafts favouring the DTCP. It is further averred that the required funds
for execution of development works were thereafter released to HSVP
upon sanction being granted by the Finance Department of the
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Government of Haryana. This communication is thus evidence of all

EDC charges being made over to the HSVP at least prior to 31 March
2017 pursuant to an understanding that those funds would be utilised
towards external development. Undisputedly, EDC charges, which form
the subject matter of the present batch were payments made directly to
HSVP and prior to FY 2017-18.
58. As we read the communication of 19 June 2018, it becomes
manifest that all payments were made to HSVP albeit under the
directives of the DTCP. Those payments clearly appear to be directed
towards subserving an arrangement existing between HSVP and the
Government of Haryana for external development work being carried
out by the former. While it is true that this arrangement does not stand
encapsulated in a formally executed contract or instrument, there
clearly appears to be in existence an understanding between the State
Government and HSVP for external development work being executed
by it and for the funds remitted to it being utilized for the said purposes.
It is in the aforesaid context that the decision of the Supreme Court in
Shree Chaudhary Transport assumes significance.
59. As is manifest from the passages of that decision extracted
hereinabove, Section 194C was explained to embody an obligation on
the person responsible to make a payment to a sub-contractor being
liable to deduct tax at source. The Supreme Court held that an
underlying contract which could otherwise be discerned from the
arrangement between parties and their conduct would be sufficient even
though it may not have been reduced in writing. The arrangement and
conduct of parties led the Supreme Court to hold and observe that since
the hiring of the sub-contractor was only for the purposes of fulfilling
the principal contract which the appellant had with the specified person,
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the provisions of Section 194C were satisfied. It was thus the conduct
of parties which led to the Supreme Court coming to the conclusion that
all essentials of the creation and existence of a contract existed.
60. In the facts of the present case, and as we construe the provisions
of the HDRUA read along with the Rules as also the statutory
obligations placed upon HSVP, it becomes apparent that there was in
existence an understanding or an arrangement between HSVP and the
Government of Haryana for the execution of external development
works. The phrase ―in pursuance of a contract‖ as finding place in
Section 194C would have to necessarily be construed bearing in mind
the salient principles which were propounded by the Supreme Court in
Shree Chaudhary Transport. If the existence of a contract were to be
gleaned from the arrangement which existed between HSVP and the
Government of Haryana and is also duly acknowledged by the DTCP
itself, the absence of a written or codified agreement would not be
relevant for the purposes of Section 194C being applicable.
61. We further note that not only the provisions of the HDRUA but
also the forms and bilateral agreements executed by the applicants,
mandated that all payments of EDC were to be drawn in favour of
HSVP. Although they were routed through the DTCP, those payments
undoubtedly were to the account of HSVP. The statute as well as the
licence conditions thus placed the petitioners under a binding obligation
to advance all EDC payments in favour of HSVP. The aforesaid clearly
qualifies the responsibility which Section 194C places upon a payer
who is contemplating making payments to a contractor.
62. The submission of a lack of privity between the writ petitioners
and HSVP is noticed only to be rejected since Section 194C does not
contemplate the existence of a contractual relationship between a
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person who is responsible for paying a sum and the contractor as

defined in that provision. The existence of a contract is only envisaged
to be a factor pertinent to an arrangement which the contractor may
have with a specified person. Thus merely because EDC is determined
and directed to be paid by the DTCP, the same does not deprive the
payment of its intrinsic characteristic, namely, of being a payment made
to HSVP.
63. In our considered opinion the fact that EDC is determined,
computed or is recoverable by the DTCP is wholly inconsequential
since Section 194C is solely concerned with a payment being made to a
contractor who has an arrangement with a specified person. Merely
because an exercise of quantification is undertaken by the specified
person, the same would have no bearing on the applicability of Section
194C. We would thus be of the opinion that the moment the petitioners
effected a payment in favour of HSVP in connection with the external
development work which was to be executed by it pursuant to the
arrangement that existed between the said entity and the State
Government, the provisions of Section 194C stood attracted.
64. It is also pertinent to note that Chapter XVII-B, and more
particularly Section 190 thereof, commences with a non-obstante clause
and thus places a responsibility upon a person effecting a payment
which is taxable under the provisions of the Act to deduct and collect
tax at source in accordance with the provisions placed in that Chapter.
The aforesaid provisions except in certain contingencies and in respect
of certain category of payments, does not confer any discretion in a
person effecting payment to consider whether tax is liable to be
deducted and collected at source. It is only in certain contingencies,
such as those which are spoken of in Section 195, that the statute
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enables the person responsible for effecting a payment to consider

whether the amount sought to be paid would be income chargeable
under the Act. This is evident from Section 195 which is extracted
hereunder:
―195. Other sums.—((1) Any person responsible for paying to a
non-resident, not being a company, or to a foreign company,
[any interest (not being interest referred to in Section 194-LB or
Section 194-LC) [or Section 194-LD]] [* * *] or any other sum
chargeable under the provisions of this Act (not being income
chargeable under the head ―Salaries‖ [* * *] shall, at the time of
credit of such income to the account of the payee or at the time
of payment thereof in cash or by the issue of a cheque or draft or
by any other mode, whichever is earlier, deduct income tax
thereon at the rates in force:
Provided that in the case of interest payable by the Government
or a public sector bank within the meaning of clause (23-D) of
Section 10 or a public financial institution within the meaning of
that clause, deduction of tax shall be made only at the time of
payment thereof in cash or by the issue of a cheque or draft or
by any other mode:
[* * *]
[Explanation-1].—For the purposes of this section, where any
interest or other sum as aforesaid is credited to any account,
whether called ―Interest payable account‖ or ―Suspense
account‖ or by any other name, in the books of account of the
person liable to pay such income, such crediting shall be deemed
to be credit of such income to the account of the payee and the
provisions of this section shall apply accordingly.
[Explanation 2.—For the removal of doubts, it is hereby
clarified that the obligation to comply with sub-section (1) and
to make deduction thereunder applies and shall be deemed to
have always applied and extends and shall be deemed to have
always extended to all persons, resident or non-resident, whether
or not the non-resident person has—
(i) a residence or place of business or business connection
in India; or
(ii) any other presence in any manner whatsoever in India.
(2) Where the person responsible for paying any such sum
chargeable under this Act, [(other than salary)] to a non-resident
considers that the whole of such sum would not be income
chargeable in the case of the recipient, he may make an

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application [in such form and manner to the Assessing Officer,

to determine in such manner, as may be prescribed], the
appropriate proportion of such sum so chargeable, and upon
such determination, tax shall be deducted under sub-section (1)
only on that proportion of the sum which is so chargeable:
[* * *]
(3) Subject to rules made under sub-section (5), any person
entitled to receive any interest or other sum on which income tax
has to be deducted under sub-section (1) may make an
application in the prescribed form to the Assessing Officer for
the grant of a certificate authorising him to receive such interest
or other sum without deduction of tax under that sub-section,
and where any such certificate is granted, every person
responsible for paying such interest or other sum to the person to
whom such certificate is granted shall, so long as the certificate
is in force, make payment of such interest or other sum without
deducting tax thereon under sub-section (1).
(4) A certificate granted under sub-section (3) shall remain in
force till the expiry of the period specified therein or, if it is
cancelled by the Assessing Officer before the expiry of such
period, till such cancellation.
(5) The Board may, having regard to the convenience of
assessees and the interests of revenue, by notification in the
Official Gazette, make rules specifying the cases in which, and
the circumstances under which, an application may be made for
the grant of a certificate under sub-section (3) and the conditions
subject to which such certificate may be granted and providing
for all other matters connected therewith.
(6) The person responsible for paying to a non-resident, not
being a company, or to a foreign company, any sum, whether or
not chargeable under the provisions of this Act, shall furnish the
information relating to payment of such sum, in such form and
manner, as may be prescribed.
(7) Notwithstanding anything contained in sub-section (1) and
sub-section (2), the Board may, by notification in the Official
Gazette, specify a class of persons or cases, where the person
responsible for paying to a non-resident, not being a company,
or to a foreign company, any sum, whether or not chargeable
under the provisions of this Act, shall make an
application 3636[in such form and manner to the Assessing
Officer, to determine in such manner, as may be prescribed], the
appropriate proportion of sum chargeable, and upon such
determination, tax shall be deducted under sub-section (1) on
that proportion of the sum which is so chargeable.‖

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65. The special character of that section and others similar thereto
and which speak of ―income chargeable‖ was noticed by the Supreme
Court in Engineering Analysis Centre of Excellence Private Limited
v. Commissioner of Income Tax and Anr.27. We deem it apposite to
extract paras 27 to 31 of that decision hereunder:
―27. The learned Additional Solicitor General further pointed out
that the Indian Government had expressed its reservations on the
OECD Commentary, especially on the parts of the OECD
Commentary dealing with the parting of copyright and royalty.
He also relied upon the Report of the High-Powered Committee
on ―Electronic Commerce and Taxation‖ constituted by the
CBDT, [ F. No 500/122/99 dated 16-12-1999] [―HPC Report
2003‖] and the Report of the Committee on the Taxation of E-
Commerce [―E-Commerce Report 2016‖], which proposed an
equalisation levy on specified transactions. He then went on to
rely on certain judgments to state that even if the OECD
Commentary could be relied upon, it being a rule of international
law contrary to domestic law, to the extent it was contrary to
Explanations 2 and 4 of Section 9(1)(vi) of the Income Tax Act, it
must give way to domestic law. Referring to the doctrine of first
sale/principle of exhaustion, he cited a number of judgments in
order to show that under Section 14(b)(ii) of the Copyright Act,
this doctrine cannot be said to apply insofar as distributors are
concerned.
28. The learned Additional Solicitor General finally concluded his
arguments by stating that the judgments which deal with
computer software under sales tax law and excise law have no
relevance to income tax law, as the laws relating to indirect taxes
are fundamentally different from the laws relating to direct taxes,
since they must follow the drill of the chargeability under the
Income Tax Act, which is different from chargeability under sales
tax law or excise law.
29. Having heard the learned counsel appearing on behalf of
various parties, we first set out the relevant provisions of the
Income Tax Act that we are directly concerned with:
―2. Definitions.—In this Act, unless the context otherwise
requires—
***

27
(2022) 3 SCC 321

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(7) ―assessee‖ means a person by whom any tax or any other

sum of money is payable under this Act, and includes—
(a) every person in respect of whom any proceeding under
this Act has been taken for the assessment of his income or
assessment of fringe benefits or of the income of any other
person in respect of which he is assessable, or of the loss
sustained by him or by such other person, or of the amount of
refund due to him or to such other person;
(b) every person who is deemed to be an assessee under any
provision of this Act;
(c) every person who is deemed to be an assessee in default
under any provision of this Act;
***
[ Substituted by the Finance Act, 1992 (18 of 1992), Section 3(c)
(w.e.f. 1-6-1992).] (37-A) ―rate or rates in force‖ or ―rates in
force‖, in relation to an assessment year or financial year,
means—
***
(iii) for the purposes of deduction of tax under Section 194-LBA
or Section 194-LBB or Section 194-LBC or Section 195, the
rate or rates of income tax specified in this behalf in the Finance
Act of the relevant year or the rate or rates of income tax
specified in an agreement entered into by the Central
Government under Section 90, or an agreement notified by the
Central Government under Section 90-A, whichever is
applicable by virtue of the provisions of Section 90, or Section
90-A, as the case may be;
***
4. Charge of income tax.—(1) Where any Central Act enacts
that income tax shall be charged for any assessment year at any
rate or rates, income tax at that rate or those rates shall be
charged for that year in accordance with, and subject to the
provisions (including provisions for the levy of additional
income tax) of, this Act in respect of the total income of the
previous year of every person:
Provided that where by virtue of any provision of this Act
income tax is to be charged in respect of the income of a period
other than the previous year, income tax shall be charged
accordingly.
(2) In respect of income chargeable under sub-section (1),
income tax shall be deducted at the source or paid in advance,
where it is so deductible or payable under any provision of this
Act.

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5. Scope of total income.—(1) Subject to the provisions of this

Act, the total income of any previous year of a person who is a
resident includes all income from whatever source derived
which—
(a) is received or is deemed to be received in India in such
year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in
India during such year; or
(c) accrues or arises to him outside India during such year:
Provided that, in the case of a person not ordinarily resident
in India within the meaning of sub-section (6) of Section 6,
the income which accrues or arises to him outside India shall
not be so included unless it is derived from a business
controlled in or a profession set up in India.
(2) Subject to the provisions of this Act, the total income of any
previous year of a person who is a non-resident includes all
income from whatever source derived which—
(a) is received or is deemed to be received in India in such
year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in
India during such year.
Explanation 1.—Income accruing or arising outside India
shall not be deemed to be received in India within the
meaning of this section by reason only of the fact that it is
taken into account in a balance sheet prepared in India.
Explanation 2.—For the removal of doubts, it is hereby
declared that income which has been included in the total
income of a person on the basis that it has accrued or arisen
or is deemed to have accrued or arisen to him shall not again
be so included on the basis that it is received or deemed to be
received by him in India.
***
9. Income deemed to accrue or arise in India.—(1) The
following incomes shall be deemed to accrue or arise in India—
***
[ Inserted by the Finance Act, 1976 (66 of 1976), Section 4(b)
(w.e.f. 1-6-1976).] (vi) income by way of royalty payable by—
***
(b) a person who is a resident, except where the royalty is
payable in respect of any right, property or information used
or services utilised for the purposes of a business or

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profession carried on by such person outside India or for the

purposes of making or earning any income from any source
outside India;
***
Explanation 2.—For the purposes of this clause, ―royalty‖
means consideration (including any lump sum consideration
but excluding any consideration which would be the income
of the recipient chargeable under the head ―Capital gains‖)
for—
(i) the transfer of all or any rights (including the granting of a
licence) in respect of a patent, invention, model, design,
secret formula or process or trade mark or similar property;
(ii) the imparting of any information concerning the working
of, or the use of, a patent, invention, model, design, secret
formula or process or trade mark or similar property;
(iii) the use of any patent, invention, model, design, secret
formula or process or trade mark or similar property;
(iv) the imparting of any information concerning technical,
industrial, commercial or scientific knowledge, experience or
skill;
[ Inserted by the Finance Act, 2001 (14 of 2001), Section 4(i)
(w.e.f. 1-4-2002).] (iv-a) the use or right to use any industrial,
commercial or scientific equipment but not including the
amounts referred to in Section 44-BB;
(v) the transfer of all or any rights (including the granting of a
licence) in respect of any copyright, literary, artistic or
scientific work including films or video tapes for use in
connection with television or tapes for use in connection with
radio broadcasting; or
(vi) the rendering of any services in connection with the
activities referred to in [ Substituted by the Finance Act, 2001
(14 of 2001), Section 4(ii), for ―sub-clauses (i) to (v)‖ (w.e.f.
1-4-2002).] [sub-clauses (i) to (iv), (iv-a) and (v)].
[ Substituted by the Finance Act, 2000 (10 of 2000), Section
4, for Explanation 3 (w.e.f. 1-4-2001). Explanation 3 before
substitution, stood as under:―Explanation 3.—For the
purposes of this clause, the expression ―computer software‖
shall have the meaning assigned to it in clause (b) of the
Explanation to Section 80-HHE.‖] Explanation 3.—For the
purposes of this clause, ―computer software‖ means any
computer program recorded on any disc, tape, perforated
media or other information storage device and includes any
such program or any customised electronic data.

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[ Inserted by the Finance Act, 2012 (23 of 2012), Section 4(b)

(w.r.e.f. 1-6-1976).] Explanation 4.—For the removal of
doubts, it is hereby clarified that the transfer of all or any
rights in respect of any right, property or information
includes and has always included transfer of all or any right
for use or right to use a computer software (including
granting of a licence) irrespective of the medium through
which such right is transferred.
[ Inserted by the Finance Act, 2012 (23 of 2012), Section 4(b)
(w.r.e.f. 1-6-1976).] Explanation 5.—For the removal of
doubts, it is hereby clarified that the royalty includes and has
always included consideration in respect of any right,
property or information, whether or not—
(a) the possession or control of such right, property or
information is with the payer;
(b) such right, property or information is used directly by the
payer;
(c) the location of such right, property or information is in
India.
***
90. Agreement with foreign countries or specified territories.—
(1) The Central Government may enter into an agreement with
the Government of any country outside India or specified
territory outside India,—
(a) for the granting of relief in respect of—
(i) income on which have been paid both income tax under
this Act and income tax in that country or specified
territory, as the case may be, or
(ii) income tax chargeable under this Act and under the
corresponding law in force in that country or specified
territory, as the case may be, to promote mutual economic
relations, trade and investment, or
(b) for the avoidance of double taxation of income under this
Act and under the corresponding law in force in that country
or specified territory, as the case may be, without creating
opportunities for non-taxation or reduced taxation through tax
evasion or avoidance (including through treaty-shopping
arrangements aimed at obtaining reliefs provided in the said
agreement for the indirect benefit to residents of any other
country or territory), or
(c) for exchange of information for the prevention of evasion
or avoidance of income tax chargeable under this Act or
under the corresponding law in force in that country or

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specified territory, as the case may be, or investigation of

cases of such evasion or avoidance, or
(d) for recovery of income tax under this Act and under the
corresponding law in force in that country or specified
territory, as the case may be, and may, by notification in the
Official Gazette, make such provisions as may be necessary
for implementing the agreement.
(2) Where the Central Government has entered into an
agreement with the Government of any country outside India or
specified territory outside India, as the case may be, under sub-
section (1) for granting relief of tax, or as the case may be,
avoidance of double taxation, then, in relation to the assessee to
whom such agreement applies, the provisions of this Act shall
apply to the extent they are more beneficial to that assessee.
***
[ Inserted by the Finance Act, 2017, Section 39 (w.e.f. 1-4-
2018).] Explanation 4.—For the removal of doubts, it is hereby
declared that where any term used in an agreement entered into
under sub-section (1) is defined under the said agreement, the
said term shall have the same meaning as assigned to it in the
agreement; and where the term is not defined in the said
agreement, but defined in the Act, it shall have the same
meaning as assigned to it in the Act and explanation, if any,
given to it by the Central Government.
***
195. Other sums.—(1) Any person responsible for paying to a
non-resident, not being a company, or to a foreign company, any
interest (not being interest referred to in Section 194-LB or
Section 194-LC) or Section 194-LD or any other sum
chargeable under the provisions of this Act (not being income
chargeable under the head ―Salaries‖) shall, at the time of credit
of such income to the account of the payee or at the time of
payment thereof in cash or by the issue of a cheque or draft or
by any other mode, whichever is earlier, deduct income tax
thereon at the rates in force:
Provided that in the case of interest payable by the Government
or a public sector bank within the meaning of clause (23-D) of
Section 10 or a public financial institution within the meaning of
that clause, deduction of tax shall be made only at the time of
payment thereof in cash or by the issue of a cheque or draft or
by any other mode.
Explanation 1.—For the purposes of this section, where any
interest or other sum as aforesaid is credited to any account,
whether called ―Interest payable account‖ or ―Suspense
account‖ or by any other name, in the books of account of the

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person liable to pay such income, such crediting shall be deemed

to be credit of such income to the account of the payee and the
provisions of this section shall apply accordingly.
[ Inserted by the Finance Act, 2012 (23 of 2012), Section
77(a)(ii) (w.r.e.f. 1-4-1962).]
Explanation 2.—For the removal of doubts, it is hereby clarified
that the obligation to comply with sub-section (1) and to make
deduction thereunder applies and shall be deemed to have
always applied and extends and shall be deemed to have always
extended to all persons, resident or non-resident, whether or not
the non-resident person has—
(i) a residence or place of business or business connection in
India; or
(ii) any other presence in any manner whatsoever in India.
(2) Where the person responsible for paying any such sum
chargeable under this Act [ Substituted by the Finance Act, 2003
(32 of 2003), Section 80(b) (w.e.f. 1-6-2003).] (other than
salary) to a non-resident considers that the whole of such sum
would not be income chargeable in the case of the recipient, he
may make an application in such form and manner to the
assessing officer, to determine in such manner, as may be
prescribed, the appropriate proportion of such sum so
chargeable, and upon such determination, tax shall be deducted
under sub-section (1) only on that proportion of the sum which
is so chargeable.
***
201. Consequences of failure to deduct or pay.—(1) Where any
person, including the principal officer of a company—
(a) who is required to deduct any sum in accordance with the
provisions of this Act; or
(b) referred to in sub-section (1-A) of Section 192, being an
employer, does not deduct, or does not pay, or after so
deducting fails to pay, the whole or any part of the tax, as
required by or under this Act, then, such person, shall,
without prejudice to any other consequences which he may
incur, be deemed to be an assessee in default in respect of
such tax:
Provided that any person, including the principal officer of a
company, who fails to deduct the whole or any part of the tax in
accordance with the provisions of this Chapter on the sum paid
to a payee or on the sum credited to the account of a payee shall
not be deemed to be an assessee in default in respect of such tax
if such payee—

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(i) has furnished his return of income under Section 139;

(ii) has taken into account such sum for computing income in
such return of income; and
(iii) has paid the tax due on the income declared by him in
such return of income,
and the person furnishes a certificate to this effect from an
accountant in such form as may be prescribed:
Provided further that no penalty shall be charged under
Section 221 from such person, unless the assessing officer is
satisfied that such person, without good and sufficient
reasons, has failed to deduct and pay such tax.‖
30. The scheme of the Income Tax Act, insofar as the question
raised before us is concerned, is that for income to be taxed under
the Income Tax Act, residence in India, as defined by Section 6, is
necessary in most cases. By Section 4(1), income tax shall be
charged for any assessment year at any rate or rates, as defined by
Section 2(37-A) of the Income Tax Act, in respect of the total
income of the previous year of every person. Under Section 4(2),
in respect of income chargeable under sub-section (1) thereof,
income tax shall be deducted at source or paid in advance,
depending upon the provisions of the Income Tax Act.
Importantly, under Section 5(2) of the Income Tax Act, the total
income of a person who is a non-resident, includes all income
from whatever source derived, which accrues or arises or is
deemed to accrue or arise to such person in India during such
year. This, however, is subject to the provisions of the Income
Tax Act. Certain income is deemed to arise or accrue in India,
under Section 9 of the Income Tax Act, notwithstanding the fact
that such income may accrue or arise to a non-resident outside
India. One such income is income by way of royalty, which,
under Section 9(1)(vi) of the Income Tax Act, means the transfer
of all or any rights, including the granting of a licence, in respect
of any copyright in a literary work.
31. That such transaction may be governed by a DTAA is then
recognised by Section 5(2) read with Section 90 of the Income
Tax Act, making it clear that the Central Government may enter
into any such agreement with the Government of another country
so as to grant relief in respect of income tax chargeable under the
Income Tax Act or under any corresponding law in force in that
foreign country, or for the avoidance of double taxation of income
under the Income Tax Act and under the corresponding law in
force in that country. What is of importance is that once a DTAA
applies, the provisions of the Income Tax Act can only apply to
the extent that they are more beneficial to the assessee and not
otherwise. Further, by Explanation 4 to Section 90 of the Income

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Tax Act, it has been clarified by Parliament that where any term is
defined in a DTAA, the definition contained in the DTAA is to be
looked at. It is only where there is no such definition that the
definition in the Income Tax Act can then be applied. This
position has been recognised by this Court in Azadi
BachaoAndolan [Union of India v. Azadi BachaoAndolan, (2004)
10 SCC 1] , which held : (SCC pp. 25 & 27, paras 21 & 28)
―21. The provisions of Sections 4 and 5 of the Act are expressly
made ―subject to the provisions of this Act‖, which would
include Section 90 of the Act. As to what would happen in the
event of a conflict between the provision of the Income Tax Act
and a notification issued under Section 90, is no longer res
integra.

***

28. A survey of the aforesaid cases makes it clear that the

judicial consensus in India has been that Section 90 is
specifically intended to enable and empower the Central
Government to issue a notification for implementation of the
terms of a Double Taxation Avoidance Agreement. When that
happens, the provisions of such an agreement, with respect to
cases to which they apply, would operate even if inconsistent
with the provisions of the Income Tax Act. We approve of the
reasoning in the decisions which we have noticed. If it was not
the intention of the legislature to make a departure from the
general principle of chargeability to tax under Section 4 and the
general principle of ascertainment of total income under Section
5 of the Act, then there was no purpose in making those sections
―subject to the provisions of the Act‖. The very object of
grafting the said two sections with the said clause is to enable
the Central Government to issue a notification under Section 90
towards implementation of the terms of DTACs which would
automatically override the provisions of the Income Tax Act in
the matter of ascertainment of chargeability to income tax and
ascertainment of total income, to the extent of inconsistency
with the terms of DTAC.‖

Unlike those provisions finding place in Chapter XVII-B, and which

require a person responsible for effecting a payment to examine
whether the sum is chargeable under the provisions of the Act, Section
194C places no such discretion or leeway in the hands of the person
responsible for paying a sum to a contractor.

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66. We further take note of the significant provisions contained in

Sections 197 and 197A of the Act, and which are reproduced
hereinbelow:

―197. Certificate for deduction at lower rate.—(1) Subject to the

rules made under sub-section (2-A), [where, in the case of any
income of any person [or sum payable to any person], income
tax is required to be deducted at the time of credit or, as the case
may be, at the time of payment at the rates in force under the
provisions of Sections 192, 193, 194, 194-A, 194-C 194-
D, 194-G, 194-H, 194-I, 194-J, 194-K, 194-LA , 194-LBA, 194-
LBB, 194-LBC, 194-M, 194-O [* * *] and 195, the Assessing
Officer is satisfied], that the total income of the recipient
justifies the deduction of income tax at any lower rates or no
deduction of income tax, as the case may be, the Assessing
Officer shall, on an application made by the assessee in this
behalf, give to him such certificate as may be appropriate.
(2) Where any such certificate is given, the person responsible
for paying the income shall, until such certificate is cancelled by
the Assessing Officer, deduct income tax at the rates specified in
such certificate or deduct no tax, as the case may be.
(2-A) The Board may, having regard to the convenience of
assessees and the interests of revenue, by notification in the
Official Gazette, make rules specifying the cases in which, and
the circumstances under which, an application may be made for
the grant of a certificate under sub-section (1) and the conditions
subject to which such certificate may be granted and providing
for all other matters connected therewith.‖
197-A. No deduction to be made in certain cases.—(1)
Notwithstanding anything contained in [* * *] Section 194 [* *
*], [or Section 194-EE] no deduction of tax shall be made under
any of the said sections in the case of an individual, who is
resident in India, if such individual furnishes to the person
responsible for paying any income of the nature referred to in [*
* *] Section 194, [* * *], or as the case may be, Section 194-
EE] a declaration in writing in duplicate in the prescribed form
and verified in the prescribed manner to the effect that [the tax
on his estimated total income of the previous year in which such
income is to be included in computing his total income will be
nil.
(1-A) Notwithstanding anything contained in [Section 192-A or
Section 193 or Section 194-A [or Section 194-D] or Section
194-DA [or Section 194-I]] or Section 194-K, no deduction of
tax shall be made under [any] of the said sections in the case of

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a person (not being a company or a firm), if such person

furnishes to the person responsible for paying any income of the
nature referred to in Section [Section 192-A or Section 193 or
Section 194-A [or Section 194-D] or [or Section 194-I]] or
Section 194-K, as the case may be, a declaration in writing in
duplicate in the prescribed form and verified in the prescribed
manner to the effect that the tax on his estimated total income of
the previous year in which such income is to be included in
computing his total income will be nil.]
(1-B) The provisions of this section shall not apply where the
amount of any income of the nature referred to in sub-section (1)
or sub-section (1-A), as the case may be, or the aggregate of the
amounts of such incomes credited or paid or likely to be credited
or paid during the previous year in which such income is to be
included exceeds the maximum amount which is not chargeable
to income tax.]
(1-C) Notwithstanding anything contained in [Section 192-A or
Section 193 or Section 194 or Section 194-A [or Section 194-D]
or Section 194-DA] or Section 194-EE [or Section 194-I] or
Section 194-K or sub-section (1-B) of this section, no deduction
of tax shall be made in the case of an individual resident in
India, who is of the age of [sixty years] or more at any time
during the previous year [* * *], if such individual furnishes to
the person responsible for paying any income of the nature
referred to in [Section 192-A or Section 193 or Section 194 or
Section 194-A [or Section 194-D] or Section 194-DA] or
Section 194-EE [or Section 194-I] or Section 194-K, as the case
may be, a declaration in writing in duplicate in the prescribed
form and verified in the prescribed manner to the effect that the
tax on his estimated total income of the previous year in which
such income is to be included in computing his total income will
be nil.]
(1-D) Notwithstanding anything contained in this section, no
deduction of tax shall be made by the Offshore Banking Unit
from the interest paid—
(a) on deposit made on or after the 1st day of April, 2005, by
a non-resident or a person not ordinarily resident in India; or
(b) on borrowing, on or after the 1st day of April, 2005, from
a non-resident or a person not ordinarily resident in India.
Explanation.—For the purposes of this sub-section ―Offshore
Banking Unit‖ shall have the same meaning as assigned to it in
clause (u) of Section 2 of the Special Economic Zones Act,
2005.]

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(1-E) Notwithstanding anything contained in this chapter, no

deduction of tax shall be made from any payment to any person
for, or on behalf of, the New Pension System Trust referred to in
clause (44) of Section 10.]
(1-F) Notwithstanding anything contained in this Chapter, no
deduction of tax shall be made, or deduction of tax shall be
made at such lower rate, from such payment to such person or
class of persons, including institution, association or body or
class of institutions, associations or bodies, as may be notified
by the Central Government in the Official Gazette, in this
behalf.]
(2) The person responsible for paying any income of the nature
referred to in sub-section (1) or sub-section (1-A)] [or sub-
section (1-C)] shall deliver or cause to be delivered to
the [Principal Chief Commissioner or Chief Commissioner]
or [Principal Commissioner or Commissioner] one copy of the
declaration referred to in sub-section (1) [or sub-section (1-
A)] [or sub-section (1-C)] on or before the seventh day of the
month next following the month in which the declaration is
furnished to him.‖

67. The liability to deduct tax as would be evident from the

aforenoted provisions, stands effaced only if a recipient obtains a
certificate of exemption or where a beneficiary produces a certificate
which obliges the payer to deduct tax at a rate lower than that
prescribed. HSVP had obtained no certification as contemplated in
terms of the aforenoted provisions nor had it obtained a declaration that
moneys received by it were exempt from tax. In view of the aforesaid,
it is apparent that the writ petitioners did not stand absolved of the
obligation to deduct tax on payments that were being made to HSVP.
68. That takes us further to consider the submission which was
addressed in the context of Section 196 of the Act. The submission
essentially was that since payments being made to HSVP were pursuant
to the directives of the DTCP and in aid of external development work
being carried out, those payments should be viewed as sums which
were payable to the Government of Haryana. It was in this context
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submitted that all aspects pertaining to EDC were regulated by the

DTCP. The petitioners urged that the determination and quantification
of EDC were subjects exclusively regulated by directives of the DTCP.
The petitioners also referred to the power vested in the DTCP to initiate
proceedings for recovery of EDC as arrears of revenue and thus
constituting a statutory impost exempt from taxation. It was in the
backdrop that the petitioners urged us to accept EDC payments as
falling within Section 196. We find ourselves unable to sustain that
submission bearing in mind the indubitable position which emerges
from the discussion which ensues.
69. Section 196 frees sums payable to the Government, RBI or a
corporation established by or under a Central Act from the obligation of
tax being collected at source. Undisputedly, HSVP would neither fall
within the ambit of clause (1) or clause (3) of Section 196. The mere
fact that HSVP has been constituted under a statutory enactment does
not make it the ―Government‖. Even if it were discharging functions
akin to or similar to governmental obligations or performing activities
closely connected with State functions, the same would not result in us
recognising HSVP as the Government.
70. This issue, in our considered opinion, stands conclusively
answered against the writ petitioners by Adityapur Industrial Area. The
said decision eloquently explains the distinction which is liable to be
borne in mind between a sovereign government and a statutory
authority. Quoting from Basu‘s Commentary on the Constitution of
India, the Supreme Court noted that it is the property of the State which
alone is immune from taxation under Article 289 of the Constitution.

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Dealing more specifically with the case of a statutory corporation, it

took note of the judgment in A.P. SRTC v. ITO28 and observed thus: -
“14. In A.P. SRTC v. ITO [(1964) 7 SCR 17 : AIR 1964 SC 1486]
the question arose as to whether the income derived from trading
activity by the Andhra Pradesh Road Transport Corporation
established under the Road Transport Corporation Act, 1950 was
not the income of the State of Andhra Pradesh within the meaning
of Article 289(1) of the Constitution and hence exempted from
Union taxation. This Court considered the scheme of Article 289
and observed as follows: (SCR p. 25)
―The scheme of Article 289 appears to be that ordinarily,
the income derived by a State both from governmental and
non-governmental or commercial activities shall be
immune from income tax levied by the Union, provided,
of course, the income in question can be said to be the
income of the State. This general proposition flows from
clause (1).
Clause (2) then provides an exception and authorises the
Union to impose a tax in respect of the income derived by
the Government of a State from trade or business carried
on by it, or on its behalf; that is to say, the income from
trade or business carried on by the Government of a State
or on its behalf which would not have been taxable under
clause (1), can be taxed, provided a law is made by
Parliament in that behalf. If clause (1) had stood by itself,
it may not have been easy to include within its purview
income derived by a State from commercial activities, but
since clause (2), in terms, empowers Parliament to make a
law levying a tax on commercial activities carried on by or
on behalf of a State, the conclusion is inescapable that
these activities were deemed to have been included in
clause (1) and that alone can be the justification for the
words in which clause (2) has been adopted by the
Constitution. It is plain that clause (2) proceeds on the
basis that but for its provision, the trading activity which is
covered by it would have claimed exemption from Union
taxation under clause (1). That is the result of reading
clauses (1) and (2) together.
Clause (3) then empowers Parliament to declare by law
that any trade or business would be taken out of the
purview of clause (2) and restored to the area covered by
clause (1) by declaring that the said trade or business is
incidental to the ordinary functions of the Government. In
other words, clause (3) is an exception to the exception

28
(1964) 7 SCR 17

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prescribed by clause (2). Whatever trade or business is

declared to be incidental to the ordinary functions of the
Government, would cease to be governed by clause (2)
and would then be exempt from Union taxation. That,
broadly stated, appears to be the result of the scheme
adopted by the three clauses of Article 289.‖

71. In A.P. SRTC, the Supreme Court had held that a statutory
corporation has a personality distinct and separate from that of the State
or its shareholders. This would thus appear to lend credence to the stand
of the respondents who had argued that even if HSVP be funded by the
State Government, it would continue to remain a legal entity separate
from the State Government. We are also unimpressed by the argument
that since the payment was made on the directives of the DTCP, it
should be treated as falling within the scope of Section 196 of the Act.
It becomes pertinent to note that Section 196 is not dependent upon a
directive to pay. It is concerned solely with whether the payment is
made to a Government or an authority specified therein. Similarly, the
fact that arrears of EDC could be recovered as arrears of land revenue is
also wholly immaterial. Section 10A is merely a mode of recovery of
EDC. Even if that provision were to elevate EDC to a statutory levy, the
same would not be determinative of whether the payment falls within
the scope of Section 196. The applicability of Section 196 is not liable
to be answered on the basis of whether the amount has a statutory hue.
The amount paid would be exempt from the rigours of TDS only if it is
made to a category of entities specified therein.
72. Ultimately, the question which warrants consideration is whether
EDC was a payment to the State. This must necessarily be answered in
the negative bearing in mind the undisputed fact that the income was
placed in the hands and at the disposal of HSVP. We note that
undisputedly at least till 31 March 2017 all EDC payments even as per
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the DTCP were being made out in favour of HSVP. It is only thereafter
that EDC was deposited with the DTCP. This too leads us to the
irresistible conclusion that the payments made to HSVP would not fall
within Section 196.
73. We also bear in mind the unambiguous legislative command of
Section 194C which places the payer under the unshirkable obligation
of deducting tax from all payments being made to a contractor. We have
already noticed in the preceding parts of this decision that Section 194C
of the Act vests no discretion in the payer to examine or contemplate
chargeability of that payment to tax. We, in this connection, note the
following pertinent observations as rendered by the Supreme Court in
Associated Cement Co. Ltd. v. Commissioner of Income Tax29.
―7. The above decision cannot be of any help to the appellant for
it does not lay down that the percentage amount deductible under
Section 194-C(1) should be out of the income of the contractor
from the sum or sums credited to the account of or paid to him.
The words in the sub-section ‗on income comprised therein‘
appearing immediately after the words ‗deduct an amount equal to
two per cent of such sum as income tax‘ from their purport,
cannot be understood as the percentage amount deductible from
the income of the contractor out of the sum credited to his account
or paid to him in pursuance of the contract. Moreover, the
concluding part of the sub-section requiring deduction of an
amount equal to two per cent of such sum as income tax, by use
of the words ‗on income comprised therein‘ makes it obvious that
the amount equal to two per cent of the sum required to be
deducted is a deduction at source. Indeed, it is neither possible nor
permissible to the payer to determine what part of the amount
paid by him to the contractor constitutes the income of the latter.
It is not also possible to think that the Parliament could have
intended to cast such impossible burden upon the payer nor could
it be attributed with the intention of enacting such an impractical
and unworkable provision. Hence, on the express language
employed in the sub-section, it is impossible to hold that the
amount of two per cent required to be deducted by the payer out
of the sum credited to the account of or paid to the contractor has

29
(1993) 2 SCC 556

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to be confined to his income component out of that sum. There is

also nothing in the language of the sub-section which permits
exclusion of an amount paid on behalf of the organisation to the
contractor according to Clause 13 of the terms and conditions of
the contract in reimbursement of the amount paid by him to
workers, from the sum envisaged‖

We thus find ourselves unable to sustain the challenge as raised.

74. In light of the foregoing discussion and for reasons set out
hereinabove, we find ourselves unable to concur with the view taken by
the Tribunal in Santur, Satya, Perfect Constech and Spaze Tower. Those
decisions have proceeded on the basis of a contractual obligation
between the petitioner and HSVP being a prerequisite. They have
additionally based their decision on the fact that HSVP was undertaking
external development work on the directives of the DTCP. These, for
reasons recorded hereinabove, were factors wholly irrelevant for the
purposes of considering the applicability of Section 194C.
75. That only leaves to consider some of the supplemental questions
which were raised and which included the Show Cause Notices not
specifically adverting to the specific provision contained in Chapter
XVIIB and in terms of which the petitioners were held liable to deduct
tax. We, in this regard, also bear in consideration the two earlier rounds
of litigation when in the first instance the respondents had sought to
hold the petitioners liable to deduct tax under Section 194 in the case of
BPTP and subsequently under Section 194I as is evident from the
judgment rendered in DLF Homes Panchkula.
76. We are of the firm opinion that in matters pertaining to taxation
we would not readily import the principle of a power otherwise
inhering being sufficient for the purposes of examining the validity of a
Show Cause Notice. Chapter XVII-B embodies Sections 192 to 206AB
and refers to various contingencies and situations where a payer is
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bound in law to deduct tax. The respondents were thus clearly obliged
to indicate with sufficient clarity the specific statutory provision
contained in Chapter XVII-B and which according to them placed an
obligation on the petitioners to deduct tax. This aspect of criticality
could not have been left to supposition or for the writ petitioners
grappling to understand and discern an obligation to deduct tax flowing
from any one of the more than the fifty sections comprised in Chapter
XVII-B. A Show Cause Notice fundamentally must apprise the noticee
of the case that it is called upon to answer, the context in which an
explanation is sought and the charge that it has to answer. The notice
thus cannot leave the assessee grappling with or trying to discern the
provision which it is supposed to have infringed. In the absence of
requisite particulars, the Show Cause Notice would be liable to be
quashed on the ground of being wholly vague. As far back as in State
of Orissa v. Binapani Dei30, the Supreme Court had pertinently
observed:-
―9. The first respondent held office in the Medical Department of
the Orissa Government. She, as holder of that office, had a right
to continue in service according to the Rules framed under Article
309 and she could not be removed from office before
superannuation except ―for good and sufficient reasons‖. The
State was undoubtedly not precluded, merely because of the
acceptance of the date of birth of the first respondent in the
service register, from holding an enquiry if there existed sufficient
grounds for holding such enquiry and for re-fixing her date of
birth. But the decision of the State could be based upon the result
of an enquiry in manner consonant with the basic concept of
justice. An order by the State to the prejudice of a person in
derogation of his vested rights may be made only in accordance
with the basic rules of justice and fair play. The deciding
authority, it is true, is not in the position of a Judge called upon to
decide an action between contesting parties, and strict compliance
with the forms of judicial procedure may not be insisted upon. He
is however under a duty to give the person against whom an
30
1967 SCC OnLine SC 15

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enquiry is held an opportunity to set up his version or defence and

an opportunity to correct or to controvert any evidence in the
possession of the authority which is sought to be relied upon to
his prejudice. For that purpose the person against whom in
enquiry is held must be informed of the case he is called upon to
meet, and the evidence in support thereof. The rule that a party to
whose prejudice an order is intended to be passed is entitled to a
hearing applies alike to judicial tribunals and bodies of persons
invested with authority to adjudicate upon matters involving civil
consequences. It is one of the fundamental rules of our
constitutional set-up that every citizen is protected against
exercise of arbitrary authority by the State or its officers. Duty to
act judicially would therefore arise from the very nature of the
function intended to be performed : it need not be shown to be
super-added. If there is power to decide and determine to the
prejudice of a person, duty to act judicially is implicit in the
exercise of such power. If the essentials of justice be ignored and
an order to the prejudice of a person is made, the order is a nullity.
That is a basic concept of the rule of law and importance thereof
transcends the significance of a decision in any particular case.‖

77. The requisites of a valid Show Cause Notice were lucidly

explained by the Supreme Court in Gorkha Security Services v. Govt.
(NCT of Delhi)31 as under:

―Contents of the show-cause notice

21. The central issue, however, pertains to the requirement of stating
the action which is proposed to be taken. The fundamental purpose
behind the serving of show-cause notice is to make the noticee
understand the precise case set up against him which he has to meet.
This would require the statement of imputations detailing out the
alleged breaches and defaults he has committed, so that he gets an
opportunity to rebut the same. Another requirement, according to us,
is the nature of action which is proposed to be taken for such a
breach. That should also be stated so that the noticee is able to point
out that proposed action is not warranted in the given case, even if the
defaults/breaches complained of are not satisfactorily explained.
When it comes to blacklisting, this requirement becomes all the more
imperative, having regard to the fact that it is harshest possible
action.‖

31
(2014) 9 SCC 105

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78. Similar observations find place in UMC Technologies (P) Ltd.

v. Food Corpn. of India32:

―13. At the outset, it must be noted that it is the first principle of

civilised jurisprudence that a person against whom any action is
sought to be taken or whose right or interests are being affected
should be given a reasonable opportunity to defend himself. The
basic principle of natural justice is that before adjudication starts,
the authority concerned should give to the affected party a notice
of the case against him so that he can defend himself. Such notice
should be adequate and the grounds necessitating action and the
penalty/action proposed should be mentioned specifically and
unambiguously. An order travelling beyond the bounds of notice
is impermissible and without jurisdiction to that extent. This
Court in Nasir Ahmad v. Custodian General, Evacuee Property-
has held that it is essential for the notice to specify the particular
grounds on the basis of which an action is proposed to be taken so
as to enable the noticee to answer the case against him. If these
conditions are not satisfied, the person cannot be said to have
been granted any reasonable opportunity of being heard.‖

79. The reliance which is placed by Mr. Hossain on the decisions in

Isha Beevi v. Tax Recovery Officer33 and Commissioner of Income-
Tax vs. Rajinder Nath34 is clearly misconceived. We note that in Isha
Beevi, the writ petitioner had sought the issuance of a writ of
prohibition seeking quashing of notices that were impugned. It was in
the aforesaid context and the prerequisites of a writ of prohibition that
the Supreme Court observed that the mere mentioning of a wrong
provision would not justify the issuance of that prerogative writ and
more so where the writ petitioner had failed to establish a total absence
of jurisdiction.
80. Insofar as Rajinder Nath is concerned, the principal question
which arose in that case was whether the Appellate Assistant
Commissioner while considering an appeal could substitute Section
32
(2021) 2 SCC 551
33
(1976) 1 SCC 70
34
1971 SCC OnLine Del 254

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153(3)(ii) in place of Section 147(a) of the Act. It was in the aforesaid

context that the Supreme Court observed as follows: -

―We are of the opinion that the contention is not well-founded.

Section 147 of the 1961 Act is an enabling provision which
empowers the Income-tax Officer to bring to tax incomes which
have escaped assessment either on account of the failure of the
assessee to disclose fully and truly all material facts necessary for
his assessment for the relevant year or the Income-tax Officer in
consequence of the information in his possession has reason to
believe that income chargeable to tax has escaped assessment for
any assessment year. That being so, it is not necessary that notice
under section 147 of 1961 Act should state under which of the
clauses, whether under clause (a) or clause (b) the same is issued.
The main notice to be issued in a case under section 147 is a notice
under section 139(2), and section 148 read with section 147 merely
authorises the issue of such a notice. [See Kantamani
Venkatanarayan and Son v. First Additional Income-tax Officer,
(63, I.T.R. 638) (8) Deep Chand Daga v. Income-tax Officer C-
Ward, Raipur, (77, I.T.R. 661) (9) Anne Nagendram and
BommaReddiVenkayya and Company v. Commissioner of Income-
tax, Andhra Pradesh, (66 I.T.R. 46) (10) Sowdagar Ahmad
Khan v. Commissioner of Income-tax, Nellore, (66, I.T.R. 55)
(11)]. The point to be considered is whether assessment can be
defeated or rendered invalid if it can be sustained under any other
provision of the Act. However, this aspect of the matter need not
further detain us as in view of our discussion above we are of the
opinion that the assessment can be sustained under section
153(3)(ii) of the 1961 Act.
It is a well settled principle of law that the exercise of a power
would be referable to a jurisdiction which confers validity upon it
and merely because the Income-tax Officer while proceeding to
assess the assessee, has quoted a wrong section, the assessment
cannot be rendered invalid if it can be supported under section
153(3)(ii) of the 1961 Act.”

We note that in Rajinder Nath, Section 153(3) came to be invoked

while the Appellate Assistant Commissioner was already in seisen of
proceedings relating to assessment and is thus clearly distinguishable.
81. The principle of a power otherwise inhering or existing and not
being impacted by the mere mention of a wrong provision is one which
we apply to ratify, save and uphold a decision which is otherwise found

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to be valid and sustainable. We would be wary of either readily or

unhesitatingly adopting or invoking that precept at the stage of a show
cause notice especially where the noticee is left to fathom which of the
more than fifty variable obligations it is alleged to have violated.
82. However, while this may have conceivably been a valid ground
to interdict some of the impugned show cause notices, we find no
justification to invoke our prerogative writ powers on this score since
the petitioners have, in the course of these proceedings, been afforded
more than an ample and adequate opportunity to establish why Section
194C would not be attracted and have been heard at great length on the
questions which were raised. The applicability of Section 194C also
appears to have been expressly raised in the counter affidavits which
were filed and thus placing the petitioners on adequate notice. In any
case and in view of the above, we are of the firm opinion that the
principles of prejudice would not stand attracted. It would thus be
inappropriate at this late stage of the day to interfere with the show
cause notices on this ground.
83. That only leaves us to deal with the issue of the petitioners
having been treated as an assessee in default in terms of Section 201
and called upon to pay penalties by virtue of Sections 221 and 271C of
the Act. Pursuant to the interim orders that were made on these writ
petitions, while the respondents were permitted to continue further in
terms of the show cause notices impugned herein, orders if passed
against the petitioner were not to be given effect to. We have not been
apprised of the status of those proceedings nor have the respondents
apprised of any final orders that may have been framed in respect of
each of the writ petitioners. We have also not been apprised of whether

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the EDC payments have been taxed in the hands of the HSVP or
whether the same was offered to tax.
84. We are also cognizant of the legal position of penalty be it either
under Section 221 or 271C not being an inevitable corollary in case of
default. This position is made explicit by the Second Proviso to Section
221 as well as Section 273B. The imposition of penalty where a
question with respect to taxability had remained unclear or where an
assessee had good and sufficient cause to not deposit the tax were
lucidly explained by the Supreme Court in CIT v. Eli Lilly & Co.
(India) (P) Ltd35. in the following terms: -
―91. A bare reading of Section 201(1) shows that interest under
Section 201(1-A) read with Section 201(1) can only be levied when
a person is declared as an assessee-in-default. For computation of
interest under Section 201(1-A), there are three elements. One is
the quantum on which interest has to be levied. Second is the rate at
which interest has to be charged. Third is the period for which
interest has to be charged. The rate of interest is provided in the
1961 Act. The quantum on which interest has to be paid is
indicated by Section 201(1-A) itself. Sub-section (1-A) specifies
―on the amount of such tax‖ which is mentioned in sub-section (1)
wherein, it is the amount of tax in respect of which the assessee has
been declared in default.
92. The object underlying Section 201(1) is to recover the tax. In
the case of short deduction, the object is to recover the shortfall. As
far as the period of default is concerned, the period starts from the
date of deductibility till the date of actual payment of tax.
Therefore, the levy of interest has to be restricted for the
abovestated period only. It may be clarified that the date of
payment by the employee concerned can be treated as the date of
actual payment.
94. Section 273-B states that notwithstanding anything contained in
Section 271-C, no penalty shall be imposed on the person or the
assessee for failure to deduct tax at source if such person or the
assessee proves that there was a reasonable cause for the said
failure. Therefore, the liability to levy of penalty can be fastened
only on the person who does not have good and sufficient reason
for not deducting tax at source. Only those persons will be liable to

35
(2009) 15 SCC 1

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penalty who do not have good and sufficient reason for not
deducting the tax. The burden, of course, is on the person to prove
such good and sufficient reason.
95. In each of the 104 cases before us, we find that non-deduction
of tax at source took place on account of controversial addition.
The concept of aggregation or consolidation of the entire income
chargeable under the head ―Salaries‖ being exigible to deduction of
tax at source under Section 192 was a nascent issue. It has not been
considered by this Court before. Further, in most of these cases, the
tax deductor assessee has not claimed deduction under Section
40(a)(iii) in computation of its business income. This is one more
reason for not imposing penalty under Section 271-C because by
not claiming deduction under Section 40(a)(iii), in some cases,
higher corporate tax has been paid to the extent of Rs 906.52 lakhs
(see Civil Appeal No. 1778 of 2006 entitled CIT v. Bank of Tokyo-
Mitsubishi Ltd.).‖

85. The aforesaid view has been reiterated in a more recent judgment
of the Supreme Court in Singapore Airlines Ltd. Vs. CIT 36where the
following principles were laid down: -
―58. This Court in Hindustan Coca Cola Beverage (P)
Ltd. v. CIT [Hindustan Coca Cola Beverage (P) Ltd. v. CIT,
(2007) 8 SCC 463] was confronted with a similar situation where
the recipient of income on which the assessee had failed to deduct
TDS under Section 194-C of the IT Act, had already paid income
taxes on that amount. The Court held : (SCC pp. 464-65, paras 6
& 9)
―6. The Tribunal upon rehearing the appeal held that
though the appellant assessee was rightly held to be an
―assessee in default‖, there could be no recovery of the tax
alleged to be in default once again from the appellant
considering that Pradeep Oil Corporation had already paid
taxes on the amount received from the appellant. It is
required to note that the department conceded before the
Tribunal that the recovery could not once again be made
from the tax deductor where the payee included the income
on which tax was alleged to have been short deducted in its
taxable income and paid taxes thereon. There is no dispute
whatsoever that Pradeep Oil Corporation had already paid
the taxes due on its income received from the appellant and
had received refund from the Tax Department. The Tribunal
came to the right conclusion that the tax once again could
36
(2023) 1 SCC 497

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not be recovered from the appellant (the deductor assessee)

since the tax has already been paid by the recipient of
income.
***
9. Be that as it may, Circular No. 275/201/95- IT(B) dated
29-1-1997 issued by the Central Board of Direct Taxes, in
our considered opinion, should put an end to the
controversy. The circular declares ―no demand visualised
under Section 201(1) of the Income Tax Act should be
enforced after the tax deductor has satisfied the officer in
charge of TDS, that taxes due have been paid by the
deducted assessee. However, this will not alter the liability
to charge interest under Section 201(1-A) of the Act till the
date of payment of taxes by the deducted assessee or the
liability for penalty under Section 271-C of the Income Tax
Act.‖
59. A similar principle was also advanced in the context of
Section 192 of the IT Act in CIT v. Eli Lilly & Co. (India) (P)
Ltd. [CIT v. Eli Lilly & Co. (India) (P) Ltd., (2009) 15 SCC 1] :
(SCC p. 30, paras 98-100)
98. … In our view, therefore, the tax deductor assessee
[the respondent(s)] were duty-bound to deduct tax at source
under Section 192(1) from the home salary/special
allowance(s) paid abroad by the foreign company,
particularly when no work stood performed for the foreign
company and the total remuneration stood paid only on
account of services rendered in India during the period in
question.
99. As stated above, in this matter, we have before us 104
civil appeals. We are directing the AO to examine each case
to ascertain whether the assessee employee (the recipient)
has paid the tax due on the home salary/special allowance(s)
received from the foreign company. In case taxes due on
home salary/special allowance(s) stands paid off then the
AO shall not proceed under Section 201(1). In cases where
the tax has not been paid, the AO shall proceed under
Section 201(1) to recover the shortfall in the payment of
tax.
100. Similarly, in each of the 104 appeals, the AO shall
examine and find out whether interest has been
paid/recovered for the period between the date on which tax
was deductible till the date on which the tax was actually
paid. If, in any case, interest accrues for the aforestated
period and if it is not paid then the adjudicating authority

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shall take steps to recover interest for the aforestated period

under Section 201(1-A).‖
60. It appears to us that if the recipient of income on which TDS
has not been deducted, even though it was liable to such
deduction under the IT Act, has already included that amount in
its income and paid taxes on the same, the assessee can no longer
be proceeded against for recovery of the shortfall in TDS.
However, it would be open to the Revenue to seek payment of
interest under Section 201(1-A) for the period between the date of
default in deduction of TDS and the date on which the recipient
actually paid income tax on the amount for which there had been
a shortfall in such deduction.
61. As noted earlier, the learned counsel for the parties were ad
idem on the fact that the travel agents had already paid taxes on
the amounts earned by them. The Revenue had contended that the
default in payment of TDS could not be excused purely on this
ground. However, the decisions in HindustanCoca
Cola [Hindustan Coca Cola Beverage (P) Ltd. v. CIT, (2007) 8
SCC 463] and Eli Lilly & Co. [CIT v. Eli Lilly & Co. (India) (P)
Ltd., (2009) 15 SCC 1] clearly bar their ability to pursue the
assessee airlines for recovery of the shortfall in TDS and restricts
them to imposing interest for the default.
xxxx xxxx xxxx
65. The ambit of ―reasonable cause‖ under Section 273-B requires
our scrutiny before we reach the conclusion that the assessing
officer is required to also calculate potential penalties to be levied
against the assessees. This Court in Eli Lilly & Co. [CIT v. Eli
Lilly & Co. (India) (P) Ltd., (2009) 15 SCC 1] had elaborated, in
the passage extracted below, on the context in which Section 273-
B may be utilised : (SCC p. 29, paras 94-96)
―94. Section 273-B states that notwithstanding anything
contained in Section 271-C, no penalty shall be imposed
on the person or the assessee for failure to deduct tax at
source if such person or the assessee proves that there was
a reasonable cause for the said failure. Therefore, the
liability to levy of penalty can be fastened only on the
person who does not have good and sufficient reason for
not deducting tax at source. Only those persons will be
liable to penalty who do not have good and sufficient
reason for not deducting the tax. The burden, of course, is
on the person to prove such good and sufficient reason.
95. In each of the 104 cases before us, we find that non-
deduction of tax at source took place on account of
controversial addition. The concept of aggregation or
consolidation of the entire income chargeable under the

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head ―Salaries‖ being exigible to deduction of tax at

source under Section 192 was a nascent issue. …
96. … The tax deductor assessee was under a genuine
and bona fide belief that it was not under any obligation to
deduct tax at source from the home salary paid by the
foreign company/HO and, consequently, we are of the
view that in none of the 104 cases penalty was leviable
under Section 271-C as the respondent in each case has
discharged its burden of showing reasonable cause for
failure to deduct tax at source.‖
66. We find some parallels between the facts of the present case
and the situation in Eli Lilly & Co. [CIT v. Eli Lilly & Co. (India)
(P) Ltd., (2009) 15 SCC 1] The liability of an airline to deduct
TDS on supplementary commission had admittedly not been
adjudicated upon by this Court when the controversy first arose in
AY 2001-2002. While the learned counsel for the Revenue, Mr
Kumar, has notified us that various airlines were deducting TDS
under Section 194-H at that time, this does not necessarily mean
that the position of law was settled. Rather, it appears to us that
while one set of air carriers acted under the assumption that the
supplementary commission would come within the ambit of the
provisions of the IT Act, another set held the opposite view. The
assessees before us belong to the latter category. Furthermore, as
we have highlighted earlier, there were contradictory
pronouncements by different the High Courts in the ensuing years
which clearly highlights the genuine and bona fide legal
conundrum that was raised by the prospect of Section 194-H
being applied to the supplementary commission.
67. Hence, there is nothing on record to show that the assessees
have not fulfilled the criteria under Section 273-B of the IT Act.
Though we are not inclined to accept their contentions, there was
clearly an arguable and ―nascent‖ legal issue that required
resolution by this Court and, hence, there was ―reasonable cause‖
for the air carriers to have not deducted TDS at the relevant
period. The logical deduction from this reasoning is that penalty
proceedings against the airlines under Section 271-C of the IT Act
stand quashed.‖

86. We find a succinct enunciation of the legal position in this regard

in a judgment of this Court in Commissioner of Income Tax (TDS)

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Vs. M/S American Express Bank Ltd.37 where it was observed as

follows: -

―8. From the above conclusions of the Income Tax Appellate

Tribunal, it is apparent that as a finding of fact, the Tribunal came
to the conclusion that the assessee had acted honestly and fairly in
short deducting the tax at source under a bona fide belief that the
reimbursement of certain expenses on account of salary of
gardeners/sweepers etc., actual conveyance expenditure and the
expenditure on newspapers and periodicals were not taxable in the
hands of the employees. After having returned such a finding, the
Income Tax Appellate Tribunal concluded that the assessee
cannot be held to be an ‗assessee in default‘ under Section 201 of
the Act for short deduction of tax on the above items.
Consequently, the Tribunal held that no interest under Section
201(1A) was leviable on the assessee and, therefore, the Tribunal
deleted the levy of tax and interest under Section 201/201(1A) of
the said Act.
9. While we are not inclined to disturb the finding of the Income
Tax Appellate Tribunal that the assessee had acted in a bona fide
manner, we do not agree with the conclusion of the Income Tax
Appellate Tribunal that the assessee cannot be regarded as being
as an ―assessee in default‖ in respect of the short deduction. It is
important to remember that the question of ―good and sufficient
reasons‖ only arises when one considers the proviso to Section
201(1) of the said Act. That proviso has been specifically
introduced to negate the possibility of imposition of penalty under
Section 221 if the Assessing Officer is satisfied that the person
liable had good and sufficient reasons to not deduct and pay the
tax in question. Thus, the proviso is to be applied only to the
question of penalty. It would not absolve the assessee insofar as
his being considered as an assessee in default for the purposes of
Section 201(1) of the said Act. Therefore, this finding of the
Tribunal is set aside. Consequently, question no. 1 is decided in
favour of the Revenue and against the assessee.
10. Insofar as the second question is concerned i.e., with regard to
the interest payable under Section 201(1A) of the said Act, that is
a mandatory provision, as already held by a Division Bench of
this Court in the case of CIT v. ITC Limited, ITA No. 475/2010,
dated 11.05.2011. The said Division Bench observed as under:-
xxxx xxxx xxxx

37 2011 SCC OnLine Del 5517

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However, levy of interest under section 201(1A) is neither

treated as penalty nor has the said provision been included
in Section 273B to make ‗reasonableness of the cause‘ for
the failure to deduct a relevant consideration. Section
201(1A) makes the payment of simple interest mandatory.
The payment of interest under that provision is not penal.
There is, therefore, no question of waiver of such interest on
the basis that the default was not intentional or on any other
basis. (See Bennet Coleman & Co. Ltd. v. V.P. Damle,
Third ITO, [1986] 157 ITR 812 (Bom.) and CIT v. Prem
Nath Motors (P). Ltd., [2002] 120 Taxman 584 (Delhi).‖
Therefore, the second question is also answered in favour of
the Revenue and against the assessee.
11. We would like to reiterate that although the questions have
been decided in favour of the Revenue, it must be remembered
that the finding of the Tribunal that the assessee acted in a bona
fide manner, has to be kept in mind and, therefore, no penalty can
be imposed on the assessee under Section 221 because of the
specific stipulation in the proviso to Section 201(1) of the said
Act. We also note that the exact quantum of the default needs to
be computed. It would, therefore, be necessary to remand the
matter to the assessing officer for the limited purpose of
computing the exact quantum of default and the interest payable
under Section 201(1A) of the said Act. We make it clear that in
case the employees of the assessee have paid the taxes as per their
individual returns/assessments, then no amount towards tax would
be payable to that extent by the assessee, however, the assessee
would continue to be liable for interest under Section 201(1A) but
only for the period commencing ‗from the date on which such tax
was deductible to the date on which the tax is actually paid‘
[see: CIT v. Adidas India Marketing P. Ltd: (2007) 288 ITR 379
(Del) and CITv. Trans Bharat Aviation (P) Ltd: (2010) 320 ITR
671 (Del)]. The assessing officer shall give full opportunity to the
assessee to produce documents in this regard.
The appeals are allowed to the extent indicated above.‖
87. We are accordingly of the opinion that while the challenge as
raised in the writ petition must fail, subject to due verification of the
issues flagged in para 82 and 83 above as well as the scope of a person
in default and penalty provisions as noticed above, the respondents may
revive the proceedings presently pending and conclude the same in
light of the observations made hereinabove.

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88. Accordingly, we negative the challenge raised in these writ

petitions insofar as the invocation of Section 194C of the Act is
concerned and hold that EDC payments would be covered thereunder.
For reasons recorded in the body of this judgment, we also turn down
the challenge to the Clarification issued by the Central Board of Direct
Taxes dated 23 December 2017.
89. We dispose of those writ petitions where final orders under
Section 201 may not have been made by according liberty to the
respondents to revive the pending show cause notice proceedings and
conclude the same in accordance with law bearing in mind the
observations appearing hereinabove. The proceedings on the pending
show cause notices would be liable to be decided afresh after affording
an opportunity of hearing to the writ petitioners and decided in
accordance with this judgment.
90. We dispose of W.P. (C) 9236/2022 leaving it open to the
respondents to finalise the Section 148 notice proceedings as per law
and in accordance with the present judgement.
91. We allow W.P.(C) 4909/2023, W.P.(C) 4097/2021, W.P.(C)
11552/2021, W.P.(C) 4778/2021, W.P.(C) 5319/2021, W.P.(C)
5683/2021, W.P. (C) 5715/2021, W.P.(C) 11531/2021, W.P. (C)
6631/2022, W.P. (C) 6694/2022, W.P. (C) 6737/2022, W.P. (C)
6893/2022, W.P. (C) 7978/2022, W.P. (C) 11706/2022, W.P. (C)
4920/2023, and W.P. (C) 5313/2023 and quash the final orders under
Section 201 of the Act. The respondents shall decide the notice
proceedings afresh and in accordance with the principles laid down in
the instant decision.
92. We also allow W.P.(C) 9483/2019, W.P.(C) 11232/2019, W.P.(C)
4033/2022 and W.P.(C) 299/2022 and set aside the final orders under
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Section 201 and consequential penalty orders referable to Section 271C

impugned therein with liberty reserved to the respondents to retry the
issue bearing in mind the judgments in Eli Lilly, Singapore Airlines and
American Express.
93. We allow W.P. (C) 6552/2022 and W.P. (C ) 6558/2022 and quash
the impugned notices and orders of reassessment bearing in mind the
undisputed fact that the respondents in these two writ petitions have
rested their case on Section 194 of the Act. The said issue stands
conclusively answered against the respondents in light of the judgment
in BPTP. We however leave it open to the respondents to consider these
two cases under Section 201 of the Act and draw proceedings afresh if
permissible in law.

YASHWANT VARMA, J.

PURUSHAINDRA KUMAR KAURAV, J.

FEBRUARY 13 2024
RW/kk

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