INCOME TAX ACT, 1961

Section 271C

Penalty under section 271C - Leviability - Non-deduction of tax at source on payment of external development charges to Government - Bona fide belief that tax not deductible

Assessee-company obtained license for developing group housing colony on payment of external development charges (EDC) to Haryana Urban Development Authority (HUDA) on directions and on behalf of Director, Town & Country Planning (DTCP), Government of Haryana. AO was of the view that TDS should have been deducted on payment of EDC and assessee failed to deduct TDS on the same, accordingly, he levied penalty under section 271C. Held: Assessee was under a bona fide belief that no tax was required to be deducted at source on payment of EDC, firstly, for the reason that agreement was between DTCP, who is Governmental authority and licence was granted by the Government and EDC charges was directed to be paid to HUDA, therefore, that could lead to reasonable cause that TDS was not required to be deducted. Further, DTCP issued a clarification dt. 29-6-2018 to the effect that no TDS was/is required to be deducted in respect of payments of EDC and the said clarification issued by DTCP covered both past and future, as the words used were “was/is”. It showed that Governmental authority itself demanded not to deduct TDS. Moreover, in case, even if tax was required to be deducted on such payment but not deducted under a bona fide belief, then no penalty would be leviable under section 271C as there was no contumacious conduct by the assessee. Hence, the penalty levied under section 271C was deleted.

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

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