The Bombay High Court recently ruled that Section 194C (which provides for deduction of income tax at source at the rate of 2% on the payment made to the Contractor by Government, local authority & statutory corporation) and Section 194LA of the Income Tax Act (which mandates for 10% TDS deduction by the payer before making the compensation to a resident for the compulsory acquisition of immovable property), would not apply to cases where Transferrable Development Rights (TDR) Certificates are issued to the developer as per the instructions of the Slum Rehabilitation Authority, in lieu of any compensation.
Referring to Section 194B as well as Section 194R of the Income Tax Act, which prescribes methodology when payment is to be made entirely in kind or partly in cash and partly in kind, the Division Bench comprising Justice B.P. Colabawalla and Justice Firdosh P. Pooniwalla clarified that these provisions are conspicuously absent in Section 194C as well as Section 194LA of the Income Tax Act.
The Bench was listening to the challenge against an order passed u/s 201 and 201 (1A) of the Income Tax Act and the Demand Notice issued pursuant thereto u/s 156 along with a penalty notice u/s 274 read with Section 271C, whereby the Petitioner was held as an ‘Assessee in default’ for not deducting TDS u/s 194C while issuing Transferrable Development Rights (TDR) to the developer as per the instructions of the Slum Rehabilitation Authority, as well as for not deducting TDS u/s 194LA for issuing TDR in lieu of the compensation for lands acquired for public purposes from the original owners as contemplated under section 126 of the MRTP Act, 1966.
The Bench found substance in the argument canvassed by the Petitioner that the words “or by any other mode” appearing in Section 194C would have to be read ejusdem generis to the words “payment thereof in cash or by issue of a cheque or draft”. Similarly, in Section 194LA, the words “or by any other mode” would have to be read ejusdem generis to the words “payment of such sum in cash or by issue of a cheque or draft”.
Therefore, pending the final disposal of the petition, the Bench directed for an interim stay on the orders passed u/s 201 and 201(1A) of the Income Tax Act, as well as the Demand Notice and the Penalty Notice under Section 274 r/w Section 271C.
Appearances:
Petitioner: Senior Advocate Percy J. Pardiwalla, a/w Advocates Sanket S. Bora, Deepak Sharma, Vidhi Punmiya, Amiya R. Das, Archana Shetty, and Unnatii Thakkar
Respondent: Advocate A.K. Saxena