Income Tax | S.194C & S.194LA Would Not Apply When TDR Certificates Are Issued In Lieu Of Compensation: Bombay High Court

The Bombay High Court held that Section 194C and Section 194LA of the Income Tax Act would not apply when TDR Certificates are issued in lieu of compensation. Justices B.P. Colabawalla and Firdosh P. Pooniwalla agreed with the assessee 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”. Section 194C of the Income Tax Act, 1961 provides for deduction of income tax at source at the rate of 2% (plus educational cess) on the payment made to the Contractor by Government, local authority, statutory corporation, etc. Section 194LA of the Income Tax Act, 1961 ensures tax compliance in cases of compulsory acquisition of immovable property. In this case, the petitioner/assessee has challenged the order passed under Sections 201 and 201 (1A) of the Income Tax Act 1961 and the Demand Notice issued under Section 156. By the impugned Order, the assessee has been held as an Assessee in default for not deducting TDS under Section 194C, at the time of issuing Transferrable Development Rights (TDR) to the developer as per the instructions of the Slum Rehabilitation Authority, and which was implementing a Slum Scheme on a particular plot of land. The other reason for holding the Petitioner as an Assessee in default is because the Petitioner has not deducted TDS under section 194LA for issuing TDR in lieu of compensation for lands acquired for public purposes from the original owners as contemplated under section 126 of the MRTP Act, 1966. According to the assessee, Section 194C deals with the deduction of tax for payment made to contractors. As per the assessee 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”. The assessee submitted that even Section 194LA, and which relates to deduction of TDS for payment of compensation on acquisition of immovable property, uses the same terminology. The assessee further submitted that when payment is made in kind (and not by way of a monetary amount) certain sections of the Income Tax Act make a specific provision for deduction of TDS in relation thereto. One such section is Section 194B and other is Section 194R. The bench opined that Section 194C and Section 194LA would not apply when TDR Certificates are issued in lieu of compensation. The bench referred to Section 194B as well as Section 194R, which in fact contemplate as to what is to be done when payment is to be made entirely in kind or partly in cash and partly in kind. As per the bench, those provisions are conspicuously absent in Section 194C as well as Section 194LA of the Income Tax Act. In view of the above, the bench stayed the implementation and operation of the impugned order passed under Sections 201 and 201 (1A) of the Income Tax Act, 1961. The bench further stayed the penalty notice under Section 274 r/w Section 271 C. Case Title: Pune Municipal Corporation v. Assistant Commissioner of Income Tax, TDS Circle, Pune and Ors. Case Number: WRIT PETITION NO.9551 OF 2025 Counsel for Petitioner/Assessee: Percy J. Pardiwalla Counsel for Respondent/Department: A.K. Saxena Click Here To Download Order/Judgement

Income Tax | S.194C & S.194LA Would Not Apply When TDR Certificates Are Issued In Lieu Of Compensation: Bombay High Court

Mehak Dhiman

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