Delhi HC Rules EDC Payments to Haryana Development Board Not Rent

The Delhi High Court recently dismissed an appeal filed by the Revenue, holding that External Development Charges (EDC) paid to the Haryana Urban Development Authority (HUDA) by a real estate developer are not “rent” and do not require the deduction of Tax Deducted at Source (TDS).

The facts leading to the present appeal stem from an assessment order passed by the Assessing Officer (AO) under Section 201(1) of the Income Tax Act, 1961. The AO treated EDC paid by builders as rent under Section 194I, creating a demand of ₹1,13,50,000 and ₹1,08,96,000 under Sections 201(1) and 201(1A) respectively, resulting in a cumulative demand of ₹2,22,46,000.

The Assessing Officer’s conclusion was based on a survey that showed EDC receipts by HUDA without TDS deduction. The assessee, SS Group Pvt. Ltd., challenged this order before the Commissioner of Income-tax (Appeals) (CIT(A)), which allowed the appeal relying on the decision of the Delhi High Court in DLF Homes Panchkula Pvt. Ltd. v. Joint Commissioner Of Income Tax (Osd) (2023). The ITAT upheld the order of the CIT(A) and dismissed the challenge by the Revenue.

Before the High Court, Vipul Agrawal, Sakashi Shairwal, Akshat Singh, Gaoraang Ranjan, and Harshita Kotru appeared for the Revenue and argued that Chapter XVII-B of the Income Tax Act imposes an express obligation to deduct tax at source on taxable payments. They contended that the matter warranted remand so the AO could determine whether provisions such as Section 194C or Section 194I were applicable in the present case. They placed reliance on the Delhi High Court ruling in Puri Constructions Pvt. Ltd. vs. Addl. CIT & Ors. (2024) to contend that EDC payments could attract TDS under contractor provisions in appropriate circumstances.

Meanwhile, the respondent’s counsel, Puneet Agarwal, Yuvraj Singh, Mansi Khurana, Shruti Garg, and Chetan Kumar Shukla, relied on this Court’s earlier ruling in DLF Homes Panchkula and pointed to the Supreme Court’s dismissal of the Special Leave Petition (SLP) in Union of India v. M/s SS Group Pvt. Ltd. (2024) to submit that the position had attained finality between the parties.

The Division Bench of Justice V. Kameswar Rao and Justice Vinod Kumar noted that the Assessing Officer had characterized the payment as rent under Section 194I but that the question of characterisation had been squarely considered by the Court in the batch of petitions including that of the present assessee. Noting that the contentions raised by the respondent’s position had been accepted in DLF Homes Panchkula (supra) and that the Supreme Court had declined special leave, the High Court found no merit in remanding the matter to the AO for a fresh adjudication.

Since no substantial question of law arose for consideration, the Delhi High Court dismissed the Revenue’s appeal and affirmed that EDC payments to the Haryana development body do not require the real estate developer to deduct TDS.