Delhi High Court Rules: EDC Payments to Haryana Development Authority Not Subject to TDS

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 real estate developers are not considered “rent” and do not require the deduction of Tax Deducted at Source (TDS).

The case arose from an assessment order passed by the Assessing Officer (AO) under Section 201(1) of the Income Tax Act, 1961. The AO treated EDC payments 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 survey conducted by the AO revealed that HUDA had received EDC payments 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. The CIT(A) relied on the Delhi High Court’s decision in DLF Homes Panchkula Pvt. Ltd. v. Joint Commissioner of Income Tax (Osd) (2023). The Income Tax Appellate Tribunal (ITAT) upheld the order of the CIT(A) and dismissed the Revenue’s challenge.

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

Meanwhile, the respondent’s counsel, Puneet Agarwal, Yuvraj Singh, Mansi Khurana, Shruti Garg, and Chetan Kumar Shukla, relied on the 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. However, the question of characterisation had been considered by the High Court in the batch of petitions, including that of the present assessee. The Court accepted the contentions raised by the respondent’s position in DLF Homes Panchkula (supra) and 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 real estate developers to deduct TDS.