Are External Development Charges paid to HUDA 'rent' under s.194-I? And if the AO picked the wrong section, can the department switch sections on appeal?
EDC paid to the Haryana authority under the statutory licensing scheme is not rent, so s.194-I is not attracted. The Revenue did not even try to defend the Assessing Officer's reasoning; it asked instead for a remand so the officer could apply s.194C. The Court refused. An order under s.201 stands or falls on the reasoning the officer actually gave, and the reasoning here was fundamentally flawed. The s.201(1) and 201(1A) demands were set aside.
Decided by the High Court (Vibhu Bakhru J and Amit Mahajan J) on 2023-03-24, reported as 2023 SCC OnLine Del 2026; Neutral citation 2023:DHC:2401-DB; W.P.(C) 4351/2021 with W.P.(C) 3790/2021, 4328/2021, 4862/2022, 6282/2022, 6308/2022, 6311/2022, 6693/2022, 6738/2022, 6742/2022, 8894/2022 and 9236/2022. It bears on section 194-I, section 194C, section 201 of the Income Tax Act 1961, in TDS Defaults matters.
This is the source decision behind every later Delhi High Court order quashing a s.194-I EDC demand. Its second holding is the more useful one in practice: the department cannot treat the choice of TDS section as a curable technicality and re-argue the case on a provision the assessment order never invoked. That is a general answer to a common departmental habit in TDS default proceedings, not one confined to EDC.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioners were real estate developers who had obtained licences to develop colonies in Haryana under the Haryana Development and Regulation of Urban Areas Act, 1975 and the Rules of 1976, and who, under the licence conditions and bilateral agreements, paid External Development Charges to the Haryana Urban Development Authority. They did not deduct tax at source on those payments. The Assessing Officer held that EDC was in the nature of rent, that tax was deductible at 10 per cent under s.194-I, and passed orders under s.201(1) and s.201(1A) treating the petitioners as assessees in default and charging interest. Before the High Court the Revenue did not seek to support the finding that EDC was rent. It argued instead that the correct provision was s.194C, that the AO's reference to the wrong section was a curable defect, and that the matter should be remanded so that the officer could determine liability under the correct provision.
The petitions were allowed and the orders under s.201(1) and s.201(1A) were set aside. Since the Revenue did not support the Assessing Officer's conclusion that EDC was rent, the reasoning on which the impugned orders rested was fundamentally flawed (para 21). The Court rejected the contention that the AO's findings on the nature of EDC and the provisions he invoked were immaterial, and declined to remand for the application of a different section (paras 23 to 26).
The nature of the payment was the very issue the Assessing Officer was required to decide, and his characterisation of EDC as rent was the substantive foundation of the demand, not an incidental label (paras 13 and 14). Once the Revenue abandoned that characterisation, nothing was left to support the order (para 21). The Court was critical of the sequence of the Revenue's reasoning, observing that it had concluded that TDS was deductible from EDC and was then searching for a provision of law to sustain that conclusion (para 23). It therefore rejected the argument that the section invoked was immaterial and that the error was curable, holding that the approach of the Revenue was flawed (para 24), and applied the same reasoning to all the connected petitions (paras 25 and 26).
In the present case, the Revenue does not seek to support the decision of the AO that EDC are 'rent' or in the nature of 'rent'. Thus, concededly, the fundamental reasoning on which the impugned order rests is fundamentally flawed.
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Handle my notice → Ask a CA on WhatsAppEDC paid to the Haryana authority under the statutory licensing scheme is not rent, so s.194-I is not attracted. The Revenue did not even try to defend the Assessing Officer's reasoning; it asked instead for a remand so the officer could apply s.194C. The Court refused. An order under s.201 stands or falls on the reasoning the officer actually gave, and the reasoning here was fundamentally flawed. The s.201(1) and 201(1A) demands were set aside. This was decided by the High Court (Vibhu Bakhru J and Amit Mahajan J) and bears on section 194-I, section 194C, section 201 of the Income Tax Act 1961. It is reported as 2023 SCC OnLine Del 2026; Neutral citation 2023:DHC:2401-DB; W.P.(C) 4351/2021 with W.P.(C) 3790/2021, 4328/2021, 4862/2022, 6282/2022, 6308/2022, 6311/2022, 6693/2022, 6738/2022, 6742/2022, 8894/2022 and 9236/2022. This is the source decision behind every later Delhi High Court order quashing a s.194-I EDC demand. Its second holding is the more useful one in practice: the department cannot treat the choice of TDS section as a curable technicality and re-argue the case on a provision the assessment order never invoked. That is a general answer to a common departmental habit in TDS default proceedings, not one confined to EDC. If it applies to you, the first step is this: Confirm from the s.201 order which section the AO relied on. This decision defeats an order built on s.194-I.
The petitioners were real estate developers who had obtained licences to develop colonies in Haryana under the Haryana Development and Regulation of Urban Areas Act, 1975 and the Rules of 1976, and who, under the licence conditions and bilateral agreements, paid External Development Charges to the Haryana Urban Development Authority. They did not deduct tax at source on those payments. The Assessing Officer held that EDC was in the nature of rent, that tax was deductible at 10 per cent under s.194-I, and passed orders under s.201(1) and s.201(1A) treating the petitioners as assessees in default and charging interest. Before the High Court the Revenue did not seek to support the finding that EDC was rent. It argued instead that the correct provision was s.194C, that the AO's reference to the wrong section was a curable defect, and that the matter should be remanded so that the officer could determine liability under the correct provision. The matter was decided on 2023-03-24 by the High Court (Vibhu Bakhru J and Amit Mahajan J). On those facts the High Court held as follows. The petitions were allowed and the orders under s.201(1) and s.201(1A) were set aside. Since the Revenue did not support the Assessing Officer's conclusion that EDC was rent, the reasoning on which the impugned orders rested was fundamentally flawed (para 21). The Court rejected the contention that the AO's findings on the nature of EDC and the provisions he invoked were immaterial, and declined to remand for the application of a different section (paras 23 to 26).
The nature of the payment was the very issue the Assessing Officer was required to decide, and his characterisation of EDC as rent was the substantive foundation of the demand, not an incidental label (paras 13 and 14). Once the Revenue abandoned that characterisation, nothing was left to support the order (para 21). The Court was critical of the sequence of the Revenue's reasoning, observing that it had concluded that TDS was deductible from EDC and was then searching for a provision of law to sustain that conclusion (para 23). It therefore rejected the argument that the section invoked was immaterial and that the error was curable, holding that the approach of the Revenue was flawed (para 24), and applied the same reasoning to all the connected petitions (paras 25 and 26). In the words reproduced by the source cited on this page: "In the present case, the Revenue does not seek to support the decision of the AO that EDC are 'rent' or in the nature of 'rent'. Thus, concededly, the fundamental reasoning on which the impugned order rests is fundamentally flawed." The decision followed or applied Followed in Commissioner of Income Tax (TDS)-2 v. M/s Santur Builders Pvt. Ltd., ITA 252/2024 (Delhi, 19 March 2025); Noted and not displaced in Puri Constructions Pvt. Ltd. v. Additional Commissioner of Income Tax (2024) 462 ITR 326 (Delhi), which decided the separate question under s.194C.
It was decided by the High Court on 2023-03-24 and is reported as 2023 SCC OnLine Del 2026; Neutral citation 2023:DHC:2401-DB; W.P.(C) 4351/2021 with W.P.(C) 3790/2021, 4328/2021, 4862/2022, 6282/2022, 6308/2022, 6311/2022, 6693/2022, 6738/2022, 6742/2022, 8894/2022 and 9236/2022. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 194-I, section 194C, section 201, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The petitions were allowed and the orders under s.201(1) and s.201(1A) were set aside. Since the Revenue did not support the Assessing Officer's conclusion that EDC was rent, the reasoning on which the impugned orders rested was fundamentally flawed (para 21). The Court rejected the contention that the AO's findings on the nature of EDC and the provisions he invoked were immaterial, and declined to remand for the application of a different section (paras 23 to 26). It arises in TDS Defaults matters, on section 194-I, section 194C, section 201 of the Income Tax Act 1961, and was decided by Vibhu Bakhru J and Amit Mahajan J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If the department concedes s.194-I but asks for a remand so a different section can be applied, cite paras 21 to 24: the concession destroys the order, and the defect is not curable by remand. Keep the licence and the bilateral agreement under the Haryana Development and Regulation of Urban Areas Act, 1975 on record. The statutory character of the EDC obligation is what takes it outside the concept of rent. Be candid with the client about the limit of this decision. It settles that EDC is not rent; it does not settle that EDC is outside TDS altogether. Puri Constructions Pvt. Ltd. v. Addl. CIT (Delhi High Court, 13 February 2024) holds s.194C is attracted, and that exposure remains live. Where a s.271C penalty is also proposed, note that Puri Constructions itself records that penalty is not an inevitable corollary of default and is not warranted where the taxability question was debatable.
Still good law. Followed by a Division Bench of the same Court in CIT (TDS)-2 v. Santur Builders Pvt. Ltd., ITA 252/2024, decided 19 March 2025, and reported as followed again in CIT v. SS Group Pvt. Ltd., ITA 308/2025, decided 18 August 2025. Expressly noted without disapproval in Puri Constructions Pvt. Ltd. v. Addl. CIT (2024) 462 ITR 326 (Delhi). No decision doubting or overruling it was located, and no Supreme Court decision on EDC and TDS was found. The holding is confined to s.194-I: it does not decide, and Puri Constructions decides against the developer, the separate question under s.194C. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Third-party lists circulate this as a 2024 decision. It is not: it was decided on 24 March 2023. It is also frequently described as a companion to the 2025 Santur Builders order, which understates it - it is the parent authority that Santur Builders follows. The lead petition is W.P.(C) 4351/2021, heard with eleven connected petitions. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The petitions were allowed and the orders under s.201(1) and s.201(1A) were set aside. Since the Revenue did not support the Assessing Officer's conclusion that EDC was rent, the reasoning on which the impugned orders rested was fundamentally flawed (para 21). The Court rejected the contention that the AO's findings on the nature of EDC and the provisions he invoked were immaterial, and declined to remand for the application of a different section (paras 23 to 26).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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