By TIOL News Service

BANGALORE, JAN 17, 2018: THE issue is - Whether when the agreement is all about the purchase of developed residential sites, merely because the developer had to construct some common facilities before the handover, it would amount to 'works contract'. NO IS THE ANSWER.

Facts of the case:

The assessee is a co-operative society engaged in the activity of identifying suitable lands and forming a residential layout for allotment of residential sites to its members. During the relevant year, the AO called for information u/s 133(6) pertaining to the details of payments made to developers/contractors and tax deducted thereon. From the details filed, the AO noticed that assessee had entered into certain agreements and MOU's with the developer/contractor M/s Jaya Surya Developers, for carrying out such activities and had failed to deduct tax at source on payments made to these parties with whom it had entered into agreements for the acquisition of land and formation of residential layout for the benefit of its members, which were in the nature of composite work contracts. The AO, inter alia, noticed that the said layout was to be developed as per the assessee's specifications and the words "procurement of land" meant that the developer did not own any land as on the date of agreement. In that view of the matter, the AO held that the provisions of Sec. 194C was attracted. Since the assessee had failed to deduct tax at source under such provision, the assessee was declared to be in default u/s 201(1) and also to be charged the consequential interest u/s 201(1A). On appeal, the CIT(A) held that there was no liability on assessee to deduct tax at source u/s 194C.

Tribunal held that,

++ the assessee society had entered into agreement/MOU with developer/contractor M/s Jayasurya Developers. From the said agreement/MOU, it is seen that the assessee society had entrusted the procurement of land and development of residential layout with the conditions to execute civil works such as roads, common amenities, drainage, electrification, plan approval and conversion of lands from agriculture to non-agriculture status, to the developer. However, the fact remains that the agreements essentially and basically relate to the purchase of land development and purchase of residential sites from the developer/contractors. The CIT(A) on perusal of the agreement arrived at the conclusion that the payments for the purchase of sites was calculated on sq. ft. area of the property and the amount was paid for purchases of completed property and not for development work carried out. The CIT(A) found that the agreements were only for purchase of sites and does not involve any 'works contract'. This finding of CIT(A) could not be faulted and the same was a correct reading of the scope of the agreements; which had to be treated as a whole and not in piece meal manner. The mere fact that the contractor/developer were required to layout roads and undertake other activities before the delivery of the completed sites could not be either determinative of the facts or need to mean that the agreements entered into by the assessee society is a composite contract and amounts to a works contract. Therefore, the impugned orders of CIT(A) deleting the demands raised by the AO u/s 201(1) and 201(1A), was upheld.

(See 2018-TIOL-102-ITAT-BANG)