Tds on immovable property

Guest (Querist) 27 October 2013 This query is : Resolved
MR X HAS PURCHASED AN UNDERCONSTRUCTION PROPERTY FROM THE DEVELOPER 2 YEARS AGO FOR WHICH AGREEMENT WAS MADE BUT THE PROPERTY WAS NOT REGISTERED BECAUSE MR X HOLDED IT AS AN INVESTMENT. MR X WAS TO PAY TO THE DEVELOPER IN 10 INSTALLMENTS IN WHICH 8 ARE DUE AND PAYMENT HAS BEEN MADE FOR 8 INSTALLMENTS AND 2 INSTALLMENTS ARE NOT YET DUE. NOW MR X HAS ASSIGNED THE PROPERTY TO MR Y AND MR Y NEEDS TO PAY 70LACS TO MR X AND 10 LACS FOR 2 INSTALLMENTS WHICH ARE NOT YET DUE TO THE DEVELOPER i.e MR Y HAS BEEN SUBSTITUTED IN PLACE OF MR X IN THE AGREEMENT.MY QUESTION IS
1. WILL MR Y HAVE TO DEDUCT TDS ON AMOUNT PAID TO MR X i.e 70 LACS AS PER SECTION 194IA?
2. WILL MR Y HAVE TO DEDUCT TDS ON AMOUNT PAID TO DEVELOPER i.e 10 LACS AS PER SECTION 194IA?

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DILIP KUMAR AAGARWAL (Expert) 28 October 2013
Y has to deduct TDS from the payment to developer if registration is done in the name of Y. Payment to X is only reimbusrement of payment.

Anirudh (Expert) 28 October 2013
Y has to deduct TDS when he pays 70 lakhs to X due to assignment of the immovable property.

Similarly Y has to deduct TDS when he makes payment of instalments (total Rs. 10 L) to the Developer.

Guest (Querist) 28 October 2013
ONE OF MY FRIEND TOLD ME THAT MR Y IS NOT REQUIRED TO DEDUCT TDS ON AMOUNT PAID TO MR X. HE MAILED ME THE FOLLOWING PARAGRAPH
Payment/Credit to Confirming Party
It is common practice in the Real Estate Trade wherein a person who has acquired rights in an immovable property transfers/assigns such rights in favour of a Third party for a higher consideration. Such persons normally join the final documents for conveyance either as a confirming party or as a consenting witness. The question which arises for consideration is whether the payments made by the buyer who is ultimate transferee of the immovable property to the confirming party would be subject to TDS under provisions of Section 194 IA of the Income tax Act. A careful reading of the term immovable property is necessary to arrive at a logical conclusion on this matter. The term immovable property has been specifically defined under explanation (b) to Section 194 IA as follows-
“Immovable property” means any land (other than agricultural land) or any building or part of the building. It is to be noted that the above definition is a restrictive definition very specific with its intent and not an inclusive definition. The above definition is also significantly different from the definition of immovable property under Section 269UA (d) r/w Section 2(47) (v) and (vi) of the Income Tax Act wherein the term immovable property would include rights in or with respect to such immovable property or the definition of “land” for the purpose of Section 35 of the Income Tax Act which under Explanation 2 of the said section includes an interest in land and the definition of “immovable property u/s 3(26) of the General Clauses Act wherein the term “immovable property” has been defined to include land, benefits to arise out of land, and things attached to the earth are permanently fastened to anything attached to the earth .
Therefore, there would be no requirement of deducting Tax at Source under section 194 IA on payments made by a transferee to an agreement holder, as he is not the transferor of ”immovable property” as defined under section 194 IA.

PLEASE HELP ME OUT

Anirudh (Expert) 28 October 2013
On review, I agree that no TDS is to be effected by Y when he pays 70L to X.

Rajendra K Goyal (Expert) 28 October 2013
Agree with expert Anirudh ji.

Guest (Querist) 28 October 2013
1.SIR WILL GOVERNMENT AUTHORITIES ACCEPT THIS CONCLUSION GIVEN BY MY FRIEND THAT NO TDS IS TO BE DEDUCTED ON AMOUNT PAID TO AGREEMENT HOLDER.
OR
TO BE ON SAFE SIDE SHOULD I DEDUCT TDS ON AGREEMENT HOLDER
2. IF THERE ARE MORE THAN 2 BUYERS SHOULD THEY DEDUCT TDS SEPERATLEY OR ANY 1 BUYER CAN DEDUCT THE WHOLE AMOUNT OF TDS.

DILIP KUMAR AAGARWAL (Expert) 29 October 2013
Provision of TDS is meant for safeguard the tax realisation from tax payer so in this case building is registered the property in the name of Y on the instruction of X.Tax liability is arise in the hand of bulder so I feel that payment of TDS by Y from the payment to builder on the entire amount of 80Lakh which solve the issue.inspite of it please go by the provision.

Tds on immovable property

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