The Bombay High Court has stayed an Income Tax Department order declaring the civic body as an “assessee in default” for not deducting Tax Deducted at Source (TDS) during the issuance of Transferrable Development Rights (TDR) under slum rehabilitation and public purpose projects.
A division bench of Justices B.P. Colabawalla and Firdosh P. Pooniwalla passed the order on July 28 in response to a writ petition filed by PMC challenging the income tax demand notice and penalty proceedings initiated under Sections 201, 201(1A), and 271C of the Income Tax Act, 1961.
The Income Tax Department had held PMC liable for non-deduction of TDS under Section 194C for issuing TDRs to contractors implementing slum rehabilitation schemes, and Section 194LA for issuing TDRs as compensation to original landowners under the Maharashtra Regional and Town Planning (MRTP) Act.
PMC, represented by Senior Advocate Percy J. Pardiwalla and legal team from SPCM Legal, argued that Sections 194C and 194LA pertain to payments made in monetary form, not in kind. The TDR certificates issued did not involve any cash or cheque transfer and hence, they contended, TDS provisions were not applicable.
The court found prima facie merit in PMC’s argument. It held that the phrase “or by any other mode” in both Sections 194C and 194LA should be interpreted in line with “cash, cheque, or draft” — thereby excluding non-monetary compensation like TDRs.
The court contrasted this with Sections 194B and 194R of the Income Tax Act, which explicitly address scenarios involving winnings or benefits provided in kind, indicating that Parliament had consciously differentiated such cases.
The court granted stay on the operation of the March 25, 2025 assessment order and demand notice; and stayed penalty proceedings initiated through the notice dated April 16, 2025.
The Income Tax Department has been directed to file its reply by August 25, 2025. PMC will also serve notice to the third respondent.
Case Details
Case Title: Pune Municipal Corporation Versus Assistant Commissioner of Income Tax
Case No.: Writ Petition No.9551 Of 2025
Date: July 28, 2025
Counsel For Petitioner: Percy J. Pardiwalla, Senior Counsel a/w Mr.Sanket S. Bora
Counsel For Respondent: A.K.Saxena, Advocate
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