In a significant ruling on tax deduction at source (TDS) obligations, the Delhi High Court has dismissed three appeals filed by the Income Tax Department against Mahagun Developers in a dispute concerning lease rent payments made to the NOIDA Authority.
The Division Bench comprising Justice Dinesh Mehta and Justice Vinod Kumar upheld the Income Tax Appellate Tribunal’s (ITAT) decision, granting relief to Mahagun and ruling that the developer could not be treated as an “assessee in default” for failing to deduct TDS on lease rentals.
Dispute Covered by Earlier Judgment in Rajesh Projects Case
The High Court noted that the issue was already settled in its earlier landmark decision in Rajesh Projects (India) Pvt. Ltd. v. Commissioner of Income-tax (2017). In that ruling, the Court held that although TDS under Section 194-I applies to lease rent paid to the Greater Noida Development Authority, the obligation would apply prospectively from the date of that judgment.
The Revenue failed to demonstrate any substantial difference between Mahagun’s case and the Rajesh Projects ruling. Therefore, the Court concluded that the matter was squarely covered by precedent.
Supreme Court Affirmation Strengthens Prospective Application
The Court further observed that the Rajesh Projects judgment had been affirmed by the Supreme Court in New Okhla Industrial Development Authority v. CIT, reinforcing that the requirement to deduct TDS on such lease rentals cannot be applied retrospectively.
As a result, Mahagun could not be held liable under Sections 201(1) and 201(1A) of the Income Tax Act for Assessment Year 2012–13.
ITAT Had Quashed ₹62 Lakh TDS Demand
Earlier, the ITAT had struck down TDS demands exceeding ₹62 lakh raised against Mahagun during the second round of proceedings under Sections 201(1) and 201(1A).
The Tribunal accepted Mahagun’s argument that it had acted under a bona fide belief that lease rent paid to NOIDA Authority did not attract TDS. This belief was supported by explicit communications issued by the Authority itself.
Second Round of Proceedings Held Unjustified
The ITAT also held that once Section 201 proceedings had already been concluded earlier, reopening the same issue through a second round of proceedings was not justified without statutory authority.
The High Court agreed with this reasoning and dismissed all three appeals filed by the Revenue.
Case Details
- Case Title: Commissioner of Income Tax (TDS)-1, New Delhi v. M/s Mahagun (India) Pvt. Ltd.
- Case Number: ITA 259/2025
- Citation: 2026 LLBiz HC (DEL) 141
Key Takeaway
This ruling provides important clarity for developers and taxpayers regarding TDS liability on lease rent paid to NOIDA/Greater Noida authorities, confirming that such obligations apply only prospectively after judicial clarification.