'Capital Grant Subsidy' Paid To Contractor To Meet Economic Shortfall In Revenue Is Not Liable For TDS Deduction: Delhi HC

The Delhi High Court has held that 'capital grant subsidy' which may be extended by the National Highways Authority of India to its contractors is not liable to TDS deduction under Section 194C of the Income Tax Act, since such grant cannot be construed as payment for a “work”. A division bench of Justices Yashwant Varma and Ravinder Dudeja observed, “As we read Section 194C, it becomes evident that the same is principally concerned with the undertaking of a physical or tangible activity as opposed to the mere grant of subsidy or financial assistance…The infusion of equity capital as a measure of financial support, while surely a contractual obligation, cannot consequently be understood to mean the payment for a work undertaken.” In the present case, the Concessionaire had entered into a BOOT agreement with NHAI, where it was obligated to build and operate the project till its cost is recovered and thereafter, transfer the project to NHAI. “While equity support was undoubtedly a concomitant of the Concession Agreement, it would be wholly incorrect to view it as payment made for a „work‟ entrusted to the Concessionaire…the capital grant subsidy was not a payment made for work per se but representative of the obligation of NHAI to extend financial support in connection with the creation of an asset of public utility and importance,” High Court held. This would, therefore, also not be a case where sub-section of Section 194C would be attracted.” Accordingly, the High Court upheld the ITAT order and concluded, “the capital grant subsidy was essentially aid and support that the NHAI extended to the Concessionaire as opposed to payment that it would have ordinarily made to a contractor and would be directly connected with or constitute recompense for physical work that was performed.