By K. B. Bhujle, Advocate
Principal CIT vs. West Bengal Housing
Infrastructure Development Corpn. Ltd.; [2018] 96 taxmann.com 610 (Cal):
Date of order: 9th August, 2018
A. Y. 2005-06
Interest
(Compensation for belated allotment of plot) – As per agreement, under Housing
Scheme, for failure to make plots available to allottees within stipulated
time, assessee housing/infrastructure development corporation paid
damage/compensation on amount allottees paid at rate equivalent to SBI interest
rate of FDs – Payments so made would not make payment on interest as defined
u/s. 2(28A) since there was neither any borrowing of money nor was there
incurring of debt on part of assessee – Tax not deductible – No disallowance
u/s. 40(a)(i)
The
assessee, was engaged in development of land, housing and infrastructural
facilities. A sum of Rs. 9.71 crore was found debited in the profit and loss
account of the assessee. This sum was claimed as deduction in computing the
income of the assessee under the head ‘income from business‘. The nature
of this expenditure was explained by the assessee before the Assessing Officer
as ‘compensation for delay, delivery of plots‘. The explanation given
was that as per the offer of allotment of plot of land developed by the
assessee, the assessee was under an obligation to hand over physical possession
of the plot to the allottees on payment of the entire cost of the land. If
possession of handing over of the plot was delayed for more than six months
from the scheduled date of possession, the assessee had to pay interest on
installments already paid by the allottee during such extended period at the
prevailing fixed term deposit rates for similar period offered by the State
Bank of India. According to the assessee, the actual nature of payment was in
the nature of damages for delayed allotment of a plot and thus, the assessee
had no TDS obligation. The Assessing Officer viewed the payment to be in the
nature of payment of interest and held that by reason thereof, the assessee
should have deducted tax at source u/s. 194A of the Income tax Act, 1961
(hereinafter for the sake of brevity referred to as the “Act”) at the
time of payment or credit. The Assessing Officer further held that since the
assessee failed to deduct tax at source on the amount, the claim of the
assessee for deduction of the said sum cannot be allowed by reason of section
40(a)(ia).
The
Tribunal held that the amount in question cannot be characterised as interest
within the meaning of section 194A and hence, there was no obligation on the
part of the assessee to deduct tax at source and allowed the assessee’s claim.
On appeal
by the Revenue, the Calcutta High Court upheld the decision of the Tribunal and
held as under:
“i) From the definition of interest as occurring
in section 2(28A), it appears that the term ‘interest’ has been made entirely
relatable to money borrowed or debt incurred and various gradations of rights
and obligations arising from either of the two. The parenthesis in the section
is in the nature of a qualification of the borrowing of money/incurring of debt
and what it includes.
ii) In CIT vs. H.P. Housing Board [2012] 18
taxmann.com 129/205 Taxman 1/340 ITR 388 (HP) the High Court held that the
money was paid on account of damages suffered by the allottee for delay in
completion of the flats.
iii) Reference may be made to the Apex
Court in Central India Spg. & Wvg. & Mfg. Co. Ltd. vs. Municipal
Committee, Wardha AIR 1958 SC 341. Besides agreeing with the reasons given
by the Himachal Pradesh High Court for holding that payment for delayed
allotment of flats cannot be brought u/s. 2(28A) the said decision is of a
co-ordinate Bench.
iv) The payment made by the assessee to the
allottee was in terms of the agreement entered between them where the liability
of the assessee would arise only if it failed to make the plots available
within the stipulated time. Hence, the payment made under the relevant clause
was purely contractual and as rightly held by the Tribunal, in the nature of
compensation or damages for the loss caused to the allottee in the interregnum
for being unable to utilise or possess the flat: The Flavour of compensation
becomes evident from the words used in the particular clause. The expression
‘interest’ used in the relevant clause of the Housing Scheme may be seen merely
as a quantification of the liability of the assessee in terms of the percentage
of interest payable by the State Bank of India. Since there is neither any
borrowing of money nor incurring of debt on the part of the assessee, in the
present factual scenario, interest as defined u/s. 2(28A) can have no application
to such payments. Consequently, there was no obligation on the part of the
assessee to deduct tax at source and consequently no disallowance could have
been made u/s. 40(a)(ia).
v) In view of the above, the decision of the
Tribunal is to be confirmed.”
