Sections 2(28A), 194A – Amount paid to intending buyer of flat in excess of amount paid by him is in the nature of interest u/s. 2(28A) liable for TDS u/s. 194A. The fact that the nomenclature of the amount debited to P & L Account was “Excess payment refund” does not change the character of the payment which is in the nature of interest.
Facts : In the course of survey u/s. 133A, it was found that the assesse has debited in P & L Account of financial year 2011- 12, a sum of Rs. 31,37,341 and a sum of Rs. 43,21,593 in the P & L Account of financial year 2012-13 towards “Excess Payment Refund’’. The nature of this amount was as under –
The assesse received certain payments from customers who initially booked flats by making advance payments plus 1 or 2 installments. Due to various reasons, these customers could not fulfill the payment schedule and requested for a refund. After certain period, the assessee identified new customers and flats were sold at a higher rate than the previous price. After the sale, the assessee returned the payments received from previous customers with a margin, in order to maintain good business relationship. The excess amount paid was debited to ‘Excess Payment Refund’. No tax was deducted at source from such excess payment made.
The Assessing Officer (AO) held that the excess amount paid to customers was interest u/s. 2(28A) and the payment thereof required deduction of tax at source u/s. 194A of the Act. He, accordingly, regarded the assessee as an assessee-in-default.
Aggrieved, the assessee preferred an appeal to CIT(A) who held that the provisions of section 194A are not applicable to the transactions undertaken by the assessee. Aggrieved, the revenue preferred an appeal to the Tribunal.
Held:
The excess payment made to the customers was in the nature of interest paid in respect of amount lying with the assessee. Mere nomenclature in the books of account will not change the character of actual payment which was precisely in the nature of interest as defined u/s. 2(28A) of the Act. Having reproduced the provisions of section 2(28A), the Tribunal observed that it is crystal clear from the plain reading of section 2(28A) of the Act, that money paid in respect of amount borrowed or debt incurred, is interest payable in any manner. The statutory definition given u/s. 2(28A) of the Act regards amounts which may not otherwise be regarded as interest, as interest for the statute. The definition of interest has been carried to the extent that even the amounts payable in transactions where money has not been borrowed and debt has not been incurred, are brought within the scope of its definition, as in the case of service fees paid in respect of a credit facility which has not been utilised.
In the instant case, the amounts were paid in respect of an obligation in respect of purchase of flat through agreement, therefore, no fault can be found on the part of the AO for treating these charges as interest and liable for TDS u/s. 194A of the Act. The mere fact that the assessee did not choose to characterise such payment as interest will not take such payment out of the ambit of definition of ïnterest’’, in so far as payment made by the assessee was in respect of an obligation incurred with earlier flat holder. The assessee has essentially incurred an expenditure and the amount of charges paid was with respect to the amount incurred by the flat agreement-holder and the period for which the money was so utilised by the assessee. The Tribunal reversed the order of CIT(A) and restored that of the AO on this issue.
This ground of appeal of the revenue was decided in favour of the revenue.
