The Chandigarh Bench of the Income Tax Appellate Tribunal (ITAT), ruled that amount in nature of debt claim till possession of was actually handed over is taxable under India-UK Double Taxation Avoidance Agreement (DTAA).
The assessee, Karnail Singh is a non-resident and during the financial year relevant to the impugned Assessment Year the assessee has booked certain units in M/s Omaxe Ltd. Novelty Mall, Amritsar. The assessee has made payment of 95% of the basic sale price at the time of booking the said units and has been provisionally allotted these units and in lieu of 95% payment of the basis sale price, M/s Omaxe Ltd. was to pay monthly assured return to the assessee till the time of possession of these units were handed over to the assessee.
In the return of income filed for the impugned assessment year, the assessee has shown the amount received from M/s Omaxe ltd. as income under the Head “Income from House property” and has claimed statutory deduction under section 24 of the Income Tax Act. Further the assessee has claimed credit of TDS deducted by M/s Omaxe Ltd. @ 50% as per Article-12 of India and U.K DTAA r/w Section 90 of the Income Tax Act.
As per the AO, the income received by the assessee from M/s Omaxe Ltd. cannot be stated to be income from house property as there is no construction/ complete property and the question of letting out the same to third party and earning rental income thereof does not arise.
It was accordingly held by the AO that assured return received by the assessee can only be classified under the head “income from other source” under section 56(1) of the Act and the same was accordingly brought to tax in the hands of the assessee and as against the returned income.
Under Article-12 of the Indo-UK DTAA, the term “interest” means income from debt claims of every kind. It was submitted that the amount given by the assessee to M/s Omaxe Ltd. was in the nature of debt claim till the possession of the property was actually handed over to the assessee and in this regard reference was drawn to the contents of the allotment letter.
A Bench comprising Sudhanshu Srivastava, Judicial Member and Vikram Singh Yada, Accountant Member relied on the judgment in Shri Mohinder Singh Sanghera vs. Astt. DIT, wherein it was observed that “the assessee had a claim of debt against M/s Omaxe Ltd. till the proposed property is constructed and possession handed over to the assessee and conveyance deed executed and registered. It was accordingly held in that case that theassured return received by the assessee was in the nature of interest and has been rightly brought to tax as per Indo-UK DTAA.”
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