Payment by Builder/ Developer for Compensation/Damages to Allottees is not Interest u/s 2(28) of Income Tax Act, No TDS: ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) held the compensation/damages paid by the assessee to its allottees cannot be tagged as interest under Section 2(28A) of the Income Tax Act,1961 and  therefore, TDS (Tax Deducted at Source) provision of Section 194A of the Income Tax Act was not applicable.

The assessee in this case is M/s Sawhney Builders Pvt. In the assessment proceeding the Assessing Officer (AO) treated the return filed by assessee to be in default on account of non-deduction of TDS under Section 194A of the Income Tax Act  for Rs. 43,03,610/-.

Aggrieved by the order the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], which confirmed the order of AO.

Further aggrieved the assessee filed an appeal before the Tribunal.

The Authorised Representative (AR) of the assessee Manoj Kumar, submitted that the payment by the builder/developer for delayed allotment of plot of land or other property is not interest under Section 2(28A) of the Income Tax Act and the same has to be treated as amount paid as damage/compensation to the allottees and the percentage is applied to the period of delayed for calculation amount of damages or compensation and the same cannot be treated as payment of interest to the allottees.

The AR further submitted that when the amount paid by the assessee to its allottee on account of delay is not an interest payment then the assessee is not required to deduct TDS under the provision of Section 194A of the Income Tax Act or any other provision of the Income Tax Act .

The Departmental Representation (DR) Meenakshi Dohre, supported the orders of authorities below and submitted that the assessee had paid interest to the parties as per copy of the account obtained during the course of survey proceedings under Section 133A of the Income Tax Act, and the name of expenses thereto has been changed as compensation on cancelation in its books of accounts by the assessee as well as in the auditor’s report after survey proceedings.

Further DR submitted that the assessee was rightly treated as assessee in default under the provision of Act and the AO was right in charging amount of Rs. 43,03,610/-.

The Bench comprising of Chandra Mohan Garg, Judicial Member and Pradip Kumar Kedia, Accountant Member observed that the impugned payment is nothing but compensation/damages paid by the assessee to its allottees which cannot be tagged as interest under Section 2(28A) of the Income Tax Act.

Therefore, TDS provision of Section 194A of the Income Tax Act is not applicable towards such payment. Therefore the assessee cannot be treated as assessee in default for noncompliance of TDS provisions on account of such payments.

Hence the impugned order was set aside and so the appeal was allowed.

To Read the full text of the Order CLICK HERE

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