Brief of the case:
The Hon’ble Kerala HC in the case of Beacon Projects Private Limited held that a sum paid can be termed as interest only when the same is paid in respect of a pre-existing debt obligation and there existed a debtor-creditor relationship.
Facts of the case:
- The assessee company is a builder which had entered into construction agreements with various customers. The agreement provides for construction of a flat by the assessee for and on behalf of the purchaser.
- Payments are to be made by the purchaser in instalments as specified in the agreement. After entering into the agreement and making certain payments, some purchasers requested the assessee for cancellation of the agreement as they are unable to fulfill their further obligations.
- On receipt of such request, assessee identified new purchasers and entered into fresh agreements with them for prices which are higher than what was agreed upon with the purchasers who opted out.
- The purchasers were refunded their instalments along with the extra amount received from new purchasers. Such extra refund to purchasers was claimed as expenses.
- AO treated such additional refund as interest and thus , concluded that by not deducting tax on the same u/s 194A , assessee is in default u/s 201.
Contention of the Assessee:
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