Case Law Details
Pr. CIT Vs West Bengal Housing Infrastructure Development Corporation Limited (Calcutta High Court)
The issue which falls for decision therefore is whether payment for delayed allotment of a plot of land by the Housing Board to an allottee will fall under the definition of ‘interest’ under section 2 (28A) of the Act.
The decision of the Himachal Pradesh High relied on by Mr Khaitan is on a very similar set of facts. In that case, the H.P. Housing Board floated a scheme under which flats were to be constructed by the Board/assessee from the money deposited by the allottees and which stipulated that the assesse would have to pay interest to the allottees if the flats were not provided within a certain time frame. Upon there being a delay in the construction of flats, the assessee paid interest at the agreed rate to the allottees in terms of the letter of allotment. The AO viewed the payment to be interest under section 2(28A) which was set aside by the Commissioner who held that the payment made was in the nature of compensation for the delay in handing over possession of the flats. This view was affirmed by the Tribunal. Confirming the decision of the Tribunal, the High Court held that the money was paid on account of damages suffered by the allottee for delay in completion of the flats. Notably, in coming to its finding, the High Court considered the decision of the Madras High Court in Viswapriya – relied on by Mr Ghosal for the Revenue in the instant case- and held that the nature of the assessee’s business in Viswapriya involved a return on investment made by the investor which was assured to be over and above a fixed percentage. The High Court in H.P.Housing Board also relied on a decision of the Hon’ble Supreme Court reported in (1997) 224 ITR 551 where the interest paid to persons whose land had been compulsorily acquired was held to be a revenue receipt (and not a capital receipt) and therefore not falling within the purview of section 194A. The Court also relied on Ghaziabad Development Authority v. Dr N.K.Gupta reported in (2002) 258 ITR 337 where it was held that section 194A had no application to payment of interest made to the allottees for delayed completion of flats. Hence, although the Madras High Court decision in Viswapriya gives a more inclusive definition of the term ‘interest’, the Himachal Pradesh High Court decision is more persuasive having considered the former and resting on an identical set of facts. Even if there were to be a doubt in the face of these two decisions, that doubt must be resolved in favour of the assessee tax-payer; Reference may be made to the Apex Court in The Central India Spinning and Weaving; Empress Mills v Municipal Committee reported in 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 under Section 2(28A) of the Act, the said decision is of a co-ordinate Bench and subsequent to the Madras High Court decision in Viswapriya, and hence has greater persuasive value bearing in mind the principle of comity of Courts.
We accordingly are of the view that 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 Clause 7 (reproduced above) 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 under section 2 (28A) of the Act 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 under section 40 (a) (ia) of the Act.
FULL TEXT OF THE ITAT JUDGMENT
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