Case Law Details
CA Sandeep Kanoi
Facts of the case-
There was a non-deduction of tax from payments made to certain customers debited in direct expenses under the head “excess payment refund” which was treated as indirect expenses by the assessee. It was submitted by the assessee before the lower authorities that some payments were received by the assessee from customers and who were initially booked the flat by making advance payment plus 1 or 2 installments; but due to various reasons the customers could not fulfill the payment schedule and they requested for refund. After certain period, the assessee identified some new customers and the flats were sold at 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 and no TDS has been deducted. However, the AO observed that the expenses debited to P&L Account cannot be treated as refund and on the other hand it is a payment of interest on the amount paid by the original customers which is liable for TDS u/s 194A of the Act.
Observation by CIT Appeals
On appeal, the CIT(A) observed that the assessee is acting as an agent between the old customers and new customers. What the assessee is doing is passing on the sale consideration, including the excess amount received on sale of flats from new customers to old customers. The CIT(A) relied upon the decision of the Hon’ble Bombay High Court in the case of CIT vs Tata Teleservices Ltd reported in 122 ITR 592, wherein it has been held that the excess amount received on transfer of right in a property is in the nature of a capital receipt, and therefore, held that the provisions of section 194A is not applicable in the transactions undertaken by the assessee. Accordingly the CIT(A) directed the AO to delete the addition made on this count. Consequently, the interest charged u/s 201(1A) in both the years was also deleted. Aggrieved, the revenue is in appeal for both the years.
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Author Bio
above ITAT judgement is already set aside by Kerala High court (IT APPEAL NOS. 258 & 259 OF 2014 on order dated 23-06-15) and held that additional amount Paid to purchaser on cancellation of flat is not interest under section 2(28A) hence No TDS u/s 194A.
Sir, is any SLP filed by the assessee against this order with the High Court? Interest per se has to be a fixed rate on the principal, how can this cancellation premium partake the character of interest. In my view it should be capital receipt. Is there any judgement stating such?