1995 (1) TMI 126 - AT - Income Tax

Summary

Issues Involved:
1. Whether the amount credited by DDA to the allottees under the Self-Financing Scheme (SFS) constitutes "interest" u/s 2(28A) of the Income-tax Act, 1961.
2. Whether DDA is liable to deduct tax at source u/s 194A on the amounts credited to the allottees.
3. Whether the amount credited to the allottees is a capital receipt or taxable income.
4. Whether the DDA can be treated as an assessee in default u/s 201(1) and 201(1A).

Summary:

1. Nature of Amount Credited by DDA:
The Tribunal examined the nature of the agreement between DDA and the allottees under the Self-Financing Scheme (SFS). The agreement was for the construction of dwelling units with funds provided by the allottees. The cost of the units was initially estimated and subject to revision. The interest credited to the allottees' accounts was considered compensation for the delay in construction and not "interest" as defined u/s 2(28A). The Tribunal emphasized that the term "interest" used in the agreement was merely a measure for quantifying compensation for the delay in construction.

2. Liability to Deduct Tax at Source:
The Tribunal held that the provisions of section 194A would apply only if the amount credited by DDA fell within the definition of "interest" u/s 2(28A). Since the amount credited was not considered "interest" but compensation, DDA was not liable to deduct tax at source. The Tribunal also noted that the amounts paid by the allottees were not "moneys borrowed," "debt incurred," or "deposit" and thus did not fall under the terms mentioned in section 2(28A).

3. Nature of Receipt in the Hands of Allottees:
The Tribunal concluded that the amount credited to the allottees was a non-taxable capital receipt, being compensation for the delay in construction. The term "interest" was used only as a measure of quantification and did not represent taxable income. The Tribunal deleted the addition made by the tax authorities in the case of the allottee, Shri A.K. Mahadevan, treating the amount as a capital receipt.

4. DDA as Assessee in Default:
The Tribunal quashed the orders passed by the tax authorities treating DDA as an assessee in default u/s 201(1) and 201(1A). The Tribunal directed that any amounts recovered from DDA should be refunded immediately and hoped that DDA would also refund any amounts recovered from the allottees.

Conclusion:
The Tribunal allowed all the appeals, holding that the amounts credited by DDA to the allottees were not "interest" u/s 2(28A), DDA was not liable to deduct tax at source u/s 194A, and the amounts credited to the allottees were non-taxable capital receipts.