2024 (11) TMI 691 - AT - Income Tax

Nature of receipt - compensation received by the assessee from Jaypee Greens Greater Noida for non-delivery of property in time - capital receipt not chargeable to income-tax or not - HELD THAT - It is not disputed that the Jaypee Greens Greater Noida has not handed over the unit to the assessee within 39 months and the assessee has applied for cancellation of the allotment and the allotment was cancelled by the builders and the compensation was calculated by considering interest @12% per annum. The assessee has received the capital receipt from the Jaypee Greens Greater Noida. Perusal of the order of the Ld CIT(A) it reveals that the assessee has made the repayment of interest to ICICI Bank on housing loan for investment of property. Thus we hold that the compensation received by the assessee from Jaypee Greens Greater Noida for cancelling the allotment of unit due to not handed over within time in the sum is not chargeable to tax in the hands of the assessee. Appeal of the assessee is allowed.

Summary

Issues Involved:

1. Taxability of compensation received as interest from Jaypee Greens Greater Noida for non-delivery of property.
2. Deduction of interest expenditure under Section 57(iii) of the Income Tax Act.
3. Addition of undisclosed interest income from DLF Utilities Ltd.
4. Charging of interest under Sections 234B and 234C of the Income Tax Act.

Detailed Analysis:

1. Taxability of Compensation as Interest:
The primary issue was whether the compensation received by the assessee from Jaypee Greens Greater Noida for the non-delivery of property should be considered a capital receipt not chargeable to income tax. The assessee argued that the amount of Rs. 59,47,980/- received as compensation was a capital receipt, relying on a precedent set by the Hon'ble Himachal Pradesh High Court and the assessee's own previous case. The court examined the nature of the compensation, noting that it was calculated as interest but intended to compensate for the delay in property delivery. The judgment concluded that such compensation is not taxable as interest income, aligning with previous rulings that similar compensations are not subject to tax under Section 194A of the Act.

2. Deduction of Interest Expenditure:
The assessee claimed a deduction for interest expenditure of Rs. 24,25,426/- paid on a housing loan, arguing it had a direct nexus with the interest income received from Jaypee Greens Greater Noida. The CIT(A) considered this claim under Section 57(iii) of the Act, which allows deductions for expenditures incurred wholly and exclusively for earning income. The CIT(A) directed the Assessing Officer to recompute the 'Income From Other Sources' by deducting this amount, acknowledging the direct connection between the interest paid and the income earned.

3. Addition of Undisclosed Interest Income:
The Assessing Officer had added Rs. 47,520/- as undisclosed interest income from DLF Utilities Ltd. The assessee contended that this amount was shown as income in a subsequent year due to maintaining a cash system of accounting. However, the assessee failed to provide evidence that this income was reported in another year, leading the CIT(A) to uphold the addition. The decision was based on the provisions of Section 198 read with Section 199 of the Act, which require that the TDS claimed must match the income reported in the same year.

4. Charging of Interest under Sections 234B and 234C:
The assessee contested the charging of interest under Sections 234B and 234C, which pertain to interest for defaults in payment of advance tax. However, the judgment did not elaborate on this issue, implying that the primary focus was on the taxability of the compensation and the interest deduction. The appeal did not succeed in altering the decision regarding these sections, as the judgment primarily addressed the nature of the compensation and the interest deduction.

Conclusion:
The appeal was allowed in favor of the assessee, with the compensation received from Jaypee Greens Greater Noida being treated as a non-taxable capital receipt. The interest expenditure was allowed as a deduction, and the addition of undisclosed interest income from DLF Utilities Ltd. was confirmed due to lack of evidence. The judgment reinforced the principle that compensation calculated as interest for delayed property delivery does not constitute taxable income.