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TMI Blog1995 (1) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... lient features being as follows : --- (1) Applications are invited for registration within a given period of time on the terms and conditions contained in the brochure issued as per prescribed norms. It also involves an initial deposit on account of registration. (2) By a subsequent draw of lots successful applicants are declared and Demand-cum-Allocation letters are issued to them indicating therein the prescribed dates on which the payments are required to be made in instalments. (3) One of the terms of allotment stipulates the period of completion of construction of the house/flat and in case the same is extended due to one reason or the other including those beyond the control of DDA, then the corresponding liability on the part of the said DDA to pay interest to the allottees on the moneys received. By the same logic in case the payment of instalments by the allottees is delayed, then the corresponding liability on the part of the allottees to pay interest to the DDA. (4) At the time of allotment of a specific flat and prior to the physical handing over of the said flat to the allottee, the payment of the final instalment by the said allottee. This further takes into a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the Income-tax Officer on the ground that the terms and conditions vis-a-vis the " SFS " stipulated the payment of interest at a specified rate after the expiry of a particular period. According to him, the amount so paid or credited was not intended to be a reduction in the cost of the flat. The Income-tax Officer also referred to the specific omission in the allotment letter to state so. The Income-tax Officer also took into account the condition once again mentioned in the allotment letter to charge interest from the allottees for the delay in payment of the instalments and this not being related to the cost of the flat. The Income-tax Officer also referred to the condition pertaining to the cost of the flat, wherein it was specifically stated that the same is provisional and subject to revision on the completion of the flat and further any price difference between the estimated cost and the cost as finally determined to be paid along with the final instalment. 6. In the final analysis, the Income-tax Officer opined that the amount paid or credited to the account of the various allottees clearly fell in the definition of the term "income" as defined in section 2(24) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further argument on behalf of the DDA was to the effect that the amount although bearing the nomenclature of interest was in effect not interest but represented damages/compensation paid to the allottees for the delay in construction of the flats. In the face of the aforesaid arguments it was urged that the order passed by the Income-tax Officer be set at naught. 9. The aforesaid submissions did not find favour with the CIT (Appeals), who proceeded to uphold the action of the Income-tax Officer with reference to the provisions of sections 194A, 201(1) and 201(1A), of the Income-tax Act, 1961. The CIT (Appeals) also referred to the "terms and conditions" pertaining to the allotment of flats under the SFS scheme of the DDA arriving at the ultimate conclusion that the amount adjusted/credited in the accounts of the allottees was covered under the definition of "interest" vis-a-vis section 2(28A) of the Income-tax Act and was not in the nature of a reduction or variation in the price of the dwelling unit. 10. Being dissatisfied with the consolidated order passed by the CIT (Appeals), the DDA is in further appeal to the Tribunal. At this stage we would like to mention that one of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequently in case the transaction between the DDA and the allottee matured and reached a final conclusion. In other words, the viewpoint canvassed by the learned Counsel was that the agreement between the parties was one of acquiring an immovable property viz., a flat and nothing more. The further arguments advanced by Shri G.C. Sharma were as follows:--- (1) The amount in question was a compensation to the allottee due to the non-fulfillment of the "contract" by the DDA in allotting and handing over the physical possession of the flat within the stipulated period. (2) The agreement between the parties represented a transaction on capital account and not revenue account. (3) The terms and conditions stipulating payment of interest by the allottee to the DDA for delay in the payment of instalments as also the payment of interest by the DDA to the allottees for the delay in the allotment and handing over of the flats was in fact a "variation" in the purchase price. (4) That while detemining the quantum of capital gain on the sale of the flat the amount paid as interest to the DDA by an allottee would have to be included as part of the cost. On the same analogy the " inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been adjusted in the accounts of the allottees and till the assessment years under appeal, the Income-tax Department had not raised any questions, vis-a-vis, the tax to be deducted at source. 12. On the basis of the aforesaid submissions the learned Counsel concluded his arguments by urging that since the amount in question was not "interest" within the meaning of section 2(28A), there was no liability on the part of the DDA to deduct tax at source. He further referred to the written submissions addressed to the CIT (Appeals) during the course of the first appellate proceedings and a copy thereof having been filed before us during the course of the hearing of the present appeals. The learned Counsel also placed reliance on the following decisions to support the viewpoint canvassed:--- (1) Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC). (2) D.L.F. Housing Construction (P.) Ltd. v. CIT [1983] 141 ITR 806 (Delhi). (3) CIT v. Chiranjilal Multani Mal Rai Bahadur (P.) Ltd. [1989] 179 ITR 157 (Punj. Har.) (4) Shree Hanuman Cotton Mills v. Tata Aircraft Ltd. AIR 1970 SC 1986. (5) Ram Janki Devi v. Juggilal Kamlapat AIR 1971 SC 2551. (6) CIT v. Motor General ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasons recorded both by the Income-tax Officer as also by the CIT (Appeals) in rejecting the view-point canvassed on behalf of DDA. It was urged that the meaning of the term "interest" was much wider in section 2(28A) than it was understood with reference to provisions of section 36(1). According to her, the interest emanating from the agreement between the DDA and the allottees could safely be brought under the term "obligation" appearing in section 2(28A). For the aforesaid line of argument she referred to the commentary of the learned Author, Sampath Iyengar, 8th Edition Volume I, page 440. The learned Departmental Representative, thereafter took us through the relevant clauses of the terms and conditions offered by the DDA with reference to the "SFS" flats contending in the process that DDA was obliged to pay interest if the flats were not allotted within a stipulated period and correspondingly the said terms and conditions also provided for payment of interest by the allottees in case there was a delay in the payment of instalments. The further stand taken on behalf of the Revenue was to the effect that on the facts of the present case the amount of interest adjusted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovable property whose cost at the time of entering into the agreement was not determinate but only provisional. (3) The agreement was to be read as a whole and not the individual clauses in islolation. (4) The amount adjusted in the accounts of the allottees was not at all their income so it was irrelevant to decide whether it was interest or not. (5) Section 194A only applied in the case of DDA in case the amount was treated as "interest" but not if the amount was treated as "income". (6) In section 56 of the Income-tax Act, 1961 the word "interest" was not used and interest payable within the meaning of section 2(28A) did not mean damages or compensation payable under an obligation. (7) In case the amount was to be treated as interest paid for deprivation of money vis-a-vis an allottee, then it must be treated as income but if it was interest paid for deprivation of use of property, then it was a capital receipt being in the nature of compensation and hence not taxable. 18.The aforesaid submissions were advanced by the learned Counsel both on behalf of the DDA as also the allottee. Further reliance was placed on the decision of the Hon'ble Supreme Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also the "restrictions" on transfer of the flat by an allottee, the remaining clauses being of a routine nature and not relevant to decide the issue at hand. 22. We would now refer to the "demand letter" pertaining to the 5th and final instalment by the DDA to the allottees and which contains the following heads/columns : --- "(a) Cost of flat. (b) Amount already paid. (c) Add interest chargeable on account of late payment of instalments. (d) Less interest payable to you on account of late construction. (e) Documental charges. (f) Ground rent for the first two years @ Re. 1. (g) Service charges. (h) Share money for membership of Registered Association/Agency. (i) Net amount payable." [Emphasis supplied] 23. A sample of an allotment letter as also a final demand letter in the case of an allottee was placed on record by the DDA which in the former document gave the estimated cost of a flat in 1984 at Rs. 1,92,000 but the final cost being determined at a figure of Rs. 2,47,500 in 1989. After making necessary deductions on account of amount already paid by the said allottee, and crediting his account in respect of interest due for "late construction" and adding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the parties is that of construction of a dwelling unit by one viz., the DDA with the funds provided by the other namely the allottee. At the time when the agreement is entered into the cost of the unit is "estimated" subject to "revision" later on. At the time of payment of the final instalment the cost of the unit is worked out and the allottee asked to pay the stipulated amount before getting possession. The interest credited to his account, in our opinion, represents an act on the part of DDA in compensating him for the delay in the construction of the dwelling unit whereby the allottee has been prevented from taking the physical possession and moving in. At no stage of the transaction the earning of interest by one or payment thereof by the other in contemplation of the parties or even their motive and what the assessee paid was a sort of levy for the delay in the payment of instalments and what the D. D.A. paid was a compensation for the delay in construction of the dwelling unit. By using the term "interest" the amount does not become so and on the facts of the present case we reiterate that it does not fall under any of the categories mentioned in section 2(28A) and merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount recovered from the DDA by the Department. 29. As regards the allottee namely, Shri A.K. Mahadevan, we express a view to the effect that the amount in question would represent a non-taxable "Capital receipt" being in the nature of compensation paid by the DDA on account of delay in the construction of the dwelling unit and the term "interest" used only as a measure of quantification. The other observations recorded by us in the appeals of DDA would apply with equal force to the case of the allottee. The addition in question is therefore deleted. 30. Before we part with these appeals, we would like to mention that the decisions cited at the bar by the parties have been duly considered by us in coming to the various conclusions vis-a-vis the dispute raised before us in the case of D.D.A. as also the allottee. The decisions cited by Shri G. C. Sharma and Shri R. Ganesan aptly support the viewpoint canvassed by them on behalf of their respective clients whereas the decisions cited by the learned Departmental Representative are clearly distinguishable and not at all applicable to the facts of the present case. 31. In the result, all the appeals are allowed - - TaxTMI - TMIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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