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TMI Blog2018 (9) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of Section 40(a)(ia) of the Income Tax Act, 1961 was not applicable? (b) Whether the impugned order is bad, arbitrary, illegal, perverse and the same is nothing but a total non-application of mind of the Income Tax Appellate Tribunal, Kolkata and the same is liable to be set aside and/or quashed?" The appellant (assessee, in this case) is a company engaged in the business of development of land, housing and infrastructural facilities in New Town Projects, Kolkata. The entire shares of the assessee are owned by the Government of West Bengal and all the directors of the assessee are nominated by the Government of West Bengal. In the course of assessment proceedings for A.Y. 2005-06, a sum of Rs. 9,71,17,977/- was debited in the profit and loss account of the assessee. This sum was claimed as deduction in computing the income of the assessee under the head "income from business". The nature of this expenditure was explained by the assessee before the Assessing Officer (AO) as "compensation for delay, delivery of plots". The explanation given was that as per the offer of allotment of plot of land developed by the assessee, the assessee is under an obligation to hand over phy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer's action in disallowing Rs. 9,71,17,977/- u/s 40(a)(ia) in relation to the compensation paid in the form of interest by the appellant to various allottees for delays occurred in delivering the respective plots. 2. That without prejudice to the contention raised in Ground No.1 above, the Commissioner of Income-Tax (Appeals) failed to appreciate the TDS Provisions under Section 194A had not been applicable to the payments made by the appellant." Upon hearing the parties, the Tribunal held that the amount in question cannot be characterised as interest within the meaning of Section 194A of the Act and hence there was no obligation on the part of the assessee to deduct tax at source. The ITAT also held that consequently, no disallowance could have been made under Section 40(a)(ia) of the Act and directed that the disallowance made by the AO and sustained by the CIT(A) should be deleted. Aggrieved by the above order, the revenue has preferred the instant appeal in this Court under Section 260A of the Act. Mr. Ghosal, Counsel for the revenue submits that Section 2 (28A) of the Income Tax Act, 1961 defines "interest" as interest payable in any manner in respect of mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses where there is no relationship of debtor and creditor or borrower and lender, if payment is made in any manner in respect of any moneys received as deposits or on money claims or rights or obligations incurred in relation to money, such payment is, by this statutory definition, regarded as interest. The scheme under which the assessee induced investors to entrust their moneys to the assessee, under the very terms of the scheme, imposed an obligation on the assessee to repay the investor at the end of the period of 36 months, and also to ensure a monthly payment of 1.5 percent to the investor during that period. The mere fact that the assessee did not choose to characterise such payment as interest will not take such payment out of the ambit of the definition of "interest". The payment made by the assessee being a payment made in respect of an obligation incurred under the terms of the offer/memorandum, is an amount which we have to regard as interest falling within the scope of Section 2(28A). So far as the investor is concerned, the investor is to look to the assessee for repayment of the moneys. The obligation to repay is clearly an obligation which is akin to a claim or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the definition. "In the case in hand it stands proved that in case the houses were ready within the stipulated periodHe relies on Commissioner of Income Tax Vs. H.P. Housing Board reported in (2012) 340 ITR 388 (HP), where on an almost identical set of facts, the question before the High Court of Himachal Pradesh was whether the amount paid by the H.P. Housing Board to the allottees could be categorised as interest. Upon consideration of the matter, it was held that the amount paid by the assessee (H.P. Housing Board in that case) is not payment of interest but payment of damages to compensate the allottee for the delay in the construction of his house and the harassment caused to him. The reason provided for the aforesaid view is extracted below:- "In the case in hand it stands proved that in case the houses were ready within the stipulated period the Board would not be liable to pay interest. When construction of a house is delayed there can be escalation in the cost of construction. The allottee loses the right to use the house and is deprived of the rental income from such house. He is also deprived of the right of living in his own house. In these circumstances, the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of rights and obligations arising from either of the two. The parenthesis in the section is in the nature of a qualification of the borrowing of money/incurring of debt and what it includes. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In view of the above, we confirm the decision of the Tribunal dated 2nd December 2015. I.T.A. No. 84 of 2018 is accordingly dismissed. Since identical issues are involved in I.T.A. No. 85 of 2018, except that the said appeal relates to the Assessment Year 2006-07, the said appeal, namely ITA No.85 is also dismissed. There shall be no order as to costs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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