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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 ..... 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. 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. - decided in favour of assessee - ITA No. 84 OF 2018 And ITA No. 85 of 2018 - - - Dated:- 9-8-2018 - MR ANIRUDDHA BOSE AND MRS. MOUSHUMI BHATTACHARYA, JJ. For The Appellant : Mr. Animesh Kanti Ghosal, Sr. Adv. Mr. P. Dudheria, Adv. For The Respondent : Mr. J.P. Khaitan, Sr. Adv. And Mr. A. Sengupta, Adv ORDER Moushumi Bhattacharya, J. : This is an appeal filed by the Revenue against an order dated 2nd December 2015 passed by the Income Tax Appellate Tribunal in ITA No.1739/Kol/2013 relating to the assessment year 2005-2006. The following substantial questions of law were framed in the appeal which are set out below: ( a) Whether on the facts and in the circumstances of the case the Learned Income Tax Appellate Tribunal, B Bench Kolkata erred in law as well as in facts in holding that payment of interest on delay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bank of India. [The Clause, as reproduced by the Revenue in the appeal does not specify whether the stipulated time is six weeks, six months or six years.] According to the assessee although the clause mentions the expression interest , the actual nature of payment was in the nature of damages for delayed allotment of a plot and not in the nature of interest. The above explanation of the assessee was not accepted by the AO who viewed the payment to be in the nature of payment of interest and held that by reason thereof, the assessee should have deducted tax at source at the time of payment or when the payment was credited to the account of the payee whichever is earlier under Section 194A of the Income Tax Act, 1961 (the Act). The AO further held that since the assessee failed to deduct tax at source on the amount, the claim of the assessee for deduction of the said sum cannot be allowed by reason of Section 40(a)(ia) of the Act re amounts not deductible . The AO accordingly disallowed the claim for deduction of the assessee for a sum of ₹ 9,71,17,977/-. The above order was confirmed by the Commissioner of Income Tax (Appeals) and the assessee s appeal was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Section 2(28A), the Madras High Court was of the view that the statutory definition includes amounts which may not otherwise be regarded as interest for the purpose of the statute and even amounts payable in transactions where money has not been borrowed and debt has not been incurred are brought within the scope of the definition as in the case of a service fee paid in respect of a credit facility which has not been utilised. The relevant portion of the Madras High Court Judgment is set out below:- The definition of interest, after referring to the interest payable in any manner in respect of any moneys borrowed or debt incurred proceeds to include in the terms money borrowed or debt incurred, deposits, claims and other similar right or obligation and further includes any service fee or other charge in respect of the moneys borrowed or debt incurred which would include deposit, claim or other similar right or obligation, as also in respect of any credit facility which has not been utilised. This statutory definition regards amounts which may not otherwise be regarded as interest for the purpose of the statute. Even amounts payable in transactions where money has not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the loss of income which would have been earned on the investment of the capital sum which has been replaced by the land acquired. Mr. J.P. Khaitan, learned Counsel for the assessee/respondent submits that the case of the assessee, which has been accepted by the Tribunal, is that the amount payable in terms of the aforesaid clause is in the nature of damages and is not interest within the meaning of Section 2(28A) of the Income Tax Act 1961. Therefore, there was no obligation to deduct any income tax at source under Section 194A and consequently no disallowance can be made under Section 40(a)(ia). According to Counsel the amount payable by the assessee in terms of clause (7) of the letter of allotment is not interest within the meaning of Section 2(28A) since the contract in the instant case was for sale of land by the assessee to the allottee and the assessee did not borrow any money or incur any debt and no money was due by the assessee to the allottee. Hence there was no debtor-creditor relationship between the parties. Notably, the deposit referred to in the definition must be one which is refundable in money. In other words, the right must be to a sum of money and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be usefully quoted below: Statutes levying taxes or duties upon citizens will not be extended by implication beyond the clear import of the language used, nor will their operation be enlarged so as to embrace matters not specifically pointed out, although standing upon a close analogy, and all questions of doubt will be resolved against the Government and in favour of the citizen, and because burdens are not to be imposed beyond what the statute expressly imparts. We have considered the submissions of Counsel for the revenue and the assessee. The limited question which arises in this appeal is whether payment made by the assessee to the allottee by reason of allotment of plots of land beyond the scheduled period within which such allotment was to be made to the allottee, can be construed as interest as defined under Section 2 (28A) of the Act. At this point, Section 2(28A) of the Act is required to be set out: ( 28A) Interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee, or other charge in respect of the moneys borrowed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted in (2002) 258 ITR 337 where it was held that section 194A had no application to payment of interest made to the allottees for delayed completion of flats. Hence, although the Madras High Court decision in Viswapriya gives a more inclusive definition of the term interest , the Himachal Pradesh High Court decision is more persuasive having considered the former and resting on an identical set of facts. Even if there were to be a doubt in the face of these two decisions, that doubt must be resolved in favour of the assessee tax-payer; Reference may be made to the Apex Court in The Central India Spinning and Weaving; Empress Mills v Municipal Committee reported in AIR 1958 SC 341 . Besides agreeing with the reasons given by the Himachal Pradesh High Court for holding that payment for delayed allotment of flats cannot be brought under Section 2(28A) of the Act, the said decision is of a co-ordinate Bench and subsequent to the Madras High Court decision in Viswapriya , and hence has greater persuasive value bearing in mind the principle of comity of Courts. We accordingly are of the view that the payment made by the assessee to the allottee was in terms of the agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X
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