Compensation Paid for Delayed Allotment of Plot of Land isn’t Interest, No Sec. 194A TDS: ITAT

Case Details: Sawhney Builders (P.) Ltd. v. ACIT (TDS) - [2023] 151 taxmann.com 97 (Delhi-Trib.)

Judiciary and Counsel Details

• • Chandra Mohan Garg, Judicial Member & Pradip Kumar Kedia, Accountant Member
  • Manoj Kumar, CA for the Appellant.
  • Ms Meenakshi Dohre, Sr. DR for the Respondent.

Facts of the Case

Assessee was a builder and had taken registration amounts from applicants for allotment of plots/flats for its upcoming projects. However, he could not deliver the promises of allotment of plot/flat on time to the applicants, and due to said delay, the assessee had to pay compensation for non-compliance.

During the survey proceedings, the Assessing Officer (AO) noticed that the assessee had paid interest to the parties for a certain period of time. However, later, the name of expenses thereto had been changed as compensation on cancellation in its books of account by the assessee and in the auditor’s report after survey proceedings. Considering that tax was not deducted on such interest under section 194A, the AO treated the assessee as assessee-in-default as per section 201(1)/201(1A)

On appeal, the CIT(A) upheld the order of AO, and the matter reached Delhi Tribunal.

ITAT Held

The Tribunal held that till a certain period, the assessee deducted tax under section 194A treating the amount of compensation as interest under inadvertent mistake which was later corrected. In fact, it’s an amount of compensation/damages to the allottees to compensate for the delay as the assessee could not deliver the promises to them. This factual position had not been controverted except alleging that when the assessee itself was treating the amount of payment as interest, then what prompted the assessee to convert the nomenclature of payment from interest to compensation and non-complying the TDS provision of section 194A.

The assessee was consistently committing mistakes, treating the compensation amount as interest, and making the payment after deducting the tax. Thereafter, keeping in view the tax expert’s advice to rectify the mistake, the assessee was right in changing the nomenclature as per the factual position and intention of payment.

Therefore, merely because under an advertent mistake, the assessee was treating the payment as interest, it cannot be compelled to commit the same mistake continuously after the advice of a tax consultant. Thus, such inadvertent mistake of the assessee does not entitle the AO to treat the assessee-in-default for taking action against the assessee on account of non-deduction of tax.

Since the impugned payment was nothing but compensation paid by the assessee to its allottees, it cannot be tagged as interest under section 2(28A). Therefore, the TDS provision of section 194A was not applicable towards such payment.

List of Cases Reviewed

• • Pr. CIT v. West Bengal Housing Infrastructure Development Corpn. Ltd. [2018] 96 taxmann.com 610/257 Taxman 570/[2019] 413 ITR 82 (Cal.) (para 4)
  • Delhi Development Authority v. ITO [1995] 53 ITD 19 (Delhi) (para 9) followed.

List of Cases Referred to

• • Pr. CIT v. West Bengal Housing Infrastructure Development Corpn. Ltd. [2018] 96 taxmann.com 610/257 Taxman 570/[2019] 413 ITR 82 (Cal.) (para 4)
  • Delhi Development Authority v. ITO [1995] 53 ITD 19 (Delhi) (para 9).