Law:

Section:

NOVEMBER 28, 2011 Section 2(28A), read with section 194A, of the Income-tax Act, 1961 - Interest - Whether interest paid/credited by Housing Board on amount deposited by allottees on account of delayed allotment of flats does not fall under definition of interest as assigned to it in clause (28A) of section 2 and, thus, is not subject to deduction of tax at source - Held, yes [In favour of assessee] FACTS The assessee-housing board had floated a self financing scheme for sale of houses/flats wherein the allottees were required to deposit some amount with the assessee and construction was to be carried out of these amounts. One of the conditions of the terms of allotment was that in case the possession of the house/flat was not given to the allottee within a particular time frame, then the assessee-board was liable to pay interest to the allottees on the money received by it. There was delay in construction of the houses and, therefore, the Housing Board paid interest at the agreed rate to the allottees in terms of the letter of allotment. The ITO(TDS) held that the amount paid by the assessee to the allottees was in the nature of interest within the meaning of section 2(28A) and in terms of section 194A, tax had to be deducted at source. On appeal, the Commissioner (Appeals) allowed the same holding that the amount paid by the Board was not really interest within the meaning of section 2(28A) but actually compensation for the delay in construction of the house and handing over possession of the same to the allottees. The revenue filed an appeal against the said , which was dismissed. HELD 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 losses 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 amount which is paid by the board is not payment of interest but is payment of damages to compensate the allottee for the delay in the construction of…

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