Builder
could not be held liable to deduct tax on excess amount refunded to purchasers
on cancellation of booking of apartments as such excess payment could not be
qualify as interest as defined under section 2(28A)
Facts
a) Assessee-Builder
entered into construction agreements with various customers.
b) After
entering into the agreements and making certain payments, some purchasers opted
out of the agreement and, accordingly, assessee entered into fresh agreements
with new buyers at prices that were higher than what was agreed with the old
purchasers.
c) Out
of the receipts from the new buyers, the assessee refunded to the old
purchasers the amount paid by them and a portion of the excess amount received
from the new buyers.
d) The
Assessing Officer (AO) held that the excess amount so paid by the assessee to
old purchasers had to be treated as interest paid on deposit and, hence, liable
for TDS under section 194A and that having failed to do so, assessee was an
assessee-in-default and, accordingly, assessment was completed under section201.
e) The
order of AO was set aside by the first appellate authority. However, the said
order was reversed by the Tribunal.
f) Aggrieved
by the order of the tribunal, assessee filed the instant appeal before the High
Court.
The
High Court held in favour of assessee as under-
1) Section
2(28A) which defines ‘interest’ can be attracted only in cases where there is
debtor-creditor relationship and payments are made in discharge of a
pre-existing obligation.
2) The
amount refunded to the purchasers represented the consideration the purchasers
paid towards the undivided shares in the property agreed to be purchased and
also the cost of construction of the apartment, which work was entrusted to the
assessee-builder.
3) Such
a relationship between assessee and purchasers could not spell out a debtor-creditor
relationship nor was the payment made by the assessee to the purchaser in
discharge of any pre-existing obligation to be termed as interest as defined in
section 2(28A).
4) Further,
there was no finding in the assessment order or in the order of the Tribunal
that the amount paid by the purchasers, which was refunded, was accounted for as
deposit or advance received from them or that there was any debtor-creditor
relationship between the parties, obliging the assessee to pay the amount to
the purchasers.
5) There
was also no case for the revenue that the excess amount paid by the assessee
was based on any agreement between them or that it was quantified at rates that
were already agreed between the parties.
6) In
such circumstances, the payments made would not qualify to be interest as
defined in section 2(28A) of the Act and the assessee did not have the
obligation to deduct tax at source as provided under section 194A nor could
they be proceeded against under section 201A, treating them as assessee-in-default-
Beacon Projects (P.) Ltd. v. CIT
[2015] 62 taxmann.com 177 (Kerala)
