| Question And Answer | |
|---|---|
| Subject: | Advance to Builder against construction is refund back with interest |
| Category: | Income-Tax |
| Querist: | Milan Sachdeva |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | Advance to builder, refund of advance with interest, TDS |
| Date: | May 28, 2022 |
Facts: – 1) I have contributed Rs 1.80 cr as advance to Builder on sep 2014 and booked a flat.
2) July 2016, another payment of Rs 27.50 lacs was paid
3) July 2018, Building was completed but i didn’t get the possession of premises and dispute filed in court.
4) Court decide in favour of assessee and in dec 2021 settle their dispute a sum of Rs 3.5 cr. (Rs 2.075 own contribution plus interest)
Query: – Weather the amount of Rs 1,42,50,000 which is received over and above of own contribution would be consider as “Capital Gain” or ‘Interest’?
2. Payment is received is without deduction of TDS. Is there TDS provision is applicable?
As we infer, the assessee was awarded a sum which includes his own capital and a sum of interest as hardship compensation and liquidated damages.
The same can be treated as a Capital receipt not exigible to tax under the scheme of Income-tax Act, 1961 (Act)
The Hon’ble Supreme Court in the case of PCIT v. West Bengal Housing Infrastructure Development Corporation Ltd. [2019] 105 taxmann.com 64 (SC) dismissed against High Court ruling that payment for delayed allotment of plot of land by Housing Corporation was not ‘interest’ under section 2(28A) of the Act as there was neither any borrowing of money nor was there incurring of debt on part of assessee.
The Hon’ble Delhi High Court in the case of CIT v. Aeren R Infrastructure Ltd. (2018) 404 ITR 318 (Delhi) (HC) dismissing the appeal of the revenue the Court held that compensation received under Arbitration Award is held to be capital receipt. The purpose of the ultimate use of the assessee’s land when acquired was rendered irrelevant on account of the seller defaulting in its commitment. This rendered the amount expanded by the assessee immobile. The eventual receipt of the amounts determined as compensation or damages, therefore, fell into the capital stream.
Therefore, the interest awarded by a Court is in the nature of a hardship compensation which would be a capital receipt.
Is there any income tax levied on early payment rebate given by builders to purchasers?