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M/s. BEACON PROJECTS PVT. LTD Versus THE COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM

2015 (6) TMI 939 - KERALA HIGH COURT

TDS u/s 194A - Excess payment refund debited in the Profit & Loss Account under the head 'indirect expenses' - Whether should be treated as interest on the customers' deposits/advances under section 2(28A) ? - Held that:- The purchaser had paid certain amounts to the appellant. At a later point of time, the purchaser opted out of the agreement and the appellant entered into fresh agreements with new buyers for prices that are higher than what was agreed with the purchasers. Out of the receipts f .....

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the appellant to the purchaser one in discharge of any pre-existing obligation to be termed as interest as defined in section 2(28A).

Further, there is 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 as deposit or advance received from them or that there is any debtor-creditor relationship between the parties, obliging the appellant to pay the amount to the purchasers. There is also no case f .....

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was not correct to held that the excess payment refund debited in the Profit & Loss Account of the appellant under the head 'indirect expenses' should be treated as interest on the customers' deposits/advances - Decided in favour of assessee. - I.T.A.Nos.258 & 259 of 2014 - Dated:- 23-6-2015 - MR. ANTONY DOMINIC AND MR. SHAJI P.CHALY, JJ FOR THE APPELLANT : PRATHAP PILLAI, SRI. BENOJ C AUGUSTIN FOR THE RESPONDENT : SRI.P.K.R.MENON,SR.COUNSEL, SRI.JOSE JOSEPH, SC, JUDGMENT Antony Dominic, J. 1.T .....

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at the purchaser of the apartment specified therein has already purchased the specified extent of undivided share in the land owned by the landlord, whose power of attorney is held by the appellant. The agreement provides for construction of a flat by the appellant for and on behalf of the purchaser. Payments are to be made by the purchaser in instalments which are also specified in the agreement. The agreement provides that in the event of any failure on the part of the purchaser to perform or .....

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ons under the agreement and requesting for its cancellation. According to the appellant, on receipt of such communications, they identified prospective purchasers and entered into fresh agreements with them for prices which are higher than what was agreed upon with the purchasers who opted out. It is stated that after execution of agreements with the new purchasers, out of the payments made by them, the amounts paid by the purchasers to the appellant together with a portion of the additional amo .....

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ceedings that continued, the Assessing Officer held that the said amount has to be treated as interest paid on deposit liable for TDS under section 194A of the Act and that having failed to do so, appellant is an assessee in default and accordingly, assessment was completed under section 201 of the Act. The order of assessment was set aside by the first appellate authority. However, the said order was reversed by the Tribunal. It is in this background, these appeals are filed. 5.We heard learned .....

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uot;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 or debt incurred or in respect of any credit facility which has not been utilised;" 8.While understanding the scope of this provision, it is important to remember the principle laid down by the Apex Court in Polestar Electronic (Pvt.) Ltd. v. .....

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If this is the principle to be borne in mind, the term 'interest' as defined in section 2(28A) of the Act has to be construed strictly. On such literal construction, it can be seen that before any amount paid is construed as interest, what is required to be established is that the sum paid is in respect of any money borrowed or debt incurred and that there is debtor-creditor relationship between the parties. These are the necessary ingredients of section 2 (28A). 9.The scope of this pro .....

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idered was whether section 2(28A) was attracted in the case of surplus on discount of chit funds. In that judgment, the Delhi High court referred to the judgment of this Court in Janardhana Mallan v. Gangadharan [AIR 1983 Ker 178] which was approved by the Apex Court in Shriram Chits & Investments (P) Ltd. v. Union of India [AIR 1993 SC 2063], where, it was held that on entering into a chit agreement, a debt for the amount of future instalments is not incurred by the subscriber and that in r .....

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94A of the Act. 10. Commissioner of Income-tax v. Cargill Global Trading P. Ltd. [2011 335 ITR 94] is another judgment of the Delhi High Court where the question considered was whether discounting charges can be treated as interest and this was answered in the negative by holding that before any amount paid is construed as interest, it has to be established that the same is payable in respect of any money borrowed or debt incurred. Commissioner of Income-tax, Shimla v. M/s.HP Housing Board, Shim .....

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which also considered the question whether section 2(28A) is attracted to discounting charges of bill of exchange or factoring charges of sale. That was also answered in the negative, holding that interest is a term relating to a pre-existing debt which implies a debtor-creditor relationship. 11.From the principles laid down in the decisions referred to above, it is obvious that section 2(28A) is not attracted to every payment made and that the provision can be attracted only in cases where the .....

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