Tds on refund

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

17 June 2016 I have applied for a property(built up house) at Mohali, which was allotted to me in 2010 in construction linked plan. As per agreement the same is to delivered by Dec 2012. The plan was CLP, the payments were made on time. In 2013, the construction was stopped and so is any further demand. On enquiring, it is found that there is some dispute between builder partners and they are alleging cancelling the allotments. Till this time i had already paid more than 80% of the cost. I had filed a case in state consumer forum in 2014 . In consumer forum , builder has responded that he is already allotted my house to a new buyer at double of my allotted price because he has served me cancellation , as i failed to take possession of the property.
The consumer court has responded that since the property has got third party interest created in the matter , so either we should file civil suit or seek relief in form of refund. We had withdrawn the case and refile the same ammending the relief clauses as:
1. Provide us the same unit.
2. or Provide us alternate unit
3. or Refund the amount with interest.

The court has decided the matter in our favor and quoted in the judgment that the cancellation was false and frivolous and recorded that the consumer has been put to great loss by reallotting the villa to other buyer and they have lost the opportunity of owing a house for residential purposes. The judgement has ordered :
1. Rs. 3L complensation
2. Refund of the deposit amount with interest.

Now my query is that , the amount that i am going to get over and above my investment in form of compensation and interest is liable of TDS. I have seen several judgement and construed that the refund is not liable for TDS in case the same is granted in lieu of alleged cancellation of right to property.

Kindly clarify.

Rupesh Jain

Rupesh Jain (Expert)
Follow

17 June 2016 refund amount is not taxable , but amount as compensation and intt will b e taxable.

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

17 June 2016 I hope you want to know the taxability of the compensation amount. Since the compensation is concerned with property i.e. CAPITAL asset, the compensation will also be regarded as CAPITAL receipt and hence not taxable.
The payer, however, may make the TDS on the same, which can be claimed through filing return of income

Message likes : 1 times

Upgrade to CAclubindia Pro. Subscribe Now!

Querist : Anonymous

Querist : Anonymous (Querist)

17 June 2016 Just to clarify to the above query, i am an individual (not a company). The question here is that i am going to recieve two kind of amounts:
1. Interest on my investment
2. Compensation amount

Now what is taxable among them?
(Just to quote a statement by EY director in one of the supreme court judgement that "If the refund was in the form of cancellation of the right to the apartment, there would be no tax and
the amounts paid to all buyers would have been the same, says Maadhav Poddar, associate director,
EY.")

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

17 June 2016 01. Interest on investment...... taxable
02. Compensation amount.... not taxable

Querist : Anonymous

Querist : Anonymous (Querist)

17 June 2016 Tribune News Service
Chandigarh, August 26
The UT State Consumer Disputes Redressal Commission, headed by Justice (retd) Sham Sunder has ruled that the judgment debtor cannot deduct TDS on the amount of interest paid to a consumer in compliance with a decree passed by the consumer courts.
Earlier, in a complaint case, Shipra Estates Ltd. was held guilty of deficiency in service and vide order dated March 16, 2015, was directed to refund Rs 19,58,491 along with the interest at the rate of 10 per cent per annum from the dates of deposit which were made in 2012. An amount of Rs 50,000 was awarded as compensation and Rs 10,000 as litigation charges. The company failed to comply with the order. The complainant, Brij Mohan Jain, filed a contempt petition against the builder.
During the course of hearing, the builder/judgment debtor paid the decretal amount after deducting Rs 73,864 as TDS on the interest amount. Pankaj Chandgothia, counsel for the complainant, contended that no TDS could be deducted in case of any payment made under the orders of the consumer court, as these orders compensated the consumer for his losses and did not amount to profit or income for him.
It was contended that in the order of the State Commission interest meant compensation or damages for delay in construction of the house or handing over the possession of the same causing consequential loss to the complainant by way of escalation in the price of the property and also on account of distress, disappointment faced by him. The interest in the order has been used merely as a convenient method to calculate the amount of compensation in order to standardise it.
It was further contended that the word interest used in the order of the State Commission was not what the interest was as defined in Section 2(28-A) of the Income Tax Act and therefore no tax could be deducted at the source under Section 194 A of the Income Tax Act.
Agreeing with the contentions, the State Commission ruled that the builder was clearly wrong in deducting the TDS from the interest payable to the complainant. Upon this, the builder handed over a cheque for the deducted amount of Rs 73,864 to the complainant, upon which the contempt petition was disposed of.

Querist : Anonymous

Querist : Anonymous (Querist)

17 June 2016 State Consumer Disputes Redressal Commission
Mr.Rajiv Malhotra vs M/S Parsvnath Developers Ltd. on 12 September, 2014

STATE CONSUMER DISPUTES REDRESSAL COMMISSION,

STATE CONSUMER DISPUTES REDRESSAL
COMMISSION,

U.T.,
CHANDIGARH

Execution Application No.

In

C.C. No.75 of 2010

:

38 of 2014

Date of Institution

:

17.06.2014

Date of Decision

:

12.09.2014

1.

Mr.Rajiv Malhotra

2. Mr.Vidya Sagar Malhotra

3. Mrs.Navinder Malhotra All residents of 1401, Tower 6, Vipul Belmonte, Golf Course Road, Sector 53, Gurgaon-122011.

---Decree Holders/Complainants.

Versus

1. M/s Parsvnath Developers Ltd. through Principle Officers.

2. Mr.Pardeep Jain, Chairman, Parsvnath Developers Ltd.

3. Mrs.Sanjeev Jain, Managing Director, Parsvnath Developers Ltd.

4. P.K.Jain, President and Principle Advisor- Parsvnath Developers Ltd.

6th Floor, Arunchal Building, 19, Barakhamba Road, New Delhi-110001.

...Judgment Debtors/Opposite Parties.

Execution Application under Section 27 of the Consumer Protection Act, 1986.

BEFORE: JUSTICE SHAM SUNDER (RETD.), PRESIDENT.

DEV RAJ, MEMBER.

PADMA PANDEY, MEMBER Argued by:

Sh.Apporv Garg, Advocate for the Decree Holders/complainants.

Sh.Aftab PER PADMA PANDEY, MEMBER This is an Execution Application filed by the Decree Holders/complainants for enforcement of the order dated 11.08.2011 passed by this Commission in Consumer Complaint No.75/2010, which was modified vide order dated 5.3.2013 by the Honble National Commission. The operative part of the order dated 11.08.2011 passed by this Commission reads as under:

12. In view of the above discussion, we are of the opinion that the complaint must succeed and the same is accordingly allowed in the following terms ;

(i) Parsvnath Developers Limited and the Chandigarh Housing Board are held liable jointly and severally to refund the amount deposited by the complainants, alongwith interest at the SBI Term Deposit rate as applicable on the date of refund, with effect from the respective dates of deposits, till actual payment to complainants, as provided by Clause 9(d) of the Flat Buyer Agreement ;

(ii) Parsvnath Developers Limited shall also pay compensation, (for not offering the built up flat within 36 months) @ Rs.107.60 per sq. mtr (Rs.10/- per sq.ft) of the super area of the unit, per month, from 5.10.2009, the last date of completion of the project, till actual payment to the complainants is made, as provided by Clause 9(c) of the Flat Buyer Agreement.

(iii) The aforesaid directions shall be complied with, by the OPs, within 30 days, from the date of receipt of a copy of the order, failing which they shall be liable to pay penal interest @ 12% p.a, on the aforesaid payable amounts.

(iv) The OPs shall jointly and severally pay to the complainants Rs.5,000/- as costs of litigation.

2. The operative part of the order dated 5.3.2013 vide which the order of this Commission was modified by the Honble National Commission reads as under:-

To avoid the contradiction in the directions given by the District Forum and the State Commission regarding the payment of interest to the Complainants, we modify the orders passed by the fora below and direct the Developer and the CHB to pay interest at the uniform rate of 9% p.a (payable to the senior citizen on Bank fixed deposit at the relevant time) to the Complaints in the ratio of 70:30 from the respective dates of deposit till the date of deposit of the amount by the Appellants/Petitioners in the Escrow Account.

Adverting to the point of compensation, Ld. Counsel for the Developer has tried to shift the burden on the CHB by stating that the CHB has failed to hand over the possession of the unencumbered land to the Developer to raise the construction. That had the CHB handed over the possession of the unencumbered land to the Developer, the construction of the residential units would have been completed within the stipulated time. As against this, Ld. Counsel appearing for the CHB states that an area of 123.79 acres of land was handed over to the Developer for construction of the residential units. That there was no dispute with regard to the said land and the dispute was regarding the remaining project land which was earmarked for commercial activities. For a dispute between the Developer and the CHB, Complainants cannot be deprived of their legitimate dues which have become payable in terms of clause 9 (c) of the tripartite agreement. The Developer and the CHB cannot be allowed to have the benefit of their own/mutual wrongs. The dispute arising between the Developer and the CHB already stands referred to the Sole Arbitrator appointed by the Honble Supreme Court (Honble Mr. Justice R.V. Raveendran, Retd. Judge of the Supreme Court of India).

In terms of clause 9 (c) of the Flat Buyer Agreement, the Developer is liable to pay the compensation @ Rs.107.60 per Sq. Mt. (Rs.10 per sq. ft.) of the super area of the unit per month in case the possession of the built up area was not offered to the Buyer within a period of 36 months as stipulated in the tripartite agreement. Clause 9 (c) reads as under:-

9(c) In case of possession of the built up area is not offered to the buyer within a period of 36 months or extended period as stipulated in sub clause (a) above the Buyer shall be entitled to receive from the Developer compensation @ Rs.107.60 per sq. mtr. (Rs.10/- per sf. Ft) of the super area of the unit per month and to no other compensation of any kind. In case the Buyer fails to clear his account and take possession of the unit within 30 days of offer, the Buyer shall be liable to pay to the developer holding charges @ 107.60 per sq. mtrs. (Rs.10 per sq. ft) of the super area of the unit per month in addition to the liability to pay interest to the sellers and other consequences of default in payment.

Admittedly, the Developer has failed to construct the residential units and hand over the possession of the same to the Complainants. In terms of clause 9 (c) of the Agreement, Developer is liable to compensate the buyers @ Rs.107.60 per sqr. mtrs. (Rs.10 per Sq.ft) of the super area of the unit per month. By way of interim measure, we direct the Developer to pay the compensation to the Complainants in terms of clause 9 (c) of the agreement @ Rs.107.60 per sqr. mtrs. (Rs.10 per Sq.ft) of the super area of the unit per month which would be subject to the final outcome of the arbitration proceedings.

The orders passed by the State Commission in the original complaints and in the First Appeals arising of the complaint filed before the District Forum stand modified in terms of the directions given above. Any direction either contrary or at variance to these directions stands modified.

The amount of interest and compensation shall be paid by the Developer and the CHB as directed above within a period of three months from today failing which the amount shall carry interest @ 12% p.a. The First Appeals and the Revision Petitions are disposed of in above terms. No order as to costs.

3. The Counsel for the Decree Holders submitted that the Judgment Debtors refunded the principal amount of its share with some interest amount @ 9% instead of 12% p.a. as awarded by this Commission and upheld by the National Commission and that too after deducting the TDS. He further submitted that the Judgment Debtors were also required to pay compensation @ Rs.107.60 per sq. mtr. (Rs.10/- per sq. ft.) of the supra area of the unit, per month, but the same has not been paid. He further submitted that the Judgment Debtors could not deduct the TDS from the interest amount, as the interest awarded by this Commission, is by way of compensation or damages because the Judgment Debtors failed to deliver the possession of the unit within the stipulated period and withholding the amount without any basis. He further submitted that the TDS already deducted on the amount of interest paid to the Decree Holders is required to be refunded to them.

4. During the pendency of the execution application i.e. on 21.07.2014, Counsel for the Judgment Debtors submitted that the principal amount to the extent of 70% share of the Judgment Debtors No.1 to 4 had already been paid to the Decree Holders. He further submitted that only some interest amount was yet to be paid to the Decree Holders. He further submitted that the payment of principal amount alongwith interest @ 9% p.a. after deducting the TDS amount as per the provisions of Section 194-A of the Income Tax Act, has been made to the Decree Holders. He further submitted that it was the requirement of law and the Judgment Debtors at the time of making payment of any amount by way of interest to the Decree Holders were legally bound to deduct income tax thereon at the rates in force.

5. The interest as defined in sub Sections 2(28A), 2(28B) and the provisions of Section 194A of the Income Tax Act are not applicable and the Judgment Debtors were clearly wrong in deducting the TDS, from the interest payable/paid to the Decree Holders for the reasons recorded hereunder. The interest as defined in two sub Sections are reproduced as under:-

4. "2(28A) "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".

"2(28B) "interest on securities" means.---

(i) interest on any security of the Central Government or a State Government.

(ii) Interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central, State or Provincial Act."

6. The Counsel for the Judgment Debtors has referred to Section 194-A of the Income Tax Act, to contend that the Judgment Debtors were legally bound to deduct Income Tax from the amount of interest payable/paid to the Decree Holders at the rates in force. The relevant part of Section 194-A of the Income Tax Act reads as under:-

"194A. Interest other than "Interest on securities"

(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income (by way of interest on securities), shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force".

7. While modifying the order passed by this Commission, the National Commission vide its order dated 05.03.2013 observed that since the developer/Judgment Debtors have failed to construct the residential units and hand over the possession of the same to the complainant(s), they are liable to pay the compensation to the complainants in terms of clause 9 (c) of the agreement @ Rs.107.60 per sqr. mtrs. (Rs.10 per Sq.ft) of the super area of the unit per month which would be subject to the final outcome of the arbitration proceedings and also to pay interest at the uniform rate of 9% p.a (payable to the senior citizen on Bank fixed deposit at the relevant time) to the complainants in the ratio of 70:30 from the respective dates of deposit till the date of deposit of the amount by the Judgment Debtors in the Escrow Account, as mentioned above. The National Commission vide its order, referred to above, further directed that the said amount of interest and compensation shall be paid by the developer and the CHB as directed above within a period of three months from today failing which the amount shall carry interest @ 12% p.a.

8. The word interest used in the order of this Commission /National Commission is not what interest as has been defined in Section 2(28-A) of the Income Tax Act. The interest as mentioned in the above order means compensation or damages for delay in construction of the house or handing over possession of the same causing consequential loss to the Complainant by way of escalation in the price of the property and also on account of distress and disappointment faced by him. Interest in the order has been used merely as a convenient method to calculate the amount of compensation in order to standardise it. The mere use of the nomenclature interest does not fall within the definition of interest as contained in Section 2(28-A) of the Income Tax Act. It is only a measure to for quantifying the compensation for delay in construction, handing over the possession of the dwelling unit which was in the nature of non-taxable capital income.

9. In Revision Petition No.2244/199-GDA Vs. Dr.N.K.Gupta decided vide order dated 18.09.2002 by a four Member Bench of the National Commission, a question fell for discussion, as to whether, the Gaziabad Development Authority, was legally entitled to deduct TDS on the amount of interest, which was awarded by the Consumer Fora, at the time of ordering the refund of the amount deposited by the allottee for the allotment of unit. The National Commission in the aforesaid case held as under :

It would, therefore, appear to us that the provisions of the Land Acquisition Act where interest is payable under Sections 28 and 34 and tax is deducted at source under Section 194-A of the Income Tax Act would not apply in the present case where GDA has been asked to pay interest on the amount refunded to the Complainant because of its failure to construct the promised flat and to provide necessary facilities. The amounts which were paid to the GDA by the Complainant were not paid by way of any deposit or GDA had not borrowed that money. And, as a matter of fact, interest as defined in sub-section (28) of Section 2 of the Income Tax Act is not that interest as was directed to be paid to the Complainant by the GDA. Interest to the Complainant (here Dr.Gupta) has not been awarded on the basis of any deposit made by the Complainant or GDA being the borrower of any money of the Complainant. Here interest payment is by way of damages. Merely describing the damages as by way of interest do not make them as interest under the Income Tax Act.

A similar question arose before the Income Tax Appellate Tribunal in the case of Delhi Development Authority Vs. Income Tax Officer (1995) Vol. 53 Income Tax Tribunal Decisions, page 90 and the Appellate Tribunal held that amounts credited in the accounts of the allottees were not in the nature of interest within the meaning of Section 2(28A) of the Income Tax Act and the Appellate Tribunal quashed the orders of those authorities and directed that what is recovered by the DDA be refunded. The Appellate Tribunal also hoped that DDA will be equally quick in paying back the amounts if recovered from the allottees. It appears to us that the revenue authorities did not challenge this order of the Appellant Tribunal by making reference to the High Court under Section 256 of the Income Tax Act. The Appellate Tribunal held that the amounts paid/credited to allottees by the DDA under SFS (Self Finance Scheme) did not fall under any category in Section 2(28A) of the Income Tax Act, but represented measure for quantifying compensation for delay in construction and handing over possession of dwelling unit which was in nature of non-taxable capital income. In coming to this conclusion the Appellate Tribunal relied on various judgments including that of the Supreme Court in the case of Dr.Shamlal Narula Vs. Commissioner of Income Tax.

It will be interesting to note that DDA filed a writ petition in the Delhi High Court arising out of the aforesaid judgment of the Appellate Tribunal wherein it demanded interest with reference to Sec.244(1A) and 244A of the Income Tax Act. This was on account of the revenue authorities not refunding the amounts in terms of the order of the Appellate Tribunal. The Division Bench of the Delhi High Court consisting of Hon'ble Mr. Justice R.C.Lahoti (as his Lordship then was) and Hon'ble Mr. Justice J.K.Mehra, held in favour of the DDA that Sections 244 and 244A are applicable and directed refund of the amount with interest in view of the order of the Appellate Tribunal.

The word interest used in the order of the State Commission is not what interest is as defined in Section 2(28-A). There in the order of the State Commission interest means compensation or damages for delay in construction of the house or handing over possession of the same causing consequential loss to the Complainant by way of escalation in the price of the property and also on account of distress, disappointment faced by him. Interest in the order has been used merely as a convenient method to calculate the amount of compensation in order to standardise it. Otherwise, each case of the allottee will have to be dealt with differently. Nomenclature does not decide the issue.

In our view, therefore, considering the definition of 'interest' as contained in Section 2(28-A) of the Income Tax Act, provisions of Section 194-A were not applicable and the GDA was clearly wrong in deducting the TDS from the interest payable to the Complainant. Accordingly, the order of the State Commission is upheld and this Revision Petition is dismissed.

10. In view of the foregoing discussion, we are of the considered view that the definition of interest as contained in Section 2(28-A) of the Income Tax Act and the provisions of Section 194-A were not applicable and Judgment Debtors No.1 to 4 wrongly deducted the TDS of Rs.48,055/- from the interest amount payable/paid to the complainants/Decree Holders. Opposite Parties/Judgment Debtors No.1 to 4 are directed to pay the amount of Rs.48,055/- which has already been deducted by them on account of TDS from the interest amount, to the Decree Holders and also not to deduct any TDS, from the future payment of interest, if any, payable to the Decree Holders.

11. It will not be out of place to mention here that the compensation, which was awarded by this Commission and upheld by the National Commission has been stayed by the Honble Supreme Court of India in one of the appeals filed by Parasvnath Developers Ltd. Similarly, in two other execution applications in which this Commission ordered the payment of interest @ 12% p.a., the appeals/revision petitions were filed by M/s Parasvnath Developers Ltd. in which that direction was also stayed.

12. In view of the above, the execution application is partly accepted, with no order as to costs holding that Judgment Debtors No.1 to 4 are liable to refund the TDS deducted from the interest amount payable/paid to the Decree Holders as the interest accrued is actually compensation as mentioned in the preceding para of this order.

13. The said TDS amount be refunded to the Decree Holders by Judgment Debtors No.1 to 4 by 22.09.2014.

14. However, the Decree Holders shall be at liberty to file a fresh Execution Application as and when the question with regard to the payment or non-payment of interest @ 12% p.a. and compensation is decided by the National Commission and the Honble Supreme Court of India in the appeals, referred to above.

15. Certified copy of this order, be sent to each of the parties, free of charge.

Pronounced.

12.09.2014 sd/-

[JUSTICE SHAM SUNDER (RETD.)] PRESIDENT sd/-

(DEV RAJ) MEMBER sd/-

( PADMA PANDEY) MEMBER cmg

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

17 June 2016 01. Tribunal decisions are applicable within their geographical jurisdiction.
02. Consumer Courts giving judgement on Income Tax......we need to be cautious.
03. If at all, the flat purchaser wants that TDS need not be done......the best way would be...let him apply for "no deductio of tax" to his assessing officer. The A.O. then will issue the letter to the concerned builder.

Message likes : 1 times

Upgrade to CAclubindia Pro. Subscribe Now!

Querist : Anonymous

Querist : Anonymous (Querist)

17 June 2016 Please reply your views, in light of above judgements....

Querist : Anonymous

Querist : Anonymous (Querist)

17 June 2016 Tax Insights
from India Tax & Regulatory Services
www.pwc.in
Compensation received for a
transaction declared void ab initio
is a capital receipt not chargeable
to tax
September 17, 2014
In brief
In a recent decision, the Chandigarh bench of the Income-tax Appellate Tribunal (Tribunal) has held
that as the transaction of sale of an industrial plot was set aside by the Supreme Court (SC), the
taxpayerM/sWinsome Yarns Limited (Winsome or the taxpayer) was deprived of making future
profits on the industrial plot and therefore, the compensation received against such surrender was a
capital receipt not chargeable to tax.
In detail
Facts
 M/s PunjabWireless
Systems Limited (the
Liquidated Company) was
in the process of being
wound up. The taxpayer1,
through an auction process,
won a bid to obtain an
industrial plot on lease
along with certain other
assets of the Liquidated
Company. Accordingly,
vide an order of the
Company Judge, a ‘No
objection Certificate’ (NoC)
was granted in December
2004 toWinsome for
transfer of the lease deed in
the industrial plot in its
favour, and for the sale of
certain other assets, for a
price of INR 33.6 million.
1 DCIT v. Winsome Yarns Limited [TS-
546-ITAT-2014(Chandigarh)]
 Subsequently, Sun Group
made an offer to take over
all the assets of the
Liquidated Company on a
going concern basis. The
Company Judge allowed
the application of Sun
Group and set aside his
earlier order, and directed
Winsome to deliver back
the industrial plot and
other assets to the Official
Liquidator, and also held
that the taxpayer would be
entitled to a refund.
 The Company Judge’s
order was challenged by
Winsome before the High
Court of Punjab and
Haryana, which allowed the
appeal and confirmed the
sale toWinsome.
Aggrieved, Sun Group and
the Employees Union
appealed before the SC. The
SC, keeping in view the
larger interests of all the
parties, exercised its
powers conferred by Article
142 (Enforcement of
decrees and orders of SC)
of the Constitution of India.
Winsome accepted the
settlement and Sun Group
agreed to pay a sum of INR
63.6 million towards
refund of the sale price and
as compensation for
depriving Winsome from
the enduring benefit of the
industrial plot and other
capital assets.
 Thereafter, during the
assessment proceedings for
assessment year 2007-08,
the tax officer (TO) sought
to tax an amount of INR 27
million in the hands of
Winsome as short-term
capital gains arising on
extinguishment of rights in
the industrial plot.
However, on appeal before
the Commissioner of
Income-tax (Appeals) (CIT
(A)), the CIT (A) allowed
the appeal of Winsome by
treating the receipt as a
Tax Insights
2 pwc
capital receipt not chargeable
to tax.
 Aggrieved, the TO preferred
an appeal before the
Tribunal.
Issue before the Tribunal
Whether the CIT (A) erred in not
taxing the amount of INR 27
million as short-term capital
gains in the hands of Winsome on
extinguishment of rights in the
industrial plot?
Revenue’s contentions
 The Revenue contended that
the surrender of the lease
amounted to transfer2, as the
lease deed of the industrial
plot was transferred to the
name of the taxpayer, and the
taxpayer was the complete
owner of the industrial plot. If
this property were to go out
of existence in view of certain
legal operations, then this
would result in
extinguishment of rights.
Therefore, as there was
extinguishment of rights in
the industrial plot by the
taxpayer, the taxpayer was
liable to pay tax on shortterm
capital gains of INR 27
million.
 Alternatively, if the gain of
INR 27 million could not be
treated as short-term capital
gain, then it should be taxed
as interest income, being
compensation by way of
interest given to the taxpayer
by the SC towards deprivation
of rights in the industrial plot.
Taxpayer’s contentions
 When the auction sale was
ultimately set aside by the
2 Reliance was placed on the Calcutta
High Court ruling in the case of CIT v.
Pramia Engineering Private Limited [1993]
202 ITR 298 (Calcutta) and also the
Allahabad High Court ruling in the case of
Smt Anand Bala Bhushan v. CIT [1996]
217 ITR 144 (Allahabad).
SC3, there was no transfer of
assets as the sale itself was
void ab initio. Therefore, the
amount received could not be
treated as consideration
received for extinguishment
of rights in any capital asset
leading to capital gains.
 The taxpayer wanted to set up
a manufacturing unit by
purchasing the industrial
plot. Therefore, any
compensation received
against the surrender of the
capital asset could not be
treated as interest income or
a revenue receipt4.
Tribunal’s ruling:
On whether the taxpayer
acquired any right in the
industrial plot when the sale was
set aside by the SC:
 The decision of the SC clearly
stated that the sale in favour
of Winsome should be set
aside, and that the industrial
plot thereon would be
confirmed in favour of Sun
Group. Based on Black Law’s
dictionary “set aside” among
other things included
“vacate”, “cancel”, “annul”
and therefore, in the present
case the SC had cancelled the
original sale made to the
taxpayer. The SC had
directed the Official
Liquidator to issue a fresh
NoC so that Sun Group could
obtain the lease in its favour.
This showed that the sale in
favour of Winsome was
cancelled.
3 Reliance was placed on the Karnataka
High Court ruling in the case of Smt C.
Kamala v. CIT [1978] 114 ITR 159
(Karnataka)
4 Reliance was placed on the Supreme
Court decisions in CIT v. Saurashtra
Cement Limited [2010] 325 ITR 422 (SC),
Kettlewell Bullen and Company Limited v.
CIT [1964] 53 ITR 261 (SC) and Oberoi
Hotel Private Limited v. CIT [1999] 236
ITR 903 (SC)
 Furthermore, relying on an
identical issue before the
Karnataka High Court3 the
Tribunal concluded that as
the sale in itself was set aside,
the taxpayer never acquired
any interest in the property.
On extinguishment of rights as
contemplated under section 2(47)
of the Income-tax Act, 1961:
 There was no extinguishment
of rights as the property
purchased through auction by
the taxpayer never came into
existence because of the SC’s
order setting aside the sale.
 Reliance placed on the
judicial precedents by the
Revenue in the case of Pramia
Engineering Private Limited
and Smt Anand Bala
Bhushan2 were distinguished
as the lease agreements in
those cases were never set
aside by any authority.
On taxability of the amount
received as compensation:
On setting aside of the sale by the
SC, the taxpayer was deprived of
making future profits by
surrendering the capital asset
being an industrial plot.
Therefore, the compensation
received against such surrender
was a capital receipt, and could
not be brought to tax as a revenue
receipt. In this regard, reliance
was placed on the decision of the
SC in the case of Kettlewell Bullen
and Company Limited, Oberoi
Hotel Private Limited and
Saurashtra Cement Limited4.
The takeaway
This ruling supports the
taxpayer’s contention that there
can be no income from a
transaction which is held as void
ab initio.
Tax Insights
For private circulation only
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information
contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness
of the information contained in this publication, and, to the extent permitted by law, PwCPL, its members, employees and agents accept no liability, and disclaim all
responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based
on it. Without prior permission of PwCPL, this publication may not be quoted in whole or in part or otherwise referred to in any documents.
© 2014 PricewaterhouseCoopers Private Limited. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Private Limited (a limited liability company
in India having Corporate Identity Number or CIN : U74140WB1983PTC036093), which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each
member firm of which is a separate legal entity.
About PwC
PwC helps organisations and individuals create the value they’re looking for. We’re a network of firms in 157 countries
with more than 184,000 people who are committed to delivering quality in Assurance, Tax and Advisory services.
PwC India refers to the network of PwC firms in India, having offices in: Ahmedabad, Bangalore, Chennai, Delhi NCR,
Hyderabad, Kolkata, Mumbai and Pune. For more information about PwC India's service offerings, please visit
www.pwc.in.
*PwC refers to PwC India and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see
www.pwc.com/structure for further details. Tell us what matters to you and find out more by visiting us at www.pwc.in
Let’s talk
For a deeper discussion of how this issue might affect your business, please contact:
Tax & Regulatory Services – Direct Tax
Shyamal Mukherjee, Gurgaon
+91-124 330 6536
shyamal.mukherjee@in.pwc.com
Ketan Dalal, Mumbai
+91-22 6689 1422
ketan.dalal@in.pwc.com
Rahul Garg, Gurgaon
+91-124 330 6515
rahul.garg@in.pwc.com
Ahmedabad Bangalore Chennai
President Plaza
1st Floor Plot No 36
Opp Muktidham Derasar
Thaltej Cross Road, SG Highway
Ahmedabad, Gujarat 380054
+91-79 3091 7000
6th Floor
Millenia Tower 'D'
1 & 2, Murphy Road, Ulsoor,
Bangalore 560 008
Phone +91-80 4079 7000
8th Floor
Prestige Palladium Bayan
129-140 Greams Road
Chennai 600 006
+91 44 4228 5000
Hyderabad Kolkata Mumbai
Plot no. 77/A, 8-2-624/A/1, 4th
Floor, Road No. 10, Banjara Hills,
Hyderabad – 500034,
Andhra Pradesh
Phone +91-40 44246000
56 & 57, Block DN.
Ground Floor, A-Wing
Sector - V, Salt Lake
Kolkata - 700 091, West Bengal
+91-033 2357 9101/
4400 1111
PwC House
Plot No. 18A,
Guru Nanak Road(Station Road),
Bandra (West), Mumbai - 400 050
+91-22 6689 1000
Gurgaon Pune For more information
Building No. 10, Tower - C
17th & 18th Floor,
DLF Cyber City, Gurgaon
Haryana -122002
+91-124 330 6000
7th Floor, Tower A - Wing 1,
Business Bay, Airport Road,
Yerwada, Pune – 411 006+91-20
4100 4444
Contact us at
pwctrs.knowledgemanagement@in.pwc.com

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

17 June 2016 The judgements of redressal commission are appealable and can NOT be enforced GENERALLY. They are good with respect to that particular case only.
The judgements given by Supreme Court OR High Coourt etc are binding GENERALLY where facts of the case are similar.
In view of that it is better that the flat purchser goes to Assessing Officer and asks for NO TDS letter issued in the name of the concerned Builder

Querist : Anonymous

Querist : Anonymous (Querist)

17 June 2016 1. The above judgement if chandigarh IT Tribunal
2. In case if we apply from no TDS certificate from assessing officer, what is the modalities and on what basis the said letter can be issued. What are the guiding rules to ITO.

Upgrade to CAclubindia Pro. Subscribe Now!

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

17 June 2016 form 13 under rule 28 of income tax act. Alo refer rule 28AA

http://www.incometaxindia.gov.in/Pages/rules/income-tax-rules-1962.aspx

http://www.incometaxindia.gov.in/Pages/rules/income-tax-rules-1962.aspx

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

17 June 2016 Form 13 is also available on the site of income tax... as fillable form. You can fill it there itself.

Querist : Anonymous

Querist : Anonymous (Querist)

18 June 2016 It is ver difficult to understand the rules being a non finance professional. Just guide , who is the good resource , who can help me in this direction in finding out the legality in light of various conflicting judgements.
Should i contact a lawyer or financial lawyer? Any contact will help₹!

Upgrade to CAclubindia Pro. Subscribe Now!

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

18 June 2016 You can contact CA.
Which location you are from?

Querist : Anonymous

Querist : Anonymous (Querist)

18 June 2016 Mumbai andheri lokhandwala...... Do i need to consult some IT lawyer

Querist : Anonymous

Querist : Anonymous (Querist)

18 June 2016 Kindly help , to loacte some competent lawyer in the area and the approx budget for consultation

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

18 June 2016 it is very common to apply for form 13..... you may contact CA.
96234 40677 Indrajeet...partner VPR and Associates, Mumbai, near Chitra Cinema, Dadar. He can do your job.
Dont forget to give my reference through CA club of india

Querist : Anonymous

Querist : Anonymous (Querist)

18 June 2016 Ok thanks i will so the same

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

20 June 2016 you are most welcome.