Interest paid by builder on failure to construct flat is compensatory in nature out of preview of sec. 194A: HC

Short Overview of the case:

The issue is related to Section 2(28A), read with section 194A, of the Income-tax Act, 1961

The issue was of TDS on  Interest (Interest on compensation) for the  Assessment year 2021-22

The question before High Court was Whether provision of interest by way of compensation falls outside purview of section 194A and section 2(28A)?

Bombay HC Held as under:

 Assessee entered into an agreement with a builder for purchase of two residential flats

Flats booked were not delivered in committed period

 Thus, Real Estate Regulatory Authority directed builder to refund advance amount paid by assessee with compensatory interest

 Builder deducted TDS on amount of compensatory interest paid to assessee

 It was noted that amount payable to assessee was in nature of a judgment debt or akin to a judgment debt, payment of which could not establish a debtor-creditor relationship between parties; nor was payment made by builder to assessee one in discharge of any pre-existing obligation, so as to attract section 2(28A)

So, TDS was not to be deducted on interest component.