SH. MOHINDER SINGH SANGHERA vs. ASSTT. DIRECTOR OF INCOME TAX, CHANDIGARH

per the provisions of section 115A sub-section (5) or that the Assessing

officer was of the view that the assessee has been receiving interest income

only. In view of this, the reopening of the assessment is held valid.

making the impugned additions has relied upon the definition of ‘interest’

as provided under article 12 of the India –U.K. DTAA, which read as

under:-

“The term interest as used in Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtors profits, and in particular, income from Government Securities and income from bonds and debentures, including premiums and prizes attaching to such securities, bonds or debentures but, subject to the provisions of paragraph 9 of this Article, shall not include any item which is treated as a distribution under the provisions of Article 11 (Dividends) of this convention.” 10. The Assessing officer has also referred to the clause 23 of the

allotment letter issued by the Omaxe Ltd to the assessee, which reads as

under-

“23. Unless a conveyance deed is executed and registered, the company shall continue to have full authority over the said Unit and all amounts paid by the Allottee (s) under this allotment shall merely be a token payment for purchase of the allotted unit and shall not give him any lien or interest in the said Unit until he has complied with all the terms and conditions of this Allotment and Conveyance of the said Unit has been executed and registered in his favour.”

ITA Nos. 369 to 371/Chd/2016 & 372 to 374/Chd/2016- Sh. Mohinder Singh Sanghera & Jatinder Singh Chatta 6

A perusal of the above clause 23 of the Allotment letter reveals that as per

the terms and conditions of the allotment letter, unless and until the

Conveyance deed is executed and registered, the company i.e. Omaxe Ltd

will continue to have full authority over the proposed Unit and all the

amounts paid by the allottee shall merely be a token payment and shall not

give any lien or interest in the said unit to the allottee. Hence, as per the

above clause (23), even after payment of 95% of the sale consideration, in

advance, the assessee did not get any lien or interest in the proposed unit

to be constructed by Omaxe Ltd. However, in lieu of the 95% of the total

sale consideration settled, the Omaxe Ltd. agreed to pay a certain fixed

monthly amount to the assessee in the name of assured return. Now the

question arises what is the nature of the advance payment made by the

assessee to the Omaxe Ltd and what is the nature of the amount received

by the assessee as assured return. The facts and circumstances on the file

reveal that the property for which the assessee had paid the money was not

in existence at the time of making payment and even subsequently was not

capable of yielding any income in the shape of rent, lease money and even

otherwise was not capable to be commercially exploited.

any return from the property in respect of which the assessee had paid the

amount. Even as per the clause 23 of the allotment letter as discussed

above, even for making the investment, the payment of the advance money

at the rate of 95% of the agreed price, the assessee did not get right of lien

in the proposed property. The assessee, under the circumstances, had a

claim of debt against the Omaxe Ltd, which means the assessee had

ITA Nos. 369 to 371/Chd/2016 & 372 to 374/Chd/2016- Sh. Mohinder Singh Sanghera & Jatinder Singh Chatta 7

advanced money to the Omaxe Ltd. which was nothing but a debt claim till

the proposed property is constructed, possession handed over to the

assessee and the conveyance deed executed and registered. In our view, it

was a financial transaction and the assured money return received by the

assessee was nothing else than the interest received by the assessee on the

finances made by the assessee to the Omaxe Ltd to be used for the

construction of the property. Therefore, the Omaxe Ltd had rightly

deducted the tax @ 15% of the interest / assured return paid to the

assessee. Even the assessee on being asked to file the return has also

treated the said receipts as interest income. However, subsequently, the

assessee changed his stand and come with a plea that the assured return is

only in the nature of capital receipt. The assessee in this respect has placed

reliance on several decisions of the High Courts and Supreme Court.

Without referring to each of the decision, we may point out that the

decisions referred to by the assessee are not applicable to the facts and

circumstances of the case e.g. in the case of ‘CIT Vs. Saurashtra Cement

Ltd (2010) 325 ITR 042 (SC) : 192 taxman 300 (SC), the assessee in that

case had received liquidated damages for delay in supply of plant and

machinery. The Hon'ble Supreme Court held that the damages were directly

and intrinsically linked with the procurement of the capital assets i.e.

cement plant.

the assessee, it was held that if any expenditure is incurred such as interest

paid for acquiring assets, the same will be added to the cost of the assets.

However, none of the case laws relied upon by the assessee as discussed

above, are applicable to the facts and circumstances of this case. Neither

ITA Nos. 369 to 371/Chd/2016 & 372 to 374/Chd/2016- Sh. Mohinder Singh Sanghera & Jatinder Singh Chatta 8

any damages were paid by the Omaxe Ltd. to the assessee for late delivery

of the possession of the commercial floors in question nor any advance

money was paid by the assessee to get the commercial floors at some

concessional rate or on an early date rather as discussed above, as per the

clause of the agreement, even after payment of 95% of the price, the

assessee did not get right or lien in the property and as discussed above,

this was a financial transaction between the assessee and Omaxe Ltd. In

view of this, we hold that the assured return received by the assessee was

in the nature of interest and the assessee has rightly returned / offered the

same as interest income.

lower authorities in treating the receipts of the assessee as ‘income from

other sources’. We, accordingly, set aside the impugned order and direct

that the assessee in this case has rightly paid the taxes as India – U.K.

DTAA. No further addition is warranted. However, the claim of the

assessee that it is a capital receipt not liable for taxation is rejected. The

appeal of the assessee is, therefore, treated as allowed.

hence, the decision arrived at will apply mutatis-mutandis to all the

captioned appeals (ITA Nos. 369 to 371 and 373 to 374/Chd/2016), and

accordingly all the appeals are treated as allowed in the same terms and

with identical directions.

Order pronounced in the Open Court on 07.09.2018

Sd/- Sd/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 07.09.2018

ITA Nos. 369 to 371/Chd/2016 & 372 to 374/Chd/2016- Sh. Mohinder Singh Sanghera & Jatinder Singh Chatta 9

Rkk Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR