Citations for Tax on compensation received from builder

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SHARAD MOHAN (Querist)
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04 June 2025 I have received refund from the builder basis order of NCDRC. The refund includes principal which I had paid him 12 years back PLUS interest @12% for the 12 year period. He has deducted TDS on Deposit @10% which I have protested. I understand that either there is no tax on such interest OR at best capital gains tax for which there is no TDS applicable. Please help.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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04 June 2025 you are not wrong.
But Ssme payers try to deduct tds to avoid any penal measures from Income-tax department. you may give the reference of NCDRC order https://www.scconline.com/blog/post/2022/03/11/will-tax-deducted-at-source-be-attracted-on-compensation-awarded-under-consumer-protection-act-in-the-form-of-simple-interest/

Still if the TDS has been deposited with the Income-tax department, NCDRC may not give you any relief at this stage.

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SHARAD MOHAN

SHARAD MOHAN (Querist)
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17 June 2025 Thank you so much for your reply and the supporting citation which is of great help. There are 2 points for which I am bothering you:
1. Is there any Supreme Court citation on the same line of thought (as NCDRC) or maybe an adverse view!
2. If I had already informed the builder of the fact of non-deduction and he had even taken it in writing from me and yet he has deducted the interest and paid to the department, isnt he himself responsible for taking a refund from the dept or getting it adjusted instead of making me do that and get harassed by the deptt? Everyone knows how a normal citizen is harassed by these govt deptts including the IT deptt.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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12 August 2025 1. Supreme Court / Legal Citations:
Key Judgments and Authorities:
NCDRC Judgments and Consumer Forum Orders often hold that compensation or interest awarded under Consumer Protection Act is not taxable income, or interest is simple interest and not income, hence no TDS on such amounts.

Supreme Court on compensation and TDS:

Commissioner of Income Tax vs. B.C. Srinivasa Setty (1967) 65 ITR 163 (SC):
Interest received as compensation is not income, hence no tax liability.

Tata Power Co. Ltd. vs. State of Maharashtra (1994) 4 SCC 428:
Compensation or damages awarded in certain cases do not attract income tax.

Recent legal blogs and interpretations (e.g., SCC Online) reinforce this view that TDS should not be deducted on compensation/interest awarded under Consumer Protection Act.

2. Responsibility for TDS Deduction and Refund:
Builder’s perspective:
Builders often deduct TDS to avoid penal consequences from the Income Tax Department, even when it may not be applicable.

You informed the builder earlier:
If the builder agreed not to deduct TDS and took your written confirmation but deducted TDS anyway, legally the builder is responsible for recovering the wrongly deducted TDS from the department.

Practical situation:

Taxpayer (you) may face hassle claiming refund from Income Tax Department if TDS is deducted and deposited.

Builder should ideally file a TDS refund claim and get the amount refunded or adjusted against their own tax liability.

In case builder refuses:
You can still file ITR claiming refund of excess TDS with supporting documents, but as you mentioned, this process may be cumbersome.

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