Tax position on compensation recived

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S D KADAM (Querist)
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13 January 2016 My client has received late delivery of the flat from builder for which he demanded interest for the delayed period. On denial from builder the matter went to consumer court . The court has awarded interest for the delayed period + amount for the expenses etc. Now what is the position of tax on the amount received from the builder as per the court award.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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13 January 2016 Amount received as interest is taxable. It is a kind of compensation against the money invested. Expenses are just of reimbursement in nature, so the same is not taxable.

CA CMA CS Ram Pavan Kumar Melam

CA CMA CS Ram Pavan Kumar Melam (Expert)
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13 January 2016 Assuming existence of an agreement for construction of flat between the builder and your client. Also assumed that, the court awarded damages as per certain clauses in the agreement for delay in delivery of possession of the property or non-performance of the agreement.

If this payment is according to such clause in the agreement, it is not in the nature of revenue receipt but in the nature of capital receipt and to be adjusted to the cost of acquisition of the flat.

gbalakrishnan

gbalakrishnan (Expert)
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14 January 2016 pravin kumar is right

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CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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14 January 2016 I respectfully differ from the opinion of the two experts which is based on assumptions rather than practical aspect of the case.
1. In a number of cases- Interest received during the pre-operational period, has been treated as income by the courts.
2. Capitalising the interest will raise a new issue with the IT department. Which again will be
problematic.
3. Please go through the news article-
https://www.business-standard.com/article/pf/tax-on-interest-received-as-compensation-114080401047_1.html

CA CMA CS Ram Pavan Kumar Melam

CA CMA CS Ram Pavan Kumar Melam (Expert)
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14 January 2016 @ CA Para Bafna - Facts given in the query are insufficient to reply effectively. Mr. S.D. Kadam, queriest, used both the words compensation and interest. Both are not same, there is huge difference in treating them under the tax laws. So, certain assumptions were necessary to reply the query.

The link given by you also suggesting what I have written in my reply. It also suggest the difference between compensation and interest. However, in case receipt of interest, as per SC decision (as per link) it is taxable as other income instead of treating it as a capital receipt. Good info. Thanks Mr. Paras Bafna.

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