Tax on penalty from builder due to delay in possession

Tax deducted at source @ 1% u/s 194C implies that he has deducted tax on contract payment that he has made to you. Why has he chosen to deduct tax u/s 194C? Perhaps to take benefit of 1% TDS.

Since he has deducted tax at source, it is better that you show this as income in your income tax return.

Thanks Poornima for the prompt response.

It is not clear why builder used 194C for this TDS. This is probably not the right section to use but nothing can be done about it now.

Need one clarification - Do you mean adding this penalty amount to 'Income from Other Sources' when filiing return and pay tax on that ?

Contract relates to business and hence right thing is to show as business income. But if the value is small and if it is a one time transaction, you can take chance to declare is as IFOS.

Thanks for the info.