Tuesday, 22 September 2015

Whether TDS can be deducted from interest paid on compensation granted by court?

The UT State Consumer Disputes Redressal Commission, headed by Justice (retd) Sham Sunder has ruled that the judgment debtor cannot deduct TDS on the amount of interest paid to a consumer in compliance with a decree passed by the consumer courts.
Earlier, in a complaint case, Shipra Estates Ltd. was held guilty of deficiency in service and vide order dated March 16, 2015, was directed to refund Rs 19,58,491 along with the interest at the rate of 10 per cent per annum from the dates of deposit which were made in 2012. An amount of Rs 50,000 was awarded as compensation and Rs 10,000 as litigation charges. The company failed to comply with the order. The complainant, Brij Mohan Jain, filed a contempt petition against the builder.

During the course of hearing, the builder/judgment debtor paid the decretal amount after deducting Rs 73,864 as TDS on the interest amount. Pankaj Chandgothia, counsel for the complainant, contended that no TDS could be deducted in case of any payment made under the orders of the consumer court, as these orders compensated the consumer for his losses and did not amount to profit or income for him.
It was contended that in the order of the State Commission interest meant compensation or damages for delay in construction of the house or handing over the possession of the same causing consequential loss to the complainant by way of escalation in the price of the property and also on account of distress, disappointment faced by him. The interest in the order has been used merely as a convenient method to calculate the amount of compensation in order to standardise it.
It was further contended that the word interest used in the order of the State Commission was not what the interest was as defined in Section 2(28-A) of the Income Tax Act and therefore no tax could be deducted at the source under Section 194 A of the Income Tax Act.
Agreeing with the contentions, the State Commission ruled that the builder was clearly wrong in deducting the TDS from the interest payable to the complainant. Upon this, the builder handed over a cheque for the deducted amount of Rs 73,864 to the complainant, upon which the contempt petition was disposed of.
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