Refunds to flat purchasers were not interest, so no TDS obligation arose under the Income-tax Act.

Refunds made to opting-out flat purchasers were not "interest" under section 2(28A) because that term applies only to payments on money borrowed or debt incurred, which requires a debtor-creditor relationship. The amounts returned were purchaser payments towards apartment consideration after the original agreements were cancelled and replacement purchasers were found, with no material showing any contractual interest obligation or pre-existing debt. As a result, tax was not deductible at source under section 194A, and the payer could not be treated as an assessee in default under section 201.

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Issues: Whether the excess payment refunds made by the assessee to opting-out flat purchasers constituted "interest" within the meaning of section 2(28A) of the Income-tax Act, 1961 so as to attract deduction of tax at source under section 194A and consequent proceedings under section 201 of the Income-tax Act, 1961.

Analysis: The expression "interest" in section 2(28A) has to be construed strictly and applies only where the payment is in respect of money borrowed or debt incurred, which necessarily postulates a debtor-creditor relationship. The refunded amounts represented sums paid by purchasers towards the agreed consideration for undivided share in land and construction of apartments, and were returned after the original agreements were cancelled and fresh purchasers were found. There was no finding that the refunded sums were deposits or advances carrying a contractual obligation akin to interest, nor any material to show a pre-existing debt or agreement to pay interest-like consideration.

Conclusion: The refunds did not constitute interest under section 2(28A) of the Income-tax Act, 1961 and the assessee was not liable to deduct tax at source under section 194A or be treated as an assessee in default under section 201.

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