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Issues: Whether the amount described as interest and paid by the development authority as compensation for delay in construction and delivery of the flat fell within the meaning of "interest" so as to attract deduction of tax at source under section 194A of the Income-tax Act, 1961.
Analysis: The amount payable under the State Commission's order was not interest on any borrowing, deposit, or debt within the statutory definition of interest. It was payable as damages or compensation for the authority's failure to construct and deliver the flat with the promised facilities within time. The use of the word "interest" in the consumer order was only a method of quantifying compensation and did not change the true character of the payment. Since section 194A applies only to income by way of interest as defined in section 2(28A), the payment did not fall within the TDS provision.
Conclusion: Section 194A of the Income-tax Act, 1961 was not applicable, and deduction of tax at source was unwarranted.
Ratio Decidendi: A payment labelled as interest, but made as compensation or damages for delay and not in respect of borrowed money, debt, deposit, or similar obligation, does not constitute "interest" for the purposes of section 194A of the Income-tax Act, 1961.
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