March 2010
Section 40(a)(i), read with section 2(28A) — Discounting charges paid, cannot be treated as interest in terms of section 2(28A) and, therefore, such amount is not liable for TDS u/s.195.– Also, the same cannot be disallowed u/s 40(a)(i).
By C. N. Vaze
Shailesh Kamdar
Jagdish T. Punjabi
Chartered Accountants
fiogf49gjkf0d
New Page 1
53 (2009) 34 SOT 424 (Delhi)
Asst. CIT vs Cargill Global
Trading (I) (P.) Ltd.
A.Y.: 2004-05. Date of order: 09.10.2009
Section 40(a)(i), read with section 2(28A) — Discounting
charges paid, cannot be treated as interest in terms of section 2(28A) and,
therefore, such amount is not liable for TDS u/s.195.– Also, the same cannot be
disallowed u/s 40(a)(i).
Facts:
The assessee company discounted its export sales bills with a
company in Singapore. The discounting charges were disallowed by the Assessing
Officer u/s 40(a)(i) on the ground that the assessee did not deduct tax at
source u/s 195 on the discounting charges which were in the nature of interest
in terms of section 2(28A). The CIT(A) held that the discounting charges paid by
the assessee were not interest, as neither any money was borrowed nor any debt
was incurred. Therefore, no tax was required to be deducted at source from such
payments. He, accordingly, deleted the disallowance.
Held:
The Tribunal, upholding the CIT(A)’s order, noted as
hereunder:
1. As per section 2(28A), interest means sum payable in
respect of any money borrowed or debt incurred. In the instant case, there was
no debt incurred or money borrowed. In fact, it was a case where the assessee
had merely discounted sale consideration receivable on sale of goods.
2. The word `interest’ defined u/s 2(28A) does not include
the discounting charges on discounting of bill of exchange.
3. Though Circular No.65 was issued in relation to
deduction of tax u/s 194A, yet in respect of payment to a resident, the same
would be relevant even for the purpose of considering whether the discount
should be treated as interest or not. The CBDT had opined that where the
supplier of goods makes over the usance bill / hundi to his bank which
discounts the same and credits the net amount to the supplier’s account
straightaway, without waiting for realisation of the bill on due date, the net
payment made by the bank to the supplier is in the nature of price paid for
the bill. Such payment cannot technically be held as including any interest
and, therefore, no tax need be deducted at source from such payment by the
bank.
4. Hence, the assessee was not under obligation to deduct
tax at source u/s 195. Accordingly, the same amount could not be disallowed by
invoking section 40(a)(i).
