Business expenditure: TDS: Disallowance u/s.40(a)(i) r.w.s 194A: Assessee exporting goods: Bills of exchange discounted abroad: Discounting charges not interest: Tax not deductible at source: Discounting charges allowable as deduction.

The assessee was in the export business. On the exports to its buyers outside India, the assessee drew bills of exchange on those buyers. These bills of exchange were discounted by the assessee from CSFA which on discounting the bills immediately remitted the discounted amount to the assessee. CSFA was a company incorporated in Singapore and a tax-resident of Singapore. The discount charges were claimed by the assessee as expenses u/s.37. The Assessing Officer disallowed the claim for deduction of the discount charges treating the same as interest on the ground that tax was not deducted at source from the amount. The Tribunal allowed the assessee’s claim.

On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:

“(i) It is clear from the definition in section 2(28A) of the Income-tax Act, 1961, that before any amount paid is construed as interest, it has to be established that the same is payable in respect of any money borrowed or debt incurred.

(ii) The discount charges paid were not in respect of any debt incurred or money borrowed. Instead the assessee had merely discounted the sale consideration. Tax was not deductible at source on the amount. The amount was deductible.”