TMI Blog2014 (1) TMI 1484X X X X Extracts X X X X X X X X Extracts X X X X ..... as Del Credere being trading in goods and merchandise and also dealing in securities and which is assessed as income from business and not income from other sources - The expenditure incurred is also on account of business expenditure and not interest expenditure in the nature of interest falling u/s 194A of the Act - These discount/factoring charges do not come within the purview of section 194A and assessee is not liable to TDS on these charges - Decided against Revenue. - I.T.A No. 729/Kol/2011 - - - Dated:- 27-1-2014 - Shri Mahavir Singh, JM And Shri Abraham P. George, AM,JJ. For the Appellant : Shri S. P. Lahiri, JCIT, Sr. DR For the Respondent : Shri S. K. Tulsiyan ORDER Per Shri Mahavir Singh, JM: This appeal by revenue is arising out of order of CIT(A)-VI, Kolkata in Appeal No.881/ CIT(A)-VI/09-10/Cir-6/Kol dated 31.01.2011. Assessment was framed by DCIT, Circle-6, Kolkata u/s. 143(3) r.w.s. 115WE(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2007-08 vide his order dated 29.12.2009. 2. At the outset, it is noticed that this appeal by revenue is delayed by 24 days and revenue has filed condonation petition. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd no.2: "2. That on the facts and circumstances of the case, Ld. CIT(A) has erred in law as well as on the facts by deleting the disallowance u/s. 40(a)(ia) though the assessee has treated the payment as interest in its books of account." 6. Briefly stated facts are that during the relevant FY the assessee paid a sum of Rs.56,33,112/- to M/s. Lalji Financial on account of discounting/factoring charges without deducting TDS. According to AO, these factoring /discounting charges are interest expenses as per the provisions of section 2(28A) of the Act and assessee is liable to deduct TDS u/s. 194A of the Act. According to AO, as the assessee failed to deduct TDS, these expenses cannot be allowed in term of section 40(a)(ia) of the Act. Accordingly, he made disallowance. Aggrieved, assessee preferred appeal before CIT(A), who allowed the claim of the assessee by observing in para 6.3 as under: "6.3. I have carefully considered all the facts and circumstances of this issue. It is seen that the assessee is a agent of M/s. Mukand Ltd. and the steel products of this company are sold through the assessee. The sale bills are issued by Mukand Ltd. in the name of the customers but on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this contention of the assessee on the ground that this was related to discounting charges paid to banks and not to private parties. In this respect the relevant content of the above CBDT circular is reproduced below: "I am directed to invite a reference to the Board's Circular No. 48, dated 7th November, 1970 [F. 275/195/70-ITJ]. The Board has been requested to reconsider the views given in that Circular. After a careful examination of the legal position the Board is of the view that to, the following extent the earlier views need a modification. 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 realization of the bill on due date, the property in the usance bill/hundi passes on to the bank and the eventual collection on due date is a receipt by the bank on its own behalf of the supplier. For such cases of immediate discounting the net payment made by the bank to the suppliers in the nature of a price paid for the bill. Such a payment cannot techn cally be held as including interest and therefore no tax need be deducted at source from such paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that even as per this Circular 65 the discounting charges cannot be termed as interest as per section 2(28A) of the I.T. Act. In view of the above discussion I hold that the discounting charges of Rs.56,33,112/- paid by the assessee cannot be termed as interest u/s. 2(28A) and therefore the assessee was not required to deduct TDS on them u/s. 194A of the I. T. Act. Hence the disallowance of these discounting charges made by the AO u/s. 40(a)(ia) is deleted." Aggrieved, revenue came in appeal before us. 7. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee is a Del Credere agent of Mukund Ltd. Mukund Ltd. is a company producing steel and assessee is selling steel products produced by Mukund Ltd. as a Del Credere agent. From the facts of the case, it is clear that the sale bills are issued by Mukund Ltd. in the name of the customers but on them it is mentioned that the payment for bill is guaranteed and under-written by the assessee MKJ Enterprises Ltd., as per Del Credere arrangement/agreement. As per this arrangement, the payment to Mukund Ltd. is to be made by the assessee after collecting from the clients, who ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asically so provided for. However, under the scheme of the Act, the word interest defined under section 2(28A) does not include the discounting charges on discounting of BE. Though the Circular No. 65 was rendered in relation to deduction of tax under section 194A of the Act, 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 of bill/hundi to his bank which discounts the same and credits the net amount to the supplier s account straightaway without waiting for realization of the bill on due date, the property in the usance of bill/hundi passes on to the bank and the eventual collection on due date is a receipt by the bank on its own behalf and not on behalf of the supplier. For such cases of immediate discounting, the net payment made by the bank to the supplier is in the nature of a price paid for the bill. Such payment cannot technically be held as including any interest and, therefore, no tax need to be deducted at source from such payment by the bank. 8. The process adopted in the present cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng charges of Bill of Exchange or factoring charges of sale cannot be termed as interest. The assessee in the present case is acting as an agent. Now what is this is to be seen. According to us, a Del Credere is an agent, who, selling goods for his principal on credit, undertakes for an additional commission to sell only to persons for whom he can stand guarantee. His position is thus that of a surety who is liable to his principal should the vendee make default. The agreement between him and his principal need not be reduced to or evidenced by writing, for his undertaking is a guarantee. A Del Credere Agent is an agent who not only establishes a privity of contract between his principal and the third party, but who also guarantees to his principal the due performance of the contract by the third party. He is liable, however, only when the third party fails to carry out his contract, e.g., by insolvency. He is not liable to his principal if the third party refuses to carry out his contract, for example, if the buyer refuses to take delivery. In the present case before us the assessee has assessed the income as Del Credere being trading in goods and merchandise and also dealing in s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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