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2011 (6) TMI 148 - AT - Income TaxAddition - Under section 40(a)(ia) - The assessee is having a dealership of FAG Bearing (India) Ltd. and, therefore, in the business of sales of ball-bearings - This fact has also not been denied that there were certain terms and conditions agreed upon between the two parties in case of delay in payments - Whenever there was delay in payment or the payments got overdue, there was a condition to compensate the delay - The fundamental and primarily argument from the side of the respondent-assessee was that the amount paid to compensate the delay in making the payment was nothing but the added sales price of the said commodity - Hence, the issue in favour of the assessee, the Learned CIT (Appeals) has followed an order of the Jurisdictional High Court, namely, Nirma Industries Ltd. v. Dy. CIT 2006 -TMI - 9642 - GUJARAT High Court and held that the interest received from the trade debtors for late payment of sales consideration is the amount derived from the sale proceeds - According to the judgment, purchaser pays higher sale price due to delay in payment - Thus, the impugned payment had a direct link and immediate nexus with the Trade liability being connected with the delayed purchase payment, hence, did not fall within the category of Interest as defined in section 2(28A) of the Income-tax Act for the purpose of deduction of Tax at Source as prescribed under section 194A of the Act - Resultantly, this assessee cannot be held a defaulter of non-deduction of tax at source under section 194A of the Act - Decided in favour of assesseee.
Issues Involved:
1. Deletion of addition made on account of interest payment under section 40(a)(ia) of the Income-tax Act. 2. Applicability of amended provisions of section 40(a)(ia) of the Act. Detailed Analysis: Issue 1: Deletion of Addition Made on Account of Interest Payment under Section 40(a)(ia) of the Income-tax Act Facts and Background: The assessee, a proprietor dealing in ball-bearings, claimed interest expenses of Rs. 12,47,746 in their Profit & Loss Account. Out of this, Rs. 7,83,666 was paid to FAG Bearing (India) Ltd. without deducting tax at source. The assessee argued that this interest was actually an additional purchase price due to delayed payments, not requiring TDS under section 194A. However, the Assessing Officer disagreed, citing section 2(28A) and disallowed the expenditure under section 40(a)(ia). CIT(A) Decision: The CIT(A) deleted the addition, referencing the Jurisdictional High Court's decision in Nirma Industries Ltd. v. Dy. CIT [2006] 283 ITR 402, which held that interest received for late payment of sales consideration is derived from the sale proceeds, thus outside TDS provisions. Tribunal's Analysis: The Tribunal upheld the CIT(A)'s decision, emphasizing the following points: - The payment in question was compensatory for delayed payments, not interest as defined under section 2(28A). - The definition of "interest" under section 2(28A) is broad but does not include compensatory payments not related to loans or deposits. - Referenced multiple case laws supporting the view that compensatory payments for delayed trade payments are not "interest" under section 194A. Key Case Laws Referenced: - Nirma Industries Ltd. v. Dy. CIT: Held that additional sale price due to delayed payment is not "interest" for TDS purposes. - Ghaziabad Development Authority v. Dr. N.K. Gupta: Clarified that compensatory payments termed as "interest" do not fall under section 2(28A). - Phatela Cotgin Industries P. Ltd. v. CIT: Interest on delayed payments from customers is income derived from industrial undertakings, not "interest" under section 2(28A). Conclusion: The Tribunal concluded that the payment had a direct link with trade liability and was not "interest" under section 2(28A). Therefore, no TDS was required, and the assessee was not a defaulter under section 194A. The revenue's appeal was dismissed. Issue 2: Applicability of Amended Provisions of Section 40(a)(ia) of the Act Assessee's Cross Objection: The assessee argued that even if the payment of Rs. 7,83,666 was considered interest, the amended provisions of section 40(a)(ia) would not apply, and thus no disallowance should be made. Tribunal's Decision: The cross objection was not pressed by the assessee's representative and was dismissed as such. Final Judgment: Both the revenue's appeal and the assessee's cross objection were dismissed. The Tribunal upheld the CIT(A)'s decision, confirming that the payment in question was compensatory and not "interest" under section 2(28A), thus not requiring TDS under section 194A.
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