2014 (12) TMI 682 - HC - Income Tax

Factoring charges to be treated as interest or not Applicability of section 194A Disallowance u/s 40(a)(ia) Held that - The Tribunal was rightly of the view that the interest is a term relating to a pre-existing debt, which implies a debtor creditor relationship - unpaid consideration gives rise to a lien over goods sold and not for money lent relying upon Bombay Steam Navigation Co. Pvt. Ltd. vs. CIT 1964 (10) TMI 12 - SUPREME Court wherein it is held that, where interest on unpaid purchase price was not treated as interest on loan - 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 - discounting charges of Bill of Exchange or factoring charges of sale cannot be termed as interest as such no question of law arises for consideration Decided against revenue.

Summary

Issues:
1. Interpretation of Rule 8D applicability for assessment year 2007-08.
2. Determination of factoring charges as interest for TDS under Section 194A.

Analysis:
1. The first issue raised by the Revenue pertains to the applicability of Rule 8D for the assessment year 2007-08. The Tribunal upheld the order of the CIT(A) stating that Rule 8D is applicable from assessment year 2008-09 onwards, not for the earlier period. The Revenue argued against this decision, citing a pending SLP regarding the retrospective application of Rule 8D. However, Ms. Das De did not press the first question for admission due to a judgment in a similar case. The Court dismissed the appeal, emphasizing the decision's alignment with the previous judgment.

2. The second issue revolves around whether factoring charges of a specific amount should be considered as interest for TDS under Section 194A. The Assessee had shown the expenditure under the head interest in its books of accounts but claimed it to be factoring charges. The Assessing Officer disagreed with this classification, leading to an appeal before the Commissioner of Appeals, who ruled in favor of the Assessee. The Revenue then appealed to the Tribunal, which concurred with the Commissioner's decision. The Tribunal analyzed the definition of interest and highlighted that unpaid consideration does not necessarily imply a debtor-creditor relationship, supporting its stance with a Supreme Court decision. Consequently, the Court found no legal question to address and dismissed the appeal and application.

In conclusion, the High Court of Calcutta dismissed the Revenue's appeal against the Tribunal's decision regarding the applicability of Rule 8D for a specific assessment year and the classification of factoring charges as interest for TDS purposes. The Court's detailed analysis and alignment with previous judgments underscore the clarity in the legal interpretation of the issues raised.