2022 (11) TMI 965 - AT - Income Tax

TDS u/s 194A - Addition u/s 40(a(ia) - TDS on factoring charges - assessee in default u/s 201(1) - HELD THAT - As factoring charges incurred by the assessee company is not in the nature of interest and that the assessee was not under the obligation to deduct TDS as per the provisions of section 40(a)(ia) of the I.T. Act. For this, we would like to place our reliance on the decision in the case of Bombay Steam Navigation Co. P. Ltd 1964 (10) TMI 12 - SUPREME COURT which held that interest on unpaid purchase price is not in the nature of interest on loan and for any amount which is to be categorised as interest it is essential that the same is payable in respect of money borrowed or debt incurred. Upon perusal of the definition of interest as per section 2(28A). Interest pertains only to monies borrowed or debt incurred or for any credit facility. In the present case in hand, there is no such classification of money involved which attracts the said interest . The transaction entered into by the assessee is with M/s SBI Global Factors Ltd is only a discounted sale consideration arising out of debts purchased by M/s SBI Global Factors Ltd from the assessee. This does not extend to the nature of debt thereby establishing that discounting / factoring charges are not in the nature of interest as defined in section 2(28A) - See M/S. MKJ. ENTERPRISES LTD. 2014 (1) TMI 1484 - ITAT KOLKATA - Decided in favour of assessee. Applicability of Second Proviso to section 40(a)(ia) as inserted by the Finance Act, 2012 with effect from 01/04/2013 - We place our reliance on the decision of Perfect Circle India P. Ltd 2019 (1) TMI 1532 - BOMBAY HIGH COURT as held that the Second Proviso to section 40(a)(ia) has retrospective effect from 01/04/2005, the date from when the impugned Proviso to section 40(a)(ia) was inserted. The Hon ble High Court also relied on the decision of Ansal Landmark Township P Ltd 2015 (9) TMI 79 - DELHI HIGH COURT which held that section 40(a)(ia) is not a penalty and insertion of Second Proviso is declaratory and curative in nature and would have retrospective effect from 01/04/2005 and not with effect from 01/04/2013 - we accept the contention of the assessee. Since the payee has already paid the said tax the assessee cannot be treated as an assessee in default as per the provisions of section 201(1) of the Act, we thereby dismiss this ground of appeal filed by the Revenue.

Summary

Issues:
1. Interpretation of section 40(a)(ia) of the Income-tax Act, 1961 regarding factoring charges.
2. Applicability of the Second Proviso to section 40(a)(ia) inserted by Finance Act, 2012.

Analysis:

Issue 1:
The appeal involved the interpretation of section 40(a)(ia) regarding the treatment of factoring charges incurred by the assessee. The Revenue contended that the factoring charges should be treated as interest, subject to TDS deduction. The Ld.CIT(A) had deleted the addition, relying on the decision of the Hon'ble Supreme Court in Bombay Steam Navigation Co. Pvt Ltd vs CIT (1963) and the nature of factoring charges. The assessee argued that the factoring charges were not in the nature of interest and thus, TDS deduction was not applicable. The tribunal examined the transaction between the assessee and M/s SBI Global Factors Ltd, emphasizing that it was a discounted sale consideration, not a debt or credit facility. Relying on the definition of 'interest' under section 2(28A) and previous case law, the tribunal concluded that the factoring charges were not interest, and TDS deduction was not required under section 40(a)(ia). The tribunal dismissed the Revenue's appeal based on this analysis.

Issue 2:
The second issue revolved around the applicability of the Second Proviso to section 40(a)(ia) inserted by the Finance Act, 2012. The Revenue argued that this Proviso had retrospective effect from 01/04/2013, affecting the assessee's case. However, the tribunal referred to the decision of the Hon'ble Bombay High Court and the Hon'ble Delhi High Court, which held that the Second Proviso had retrospective effect from 01/04/2005, not 01/04/2013. By following these decisions, the tribunal accepted the assessee's contention that since the payee had already paid the tax, the assessee could not be treated as an assessee in default under section 201(1) of the Act. Consequently, the tribunal dismissed this ground of appeal filed by the Revenue.

In conclusion, the tribunal upheld the Ld.CIT(A)'s decision, ruling in favor of the assessee and dismissing the appeal filed by the Revenue. The judgment provided a detailed analysis of the legal provisions, case law, and factual circumstances to arrive at its decision, ensuring a comprehensive examination of the issues raised in the appeal.