2007 (1) TMI 215 - AT - Income Tax

Summary

Issues Involved:
1. Whether discounting charges are to be treated as interest u/s 2(28A) and attract provisions of TDS u/s 194A.
2. Whether interest u/s 201(1A) should be charged from the date of deductibility of tax till the payment by the deductee.

Summary:

Issue 1: Treatment of Discounting Charges as Interest u/s 2(28A) and TDS u/s 194A

In the cross-appeals filed by the Revenue and the assessee, the primary issue was whether the discounting charges amounting to Rs. 45,96,349 and Rs. 49,40,717 should be treated as interest within the definition of s. 2(28A) and thereby attract the provisions of s. 194A of the IT Act, 1961. The AO concluded that these charges were in respect of debts incurred by the assessee and were covered within the definition of 'Interest' under s. 2(28A), thus attracting the provisions of s. 194A. The CIT(A) confirmed the AO's view, observing that even though the payment was debited under the head "discount charges," it was in the nature of interest under s. 2(28A). The CIT(A) relied on the Hon'ble Madras High Court's decision in Vishwapriya Financial Services & Securities Ltd. vs. CIT (2003) 179 CTR (Mad) 334. The Tribunal upheld the CIT(A)'s order, stating that the statutory definition of interest u/s 2(28A) includes any service fee or other charge in respect of moneys borrowed or debt incurred, and thus, the discounting charges were rightly treated as interest and liable for TDS u/s 194A.

Issue 2: Charging of Interest u/s 201(1A)

The Revenue's appeal contested the CIT(A)'s direction to charge interest u/s 201(1A) from the date of deductibility of tax till the payment by the deductee, arguing that interest should be computed till the date of actual payment of taxes. The Tribunal, however, upheld the CIT(A)'s direction, referencing CBDT Circulars and the jurisdictional High Court's decision in CIT vs. Majestic Hotel Ltd. (2006) 204 CTR (Del) 330. The Tribunal noted that interest, being compensatory in nature, should be charged till the date the tax is actually deposited, regardless of whether it is paid by the deductee or the assessee. Therefore, the CIT(A)'s order to levy interest from the date of deductibility till the payment by the deductee was found to be justified.

Conclusion:

Both the appeals of the assessee and the Revenue were dismissed, affirming the treatment of discounting charges as interest u/s 2(28A) and the direction to charge interest u/s 201(1A) from the date of deductibility till the payment by the deductee.