2024 (6) TMI 856 - AT - Income Tax

TDS u/s 194A - Delay interest is charged by the broker which has been shown as finance cost for delayed payments - HELD THAT - We find that in this case the interest payments have been made to the broker for delayed payments of amounts due to the broker and no TDS has been deducted at source from the said interest. We note that the said interest has not been incurred by the assessee on any amount borrowed during the normal course of business and therefore, cannot be considered as interest u/s 2(28A) of the Act. In our opinion, the provision of Section 194A of the Act is applicable only to the interest on borrowed capital and not on the interest which is paid on delayed payment of purchase considerations. The case of the assessee finds support from the decision of the Coordinate Bench in the case of Harbhajan Singh 2017 (1) TMI 1089 - ITAT KOLKATA wherein the similar issue has been decided in favour of the assessee - We direct the AO to delete the addition. Appeal filed by the assessee is allowed.

Summary

Issues:
Confirmation of addition of interest paid on delayed payment to share broker without TDS deduction.

Analysis:
The appeal was against the order of the Commissioner of Income-tax (Appeals) regarding the addition of Rs. 24,68,080 as interest paid on delayed payment to a share broker without TDS deduction. The Assessing Officer observed that interest was charged for delayed payments to the share broker without TDS deduction, leading to the addition. The AO contended that the interest falls under Section 2(28A) of the Act, making it subject to TDS. The CIT(A) upheld the AO's decision.

Upon review, the ITAT found that the interest payments were for delayed payments to the broker and not on borrowed capital, thus not falling under Section 2(28A) of the Act. The ITAT referenced a similar case where TDS was duly deducted, supporting the assessee's argument. The ITAT emphasized that Section 194A applies to interest on borrowed capital, not on delayed payment of purchase considerations. The ITAT cited various judgments to support the distinction between interest on borrowings and compensatory payments unrelated to debt.

Additionally, the ITAT highlighted that the payment did not qualify for deduction under Section 36(1)(iii) or under Section 37, as it was not related to income from other sources or capital borrowed for business purposes. The ITAT concluded that the payment was compensatory and directly linked to trade liability, not falling under the definition of "interest" for TDS purposes. Relying on precedents, the ITAT allowed the appeal and directed the AO to delete the addition.

Considering the similarities with the referenced case, the ITAT set aside the CIT(A)'s decision and instructed the AO to remove the addition. The appeal by the assessee was allowed, and the decision was made on 8th January 2024 in Kolkata.