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TMI Blog2011 (2) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.97 crores claimed by the assessee u/s 37(1) of the Act - Held that:- 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. In the present case, on the aforesaid facts appearing on record, in our opinion, the Tribunal rightly held that the discount charges paid were not in respect of any debt incurred or money borrowed. Instead, the assessee had merely discounted the sale consideration respectively on sale of goods. - Decided in favor of assessee. - IT APPEAL NOS. 204 AND 331 OF 2011 - - - Dated:- 17-2-2011 - A.K. SIKRI, M.L. MEHTA, JJ. Ms. Prem Lata Bansal and Deepak Anand for the Appellant. Salil Kapoor for the Respondent. JUD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee to CFSA cannot be held to be interest and therefore, provisions of section 40(a)(i) of the Act would not apply. Accordingly, he allowed the expenditure of Rs. 3.97 crores as claimed by the assessee. 4. The revenue did not accept the aforesaid decision of the CIT(A) and therefore, challenged the same by filing the appeal before the Tribunal, though unsuccessful as the Tribunal has affirmed the order of the CIT(A). The Tribunal observed that discounting charges were not in the nature of interest paid by the assessee, rather assessee had received net amount of bill of exchange accepted by the purchaser after deducting amount of discount. Since CFSA was having no permanent establishment in India, it was not liable to tax in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e treated as 'interest' within the meaning of section 2(28A) of the Act. 7. We may also point out at this stage that CFSA is a company incorporated in Singapore and a tax resident of Singapore. CFSA, inter alia, underwrite or otherwise acquire, own, hold, sell or exchange securities or investments of any kind including negotiable instruments, commercial paper etc. Accordingly, as a part of its aforesaid business, it draws, makes, accepts, endorses, discounts, executes and issues promissory notes, BE etc. Further CFSA does not have a permanent establishment (PE) in terms of Articles 5 of the India Singapore Treaty ('the Treaty' or the 'DTAA'). 8. We may also record the following nature of the transaction undertaken between the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the Tribunal that the discounting charges paid by the assessee is not an interest as neither any money is borrowed nor any debt is incurred. The expression 'interest' is defined under section 2(28A) of the Act, which reads as under : ""Interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debit incurred or in respect of any credit facility which has not been utilised." 10. It is clear from the above that 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the supplier's account straightaway without waiting for realization of the bill on due date, the property in the usance bill/hundi passes on to the bank and the eventual collection on due date is a receipt by the bank on its own behalf and not on behalf of the supplier. For such cases of immediate discounting the net payment made by the bank to the supplier is in the nature of a price paid for the bill. Such payment cannot technically be held as including any interest and therefore, no tax need be deducted at source from such payment by the bank. The decision relied by the Assessing Officer in the case of Vijay Ship Breaking Corpn. (supra) has been reversed by the Hon'ble Supreme Court as reported in the case of Vijay Ship Breaking Corpn. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e eventual collection on due date is a receipt by the bank on its own behalf and not on behalf of the supplier. For such cases of immediate discounting the net payment made by the bank to the supplier is in the nature of a price paid for the bill. Such a payment cannot technically be held as including interest and therefore no tax need be deducted at source from such payments by the bank. Further, the buyer need not deduct any tax from the payment made by him on due date to the bank in respect of such discounted bill inasmuch as these payments are to a bank or a banking co-operative society, conforming to the exemption granted by section 194A(3)(iii)(a) of the Income-tax Act, 1961. 2. On the other hand where there is no immediate discount ..... X X X X Extracts X X X X X X X X Extracts X X X X
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