Interest on delayed payment liable to TDS us 194A ?

[Vivek Jalan]

Whether interest on delayed payment partakes the product/service sold or whetherit is financial compensation and falls under definition of Interest u/s 2(28A) liable to TDS u/s 194A. In this regard, reference can be made to the case of Nirma IndustriesLtd., which stood upheld and SLP of revenue was dismissed as per the citation C.I.T. VERSUS M/S. NIRMA INDUSTRIES LTD. [2007 (4) TMI 727 - SC ORDER]. Also reliance can be placed on Section 15 of The CGST Act 2017 which provides that interest on delayedpayment partakes the product/service sold as It is not the assesses business to lend funds and earn interest.

U/s 2(28A), "Interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar rightor obligation) and includes any service fee or other charge in respect of the moneysborrowed or debt incurred or in respect of any credit facility which has not been utilized. Therefore, the interest is a payment of money in lieu of use of borrowings.It is payable by a debtor to the creditor. But it is also worth to note that the said definition is not wide enough to include other payments. There ought to be distinction between the payments not connected with any debt, with a payment having connection with the borrowings. A payment having no nexus with a deposit, loan or borrowings is out of the ambits of the definition.

In view of the definition of "interest" in section 2(28A), the provisions of section 194A were not applicable to interest on delayed payment.