TMI Blog2020 (12) TMI 1233X X X X Extracts X X X X X X X X Extracts X X X X ..... he distributors. TDS u/s 194A - Interest delay in payment of bills for purchases effected - HELD THAT:- It is not disputed that the interest paid is not for any loan or debt incurred by the assessee but for the delay in payment of bills for purchases effected from M/s. Sinermas Pulp Papers Ltd. Therefore, it has to be seen as to whether such payment is in the nature of interest as envisaged u/s. 2(28A) of the Act. As seen from the order of the ITAT Ahmedabad Bench in the case of Parag Mahasukhlal Shah [ 2011 (6) TMI 148 - ITAT, AHMEDABAD] the Tribunal has held that a payment which has direct link and immediate nexus with the trading liability being connected with the delayed purchase payments will not fall within the category of interest as defined in section 2(28A) of the Act. The payment made by the assessee in the present appeal being of similar nature also cannot be termed as interest as defined u/s. 2(28A) - Decided in favour of assessee. - I.T.A. No. 6803/Mum/2018, C.O. No. 51/Mum/2020 - - - Dated:- 11-12-2020 - SHRI S. RIFAUR RAHMAN, AM AND SHRI RAM LAL NEGI, JM For the Appellant : Shri Anand Mohan, DR For the Respondent : Shri Kirit Kamdar, AR ORD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assessee Company, to promote and effect sales on behalf of assessee. b. Whether the facts and circumstances of the case and in law, the CIT(A) was justified in holding that bonus and incentive offered by the assessee company to stockist were also in nature of discount and therefore not covered under Section 194H, without appreciating the fact that such bonus/incentive are offered subsequent to sales and therefore are essentially in nature of commission as envisaged u/s 194H. c. Whether on the facts and circumstances of the case and in law, the CIT (A) was justified in holding that provision of interest made was in nature of liquidation damages and therefore connected to sales or purchase without appreciating the fact that the assessee itself categorised this expenditure as interest and therefore the same is covered u/s 194Aof the Act. d. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary at the time of hearing of the case or thereafter. e. The order of the CIT(A) being erroneous be set aside and Ld. A.O's order be restored. 6. Before us, Ld DR with regard to ground no. (a) (b) submitted that assessee is a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not appreciated the facts that assessee itself categorised these expenditure as interest, therefore this payment of interest comes under 194A of the Act and he heavily relied on the findings of AO. 9. On the other hand, Ld. AR submitted that provision of interest is in the nature of penal, therefore he submitted that this issue is also covered by the decision of Coordinate Bench of ITAT in the case of Income-tax Officer, Ward-2(2), Ahmedabad v. Parag Mahasukhlal Shah [2011] 12 taxmann.com 37 (Ahmedabad) and Sri Venkatesh Paper Agencies (Hyd.) (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle-3(1), Hyderabad [2012] 24 taxmann.com 52 (Hyd.) 10. With regard to CO filed by the assessee, he submitted that assessee does not want to press the grounds raised in C.O. 11. Considered the rival submissions and material placed on record. With the ground no. (a) and (b), we notice that the Coordinate Bench of ITAT in ITA No. 4592 4593/Mum/2014 in the case of ITO(TDS) vrs. Unichem Laboratoreis Ltd. has already decided the similar issue on the grounds raised by the revenue in the present case. For the sake of clarity, which is reproduced below:- 8. We have considered the riv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed to the distributor on sale of products by the assessee company to the distributor at the time of delivery by the carrier to the distributor as per stipulated terms of distribution agreement. We have also observed that the assessee company is raising sale invoice s on the distributor M/s Rudra Pharma Distributors Limited which are placed on the paper book filed by the assessee company at page 35 while the ledger account showing invoices raised and payments received from distributor M/s Rudra Pharma Distributors Limited by the assessee company is also placed in the paper book filed by the assessee company at page 36 to 51. We have also observed that the said distributor M/s Rudra Pharma Distributors Limited is registered with VAT authorities and is raising its invoices (including VAT) to their customers , whereby all the above facts clearly reflects that the distributors is buying the products from the assessee company and then selling the same in its own right with all risks and rewards of ownership got vested in the said distributors on the delivery of goods by carrier to the said distributor which is also supported by the clause 5 of the distribution agreement dated 01-07-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. CIT v. Indo Matsushita Carbon Co. Ltd. [2006] 286 ITR 201 / 122 Taxman 516 (Mad.) 2. British Bank Middle East v. CIT [1998] 233 ITR 251 (Bom.) 3. CIT v. Jackson Engineers Ltd. [2010] 231 CTR 348 (Delhi) 4. CIT v. Advance Detergents Ltd. [2010] 228 CTR 356 (Delhi) 5. Phatela Cotgin Industries P. Ltd. v. CIT [2008] 303 ITR 411 / 166 Taxman 9 (Punj. Har.) 6. Tata Sponge Iron Ltd. v. CIT [2007] 292 ITR 175 / 165 Taxman 191 (Ori.) 6. We have carefully perused the decision of the Hon'ble Jurisdictional High Court, Nirma Industries Ltd. (supra) wherein observation in respect of the issue involved is as under :- 33. However, the parties having made elaborate submissions, the matter may be examined from a slightly different angle. When the assessee enters into a contract for sale of its products it could either stipulate (a) that interest at the specified rate would be charged on the unpaid sale price and added to the outstanding till the point of time of realisation, or (b) that in case of delay the payment for sale of products worth ₹ 100 to carry the sale price of ₹ 102 for first month's delay, ₹ 104 for second month's delay, &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 of interest as per section 2(28A) of the Income-tax Act. While pondering upon the issue, we have come across a decision of Respected National Consumer Disputes Redressal Commission, wherein in the case of Ghaziabad Development Authority v. Dr. N.K. Gupta [2002] 258 ITR 337 (NCDRC), it was held as under :- Held, affirming the order of the State Commission, that section 194A of the Income-tax Act, 1961, did not apply to the payment made by the petitioner Authority. The Authority was asked to pay interest on the amount refunded to the complainant because of its failure to construct the promised flat and to provide the necessary facilities. The amounts deposited by the respondent with the petitioner Authority were not paid by way of deposit, nor had the petitioner Authority borrowed those amounts. Interest payment in this case was by way of damages. Merely because the damages were de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o deduct tax. On plain reading of this section, it is apparent that the term interest used in this section relates to and in connection of a debt or a loan or a deposit. The circumstances under which the assessee is required to deduct the tax has also been narrated. Therefore, a conclusion can be drawn that if a payment is compensatory in nature and not related to any deposit/debt/loan, then such a payment is out of the ambits of the provisions of section 194A of the Income-tax Act. To buttress this legal proposition, we hereby placed reliance on the decision of Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. (supra), wherein the question was the admissibility of deduction under sections 80HH and 80-I of the Income-tax Act in respect of interest received from trade debtors. The observation was that when an assessee enters into a contract for sale of its product, it could either stipulate that interest at the specified rate would be charged on the unpaid sale price or it can be agreed upon that in case of delay the sale price shall escalate. As per the Hon'ble Court, the sum and substance of the discussion was that only two modes are plausible for realizati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customers could clearly be termed to be an income derived from Industrial Undertaking. It was observed that such an interest is distinct from interest income which is being received from Fixed Deposit. Case laws referred were CIT v. Paras Oil Extraction Ltd. [1998] 230 ITR 266/96 Taxman 234 (MP) and Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278/ 129 Taxman 539 (SC). 11. An another interesting feature involved to resolve this controversy is that the revenue otherwise cannot allow the claim of payment under section 36(1)(iii) of the Act because as per this section, the deduction is provided in respect of the amount of interest paid in respect of capital borrowed for the purpose of business. The only provision under the Act is section 37 under which this payment/expenditure is allowable being laid out wholly and exclusively for the purpose of the business. The nature of payment is such that it cannot be considered either under section 56 of the Act, i.e., Income from other sources or under section 57 of the Act prescribing deductions only in respect of income from other sources . Inter alia, the conclusion is that since the nature of payment did not fall within the category ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 40(a)(ia) in view of the ITAT Special Bench decision in the case of Merilyn Shipping Transports v. Addl. CIT [2012] 136 ITD 23/ 20 taxmann.com 244 (Visakha) . In the afore said view of the matter, the disallowance made under section 40(a)(ia ) cannot be sustained. Therefore, the Assessing Officer is to be directed to delete the same. The appeal is to be allowed. 10. We have heard rival contentions and perused the material on record. It is not disputed that the interest paid of ₹ 3,12,600 is not for any loan or debt incurred by the assessee but for the delay in payment of bills for purchases effected from M/s. Sinermas Pulp Papers Ltd. Therefore, it has to be seen as to whether such payment is in the nature of interest as envisaged u/s. 2(28A) of the Act. As seen from the order of the ITAT Ahmedabad Bench in the case of Parag Mahasukhlal Shah (supra) the Tribunal has held that a payment which has direct link and immediate nexus with the trading liability being connected with the delayed purchase payments will not fall within the category of interest as defined in section 2(28A) of the Act. The payment made by the assessee in the present appeal being of similar n ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
