2016 (6) TMI 1394 - AT - Income Tax

Tribunal Upholds Deletion of TDS Addition for Business Expenditures

The Tribunal dismissed the Revenue's appeal, upholding the deletion of the addition for non-deduction of Tax Deducted at Source (TDS) under section ... TDS u/s 194A - Non deduction of TDS u/s 40(a)(ia) on bill discounting charges - According to the AO, this bill/discounting charges are interest expenses as per the provision of section 2(28A) of the Act and therefore the assessee was liable to deduct TDS - HELD THAT:- As decided in own case [2014 (1) TMI 1484 - ITAT KOLKATA] discounting charges of Bill of Exchange or. factoring charges of sale cannot be termed as interest. The assessee in the present case is acting as an agent. Now what is this is to be seen. According to us, a Del Credere is an agent, who, selling goods for his principal on credit, undertakes for an additional commission to sell only to persons for whom he can stand guarantee. His position is thus that of a surety who is liable to his principal should the vendee make default. The agreement between him and his principal need not be reduced to or evidenced by writing, for is undertaking is a guarantee. A Del Credere Agent is an agent who not only establishes a privity of contract between his principal and the third party, but who also guarantees to his principal the due performance of the contract by the third party. He is liable, however, only when the third party fails to carry out his contract, e.g., by insolvency. He is not liable to his principal if the third party refuses to carry out his contract, for example, if the buyer refuses to take delivery. In the present case before us the assessee has assessed the income as Del Credere being trading in goods and merchandise and also dealing in securities and which is assessed as income from business and not income from other sources. The expenditure incurred is also on account of business expenditure and not interest expenditure in the nature of interest falling u/s. 194A of the Act. Accordingly, these discount/factoring charges do not come within the purview of section 194A and assessee is not liable to TDS on these charges. - Decided in favour of assessee. Issues Involved:Revenue's appeal against deletion of addition for non-deduction of TDS under section 40(a)(ia) of the Income Tax Act, 1961.Analysis:1. The appeal by the Revenue before the Appellate Tribunal ITAT Kolkata challenged the deletion of an addition made by the Assessing Officer for non-deduction of Tax Deducted at Source (TDS) amounting to Rs. 58,12,733 under section 40(a)(ia) of the Income Tax Act for the assessment year 2009-10. The assessee, a Private Limited Company engaged in trading business, had paid bill discounting charges without deducting TDS. The Assessing Officer treated these charges as interest expenses, requiring TDS deduction under section 194A of the Act.2. The CIT(A) allowed the appeal in favor of the assessee after considering the contentions. The Tribunal noted that a similar issue had been decided in favor of the assessee in a previous case. The Tribunal referred to the definition of interest and the role of a Del Credere agent in explaining that the discounting charges of Bill of Exchange or factoring charges of sale cannot be considered as interest. The Tribunal held that these charges were business expenditures and not interest expenditures falling under section 194A of the Act. Therefore, the assessee was not liable to TDS on these charges.3. Citing the decision of the Hon'ble Supreme Court in the case of Bombay Steam Navigation Co. Pvt. Ltd. Vs. CIT (1963) 56 ITR 52 (SC), the Tribunal emphasized the distinction between interest on a loan and unpaid consideration giving rise to a lien over goods sold. The Tribunal concluded that the charges in question did not fall under the purview of section 194A and upheld the CIT(A)'s decision to delete the addition made by the Assessing Officer.4. Consequently, the Tribunal dismissed the Revenue's appeal, following its decision in the assessee's previous case. The judgment was pronounced on 30/06/2016, affirming the deletion of the addition for non-deduction of TDS under section 40(a)(ia) of the Income Tax Act for the relevant assessment year.