2018 (8) TMI 2061 - HC - Income Tax

Interest on overdue receivables integral to sale transaction with Associated Enterprise

The High Court of Karnataka held that interest on overdue receivables, when not recovered within the stipulated time, is not a separate international ... TPA - adjustments on account of national interest for the excess period allowed by the assessee - company to its AE for realization of its dues - substantial question of law or fact - Maintainability of appeal in High court - HELD THAT:- This Court in a recent judgment in M/s. Softbrands India Pvt. Ltd [2018 (6) TMI 1327 - KARNATAKA HIGH COURT] has held that in these type of cases, unless an ex-facie perversity in the findings of the learned Income Tax Appellate Tribunal is established by the appellants, the appeal at the instance of an assessee or the Revenue under Section 260-A of the Act is not maintainable. No substantial question of law arises in the present case also Issues:1. Interpretation of the substantial question of law raised by the Appellants-Revenue regarding interest on overdue receivables as an international transaction under the Income Tax Act, 1961.Analysis:The High Court of Karnataka considered an appeal filed by the Appellants-Revenue under section 260A of the Income Tax Act, 1961, based on a substantial question of law arising from an order of the ITAT, Bangalore Bench 'B'. The key issue revolved around whether interest on overdue receivables, when the recovery is not made within the stipulated time, constitutes a separate international transaction subject to Arms Length Price. The Tribunal, after analyzing the contentions of both parties, concluded that the transaction in question, i.e., interest on delayed realization of sale proceeds, is not an independent international transaction but an integral part of the main sale transaction to the Associated Enterprise (AE). Citing a similar case precedent, the Tribunal held that late realization of sale proceeds is incidental to the sale transaction and not a separate transaction in nature. Consequently, the appeal was treated as partly allowed for statistical purposes.In a contrasting judgment delivered in a separate case, the Court emphasized that unless there is an evident perversity in the findings of the ITAT, appeals under section 260A of the Act are not maintainable. The Court highlighted that issues related to the selection of comparables or application of filters for determining comparables do not constitute substantial questions of law. It was clarified that dissatisfaction with the Tribunal's factual findings alone is insufficient to invoke section 260A. The Court dismissed the Revenue's appeals in that case, emphasizing the need for consistent parameters in assessing appeals filed by both Revenue and Assessees.After hearing arguments from both parties in the present case, the Court concurred with the previous judgment's principles, stating that no substantial question of law arose. Consequently, the appeal by the Appellants-Revenue was dismissed, with no costs imposed. The judgment underscored the importance of maintaining consistent standards in evaluating appeals and reiterated that mere dissatisfaction with factual findings does not warrant invoking section 260A of the Act before the Court.