Bill discounting receipts treated as discounting charges, not interest, and held not taxable in India absent a permanent establishment.

Amounts received on without recourse discounting of bills of exchange and promissory notes were treated as discounting charges, not interest, because the transaction did not involve money borrowed or debt incurred by the recipient within section 2(28A). The Tribunal followed its earlier rulings in the assessee's own case and the jurisdictional High Court, and rejected the Revenue's objections based on the surrounding commercial arrangement and RBI/FEMA references. As the non-resident assessee had no permanent establishment in India, the receipts were not taxable in India as interest income under the treaty.

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Issues: Whether the amounts received by the assessee on discounting bills of exchange and promissory notes from Indian group entities were interest under section 2(28A) of the Income-tax Act, 1961 and Article 11 of the India-Singapore DTAA, or discounting charges not taxable in India in the absence of a permanent establishment.

Analysis: The assessee, a Singapore tax resident, purchased bills of exchange and demand promissory notes on a without recourse basis and received the discounted amount upfront, with the face value realized on maturity from the obligor. The dispute was whether the difference between the face value and the discounted value constituted interest or merely discounting charges. The Tribunal followed its earlier decisions in the assessee's own case and the jurisdictional High Court decision, and noted that the transaction did not involve money borrowed or debt incurred by the assessee within the meaning of section 2(28A). It also found no distinguishing feature in the Revenue's objections concerning the surrounding commercial arrangement, RBI/FEMA references, or the manner in which the transaction was recorded.

Conclusion: The receipts were held to be discounting charges and not interest; they were not taxable in India in the hands of the assessee in the absence of a permanent establishment.

Ratio Decidendi: Discount received on without recourse bill discounting or promissory note discounting, where no money is borrowed and no debt is incurred by the recipient, does not fall within the statutory definition of interest under section 2(28A) and, for a non-resident without a permanent establishment in India, is not taxable as interest income under the treaty.

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