TaxTMI 
TaxTMI 
2015 (6) TMI 759
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.... 2,79,89,810/-. The assessment was taken up for scrutiny by issuance of notice u/s 143 (2) of the Act and scrutiny assessment u/s 143(3) was completed vide order dated 16.12.2011 assessing total income at Rs. 3,73,58,680/-. The Assessing Officer made an addition of Rs. 93,68,870/- on account of factoring/discounting charges by invoking the provisions of section 40(a)(ia) of the Act as no tax at source was deducted on the same. 4. Brief facts with regard to the addition are as follows. In the course of assessment proceedings, it was noticed from the "note to the accounts" filed by the assessee at point no.11 of the audited report as under :- "11. The company has availed the factoring facility from Global Trade Finance Limited on which the same has been charging discount. The company has not deducted TDS as it is not an interest." The AO further noticed that in the P&L account, an amount of Rs. 93,68,870/- was debited under the head factoring / discounting charges. The said payment was made by the assessee to M/s. Global Trade Finance Limited (hereinafter referred to GTF). The assessee was show-caused to submit the details in respect of expenses incurred under the head fa....
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.... In the case of the appellant, GTF, which is a Non-banking Financial Corporation (NBFC), provided factoring services. The services provided by GTF were "recourse factoring services" where the risk of bad debts was not borne by the former and was passed on to the appellant after a specific period of time. (iv) "GTF had secured personal guarantee of the Directors of the appellant company before granting the factoring facility. (v) GTF had also secured English mortgage on the residential bungalow located at 0-926, New Friends Colony, New Delhi prior to granting the funding. This clearly indicates that the provided facility was not of "discounting of bills" as contended by the appellant as GTF had ensured that the funds provided by it were secured and recoverable from the appellant, in case of any default committed by the debtors. (vi) GTF also took an undertaking that any purchases/advances from debtors mentioned in the term sheet shall be with prior intimation to GTF. Likewise, an undertaking for debtors was also required to be submitted to GTF. (vii) The General Term No.11 of the agreement specifies that GTF treats prepayments of 80% of invoices as "borrowings". (viii....
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....ilar rights or obligations' and further includes any service, fees or other charges in respect of such money borrowed or debt incurred which would include deposit, claim or other similar rights or obligations as also in respect of any credit facilities which has not been utilized. Thus, the statutory definition given under Section 2(28A) regards amounts which may not otherwise be regarded as interest, for the purpose of the statute. Undisputedly, in the instant case, the factoring charges were paid in respect of an obligation incurred in relation to the money borrowed through bills, therefore, no fault can be found on the part of the AO for treating these charges as interest and liable for tax deduction at source under Section 194A. The mere fact that the appellant did not characterize such payment as interest, will not take the same out of the ambit of the definition of "interest", insofar as payment made by the appellant was in respect of an obligation incurred under the terms of the bill so discounted. The appellant had essentially taken a financial help against the bills and the amount of charges paid was with respect to the amount of bill and the period for which the money....
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....s is not to be treated as interest and is not liable to be deducted at source u/s 194A of the Act. For the above proposition, ld. AR relied on the judgment of the Hon'ble Calcutta High Court in the case of CIT vs. MKJ Enterprises reported in GA No.1927 of 2014 (Kol.). It was further submitted that Hon'ble jurisdictional High Court in the case of CIT vs. Cargill Global Trading (P.) Ltd. reported in 335 ITR 94 (Del.) is also clearly applicable to the facts of the case. It was submitted that the factoring charges/bill discounting charges is not coming within the ambit of definition of interest u/s 2(28A) of the Act. The ld. AR also relied on the judgment of Hon'ble Allahabad High Court in the case of Vector Shipping Services Pvt. Ltd. reported in 357 ITR 642 (All.) for the proposition that amounts are not outstanding as payable at the end of the year and, therefore, no disallowance u/s 40(a)(ia) can be made. 8. Ld. DR supported the orders of the authorities below. 9. We have heard the rival submissions and perused the material on record. In the instant case, the Assessing Officer, at page 13 of the assessment order, had listed out the distinction between factoring and bill/invoi....