TaxTMI 
TaxTMI 
2020 (12) TMI 1233
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....,24,76,938/-. A survey was conducted on the premises of the assessee u/s 133A(2A) of the Act on 14th Feb 2017 in order to determine whether there was a non-deduction of tax at source on payments made or amount credited to the account of various payee by the company during the financial year 2009-10. Further notices were issued u/s 201(1)/201(1A) of the Act and in response, submissions were filed by the assessee. Subsequently, vide an order dated 30th March 2017 passed u/s 201(1)/201(1A) of the Act. A demand of Rs. 52,26,02,233 (including interest of Rs. 24,82,58,610/-) was determined as payable for year under consideration which was in relation to addition on account of discount to stockist, bonus to stockist and interest to MSME. 4. Aggrieved with the above order, assessee preferred an appeal before Ld. CIT(A) and Ld. CIT(A) after considering the submission of assessee, partly allowed the appeal of the assessee. 5. Aggrieved with the above order, the revenue is in appeal raising the following grounds of appeal:- a. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in holding that the transaction of sale between the as....
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....ent of all claims for date expired goods. He submitted that this Clause clearly indicates the relationship exists on the basis of principle and agency because the entire liability on stock not transferred to the stockist. The stockist can return the expired goods. He further brought to our notice page 30 of the order of Ld. CIT(A) and objected the findings of Ld. CIT(A) that there exist principal to principal basis. He referred to the above said Clause-10 of the agreement and submitted that Ld. CIT(A) has wrongly presumed that there exists principle to principle basis overlooking the facts that discounts are paid after sales. Therefore, it can only be commission and provision of section 194H is applicable. 7. On the other hand, Ld. AR brought to our notice the findings of Ld. CIT(A) at page no. 17, para 10 of the order of Ld. CIT(A) and he referred to the case law paper book, particularly the case of M/s Piramal Healthcare Ltd. (21 taxmann.com 225) (Mum-Trib) and the same case was upheld by Hon'ble Bombay High Court, which are placed on record. He further relied on the case of ITO(TDS) vrs. Unichem Laboratoreis Ltd. (ITA No. 4592-4593/Mum/2014) and brought to our notice page 38 ....
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....s-medicine were effected by the assessee company. It is pertinent to note that the assessee company is dealing in products/goods i.e. drugs-medicine and not in the services. The distributors are required to notify any shortages during shipping or handling within 7 days of arrival of products at final destination to the assessee company along with endorsement on Lorry Receipt of the transporter along with shortage certificates by the transporter to claim loss from the assessee company, in other situations the loss or damage to products shall be borne by the distributor. The drugs being medicines contains certain restriction on the sale w.r.t. good governance and conduct by the distributors to follow first expiry and first out basis as the medicines having expiry could not be sold after the stipulated date of expiry , otherwise it will be health hazard to the consumers , the assessee company as normal market practice takes back the said expired drugmedicines from distributors which has expired and pay back the distributors but that does not in our humble opinion is decisive or change the character of dealing between the assessee company and the distributor which primarily continues t....
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....n the case of Income-tax Officer, Ward-2(2), Ahmedabad v. Parag Mahasukhlal Shah [2011] 12 taxmann.com 37 (Ahmedabad) has already decided the similar issue raised by the revenue in the present case. For the sake of clarity, which is reproduced below:- 5. We have heard both the sides at some length. Admitted factual position is that the assessee is having a dealership of FAG Bearing (India) Ltd. and, therefore, in the business of sales of ball-bearings. This fact has also not been denied that there were certain terms and conditions agreed upon between the two parties in case of delay in payments. Whenever there was delay in payment or the payments got overdue, there was a condition to compensate the delay. Likewise, in case of prompt payment, the terms of payments have prescribed a facility of cash discount. Therefore, the fundamental and primarily argument from the side of the respondent-assessee was that the amount paid to compensate the delay in making the payment was nothing but the added sales price of the said commodity. Inter alia, it has also been argued that the impugned nature of payment was not within the definition of interest as prescribed under section 2(28A) ....
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....on to offering of cash discount. Thus, in principle, in reality, the transaction remains the same and there is no distinction as to the source. It is incorrect to state that the source for interest is the outstanding sale proceeds. It is not the assessee's business to lend funds and earn interest. The distinction drawn by Revenue is artificial in nature and is neither in consonance with law nor commercial practice." 7. In the light of the above precedent, we deem it proper to discuss the relevant provisions of Income-tax Act. 7.1 Section 2(28A) of the Income-tax Act has defined the term "interest" as follows: "Section 2(28A) : "interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized." 7.2 The true character of the term interest has been defined, but the definition appears to be wide, inter alia, covers interest payable in any manner in respect of loans, debts, deposits, claims and other ....
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.... not decide the issue. In view of the definition of "interest" in section 2(28A), the provisions of section 194A were not applicable and the petitioner Authority was wrong in deducting tax at source from the interest payable to the respondent (complainant)." 7.3 This decision is very helpful to decide this appeal because it was held that if the nature of payment is to compensate an allottee, then the provisions of section 194A not to be applied as far as the question of deduction of TDS on interest is concerned. Though the said compensation was mentioned as "interest" but the Hon'ble Members have held that the word used "interest" did not fall within the definition as defined under section 2(28A) of the Income-tax Act. 8. The provisions of section 194A reads as follows :- "194A. Interest other than "Interest on securities".-(1) Any persons. Not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income [by way of interest on securities], shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheq....
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....me was held as distinct from interest income which is received from Fixed Deposit. The Courts have delivered these judgements by taking into consideration the immediate source of said receipt. If the immediate source is a loan, deposit, etc., then the payment is in the nature of "interest" but if the immediate source of receipt of payment is trade activity, then the nature of receipt is not "interest payment" but in the nature of payment of compensation. 9. In the case of Indo Matsushita Carbon Co. Ltd. (supra), the question was that whether overdues from trade debtors is eligible for relief under section 80HHC/80-I of the Income-tax Act. In that context the Hon'ble Court has commented that it is settled that the interest earned on the belated payment would be directly relatable to the business of the assessee. If the purchaser did not make the payment in time and agreed to pay the interest on the belated payments, the said interest would have direct nexus with the business activity. The true test would be whether such interest would have been available to the assessee otherwise also; and the answer to the question as per the Hon'ble Court was in negative. Hence, i....
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...., this assessee cannot be held a defaulter of non-deduction of tax at source under section 194A of the Act. The Learned CIT (Appeals) has rightly reversed the findings of the Assessing Officer. Ground raised of the revenue is, therefore, dismissed. 14. We also notice that the Coordinate Bench of ITAT in the case of Sri Venkatesh Paper Agencies (Hyd.) (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle-3(1), Hyderabad [2012] 24 taxmann.com 52 (Hyd.) has decided the similar issue. For the sake of clarity, which is reproduced below:- Held 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 company. Therefore, it has to be seen as to whether such payment is in the nature of interest as envisaged under section 2(28A). As seen from the order of the ITAT Ahmedabad Bench in the case of ITO v. Parag Mahasukhlal Shah [2011] 46 SOT 302 / 12 taxmann.com 37 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 defi....