Thursday, January 28, 2016

Income Tax: Interest paid on late payment court decision


BRIEF: Interest paid on delayed payment of purchases is not interest within the definition of section 2(28A) of the Act, thus no TDS is required to be made.

OUR COMMENTS: The assessee is an individual and is a dealer and distributor of tractors. He filed it income tax return and while his assessment under section 143(3) the Assessing Officer disallowed interest payments made to Escorts Ltd. for non deduction of tax on such interest.

The assessee contended that interest was paid to Escorts Ltd. for delayed payment of dues on account of purchase of tractors for assessee's business as a dealer. The interest paid here is a trading liability and it will not partake the character of interest within the definition of interest under the provisions of 2(28A) of the Act and hence, no TDS is required to be made. However, the Assessing Officer rejected this contention and disallowed the said interest payment.

The Hon’ble ITAT held that the definition of the term interest as given in section 2(28A) of the Act would mean interest payable in any manner in respect of any monies borrowed or debt incurred including a deposit, claim or other similar right or obligation and includes any service fee and other charges in respect of the monies borrowed or debt incurred in respect of any credit facility which has not been utilised.

The impugned payment here has a direct link and immediate nexus with the Trade liability being connected with the delayed purchase payment, hence, did not fall within the category of "Interest" as defined in Sec. 2(28A) of the I.T. Act for the purpose of deduction of Tax at Source as prescribed u/s. 194A of the Act.

Therefore, the assessee cannot be held a defaulter of non deduction of tax at source u/s. 194A of the Act

[Decided against revenue]

Chartered Accountants


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