DCIT, New Delhi v. M/s. Cargill Global Trading (I) (P) Ltd., New Delhi

ITA 519/DEL/2010 | 2005-2006
Pronouncement Date: 09-04-2010 | Result: Dismissed

Appeal Details

RSA Number 51920114 RSA 2010
Assessee PAN AACCC0446P
Bench Delhi
Appeal Number ITA 519/DEL/2010
Duration Of Justice 2 month(s) 4 day(s)
Appellant DCIT, New Delhi
Respondent M/s. Cargill Global Trading (I) (P) Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 09-04-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 09-04-2010
Date Of Final Hearing 05-04-2010
Next Hearing Date 05-04-2010
Assessment Year 2005-2006
Appeal Filed On 04-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA : VICE PRESIDENT AND SHRI RAJPAL YADAV: JUDICIAL MEMBER ITA NO. 519/DEL/10 ASSTT. YR: 2005-06 DCIT CIR. 3(1) VS. M/S CARGILL GLOBAL TRADING ( I) (P) LTD. NEW DELHI. 111 RECTANGLE-I SAKET DISTT. CENTR E NEW DELHI-17. PAN/ GIR NO. AACCC0446P ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI STEPHEN GEORGE CIT DR RESPONDENT BY : MRS. PREETI GOEL ADVOCATE O R D E R PER G.E. VEERABHADRAPPA V.P. : THIS APPEAL FILED BY THE REVENUE ARISES OUT OF THE ORDER DATED 5-11- 2009 OF THE CIT(APPEALS) FOR A.Y. 2005-06. 2. THE ONLY ISSUE RAISED IN THIS APPEAL RELATES TO DELETION OF ADDITION OF RS. 30 46 27 620/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISCOUNTING CHARGES. THE ASSESSING OFFICER HELD SUCH DISCOUNTIN G CHARES IN THE NATURE OF INTEREST AND SINCE THE ASSESSEE HAS NOT DEDUCTED TD S ON PAYMENT OF SUCH INTEREST THE SAME IS NOT ALLOWABLE IN VIEW OF THE PROVISIONS CONTAINED IN SECTION 40(A)(I) OF THE INCOME-TAX ACT. 2 3. THE ASSESSEE WAS GETTING SALE BILLS DISCOUNTED FROM ITS SINGAPORE ASSOCIATED ENTERPRISE FOR RECEIVING MONEY ON THE ST RENGTH OF THE SALE BILLS. QUERY WAS RAISED BY THE ASSESSING OFFICER AS TO WHY THE DISCOUNTING CHARGES IN RESPECT OF BILL DISCOUNTING TRANSACTIONS WITH CA RGILL FINANCIAL SERVICES ASIA PTE. LTD. SINGAPORE (CFSA); AND CARGILL TSF A SIA PTE. LTD. SINGAPORE (CTSFA) BE NOT DISALLOWED. THE ASSESSING OFFICER O PINED THAT SAID DISCOUNTING CHARGES WAS NOTHING BUT INTEREST AND WA S COVERED BY THE DEFINITION OF INTEREST IN SECTION 2(28A) OF THE I .T. ACT. HE WAS OF THE VIEW THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURC E U/S 40(A)(I) IN RESPECT OF SUCH PAYMENT AND SINCE THE ASSESSEE WAS FOUND TO HA VE MADE THE PAYMENT TO A NON-RESIDENT WITHOUT DEDUCTION OF TAX AT SOURCE THE SAME WAS DISALLOWED U/S 40(A)(I) OF THE ACT. 4. THE CONTENTION OF THE ASSESSEE WAS THAT SUCH DIS COUNTING CHARGES WERE NOT IN THE NATURE OF INTEREST AS DEFINED U/S 2(28A ) OR DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA). THE INCOME IS IN THE NA TURE OF BUSINESS PROFITS WHICH IS NOT TAXABLE IN INDIA IN THE ABSEN CE OF THE PERMANENT ESTABLISHMENT (PE) OF BUYER OF BILLS OF EXCHANGE. T HE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THIS VIEW OF THE AS SESSEE HAS BEEN ACCEPTED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 200 4-05 VIDE ORDER DATED 9- 3 10-2009 IN ITA NO. 684/DEL/09. A COPY OF TRIBUNALS ORDER HAS ALSO BEEN PLACED ON RECORD. 5. THE LEARNED DR ON THE OTHER HAND FAIRLY AGREED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESAID ORDER OF THE TRIBUNAL. 6. WE HAVE CAREFULLY CONSIDERED RIVAL CONTENTIONS. IN OUR VIEW THE ISSUE IS SQUARELY COVERED BY OUR ORDER IN ASSESSEES OWN CASE FOR A.Y. 2004-05 (SUPRA). THE TRIBUNAL HAS DISPOSED OFF THE ISSUE AS UNDER: 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN TH E INSTANT CASE THE FACTS LIE IN A NARROW COMPASS INASMUCH AS THAT ONCE THE G OODS ARE EXPORTED OUT OF INDIA BY THE ASSESSEE COMPANY THE ASSESSEE DRAW A BILL OF EXCHANGE ON THE BUYER AND THEREFORE DISCOUNTS THE AFORESAID BIL L OF EXCHANGE TO CFSA. THEREFORE AS A RESULT OF DISCOUNT OF THE BILL OF E XCHANGE BY THE ASSESSEE COMPANY IT RECEIVES IMMEDIATELY DISCOUNTED VALUE O F THE BILL OF EXCHANGE I.E. FACE VALUE LESS DISCOUNT TO THE APPELLANT. THE SHORT ISSUE IS WHAT IS THE NATURE OF THIS DISCOUNT? ACCORDING TO THE ASSESSEE THE AFORESAID DISCOUNT IS NOT IN THE NATURE OF INTEREST AND HENCE IS NOT D ISALLOWABLE UNDER SECTION 40(A)(I) O THE ACT WHEREAS THE ASSESSING OFFICER HA S HELD THAT THIS SUM IS IN THE NATURE OF INTEREST UNDER SECTION 2(28A) OF T HE ACT. SECTION 2(28A) OF THE ACT PROVIDES AS UNDER:- 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 A NY CREDIT FACILITY WHICH HAS NOT BEEN UTILIZED. IT WILL BE EVIDENT FROM THE ABOVE THAT INTEREST PAY ABLE IN ANY MANNER IN RESPECT OF ANY MONEYS BORROWED OR DEBT INCURRED AND INCLUDES ANY SERVICE FEE OR OTHER CHARGES IN RESPECT OF THE MONEYS BORRO WED OR DEBT INCURRED OR IN RESPECT OF ANY CREDIT FACILITY WHICH HAS NOT BEE N UTILIZED. IT IS THUS SEEN THAT INTEREST MEANS EITHER SUM PAYABLE IN RESPECT O F ANY MONEY BORROWED OR DEBT INCURRED. IN THE INSTANT CASE IT IS NOT A CASE OF DEBT INCURRED OR MONEYS BORROWED. IN FACT HERE IS A CASE WHERE THE ASSESSEE HAS MERELY DISCOUNTED THE SALE CONSIDERATION RECEIVABLE ON SAL E OF GOODS. IT IS NOT A CASE WHERE ANY MONEY HAS BEEN BORROWED OR DEBT HAS BEEN INCURRED. IT IS ALSO NOT A CASE WHERE ANY SERVICE FEE OR EITHER CHA RGE HAS BEEN PAID IN 4 RESPECT OF MONEY BORROWED OR DEBT INCURRED OR IN RE SPECT OF ANY CREDIT FACILITY WHICH HAS NOT BEEN UTILIZED. IT IS NOT A C ASE WHERE SECTION 2(28A) OF THE ACT CAN BE INVOKED. 9. THE WORD INTEREST IS DIFFERENTLY DEFINED UNDER INTEREST TAX ACT. AS PER SECTION 2(7) OF INTEREST TAX ACT INTEREST MEANS INTEREST ON LOANS AND ADVANCES MADE IN INDIA AND INCLUDES (A) COMMI TMENT CHARES ON UNUTILIZED PORTION OF ANY CREDIT SANCTIONED FOR BEI NG AVAILED OF IN INDIA AND (B) DISCOUNT ON PROMISSORY NOTES AND BILLS OF E XCHANGE DRAWN OR MADE IN INDIA. THUS WHERE THE LEGISLATURE WAS CONSCIOUS OF THE FACT THAT EVEN THE DISCOUNT OF BILLS OF EXCHANGE IS TO BE INCLUDED WIT HIN THE DEFINITION OF INTEREST THE SAME WAS BASICALLY SO PROVIDED FOR. H OWEVER UNDER THE SCHEME OF INCOME-TAX ACT THE WORD INTEREST DEFINE D UNDER SECTION 2(28A) DOES NOT INCLUDE THE DISCOUNTING CHARGES ON DISCOUNTING OF BILLS OF EXCHANGE. THOUGH THE CIRCULAR NO. 65 WAS RENDERED I N RELATION TO DEDUCTION OF TAX UNDER SECTION 194A IN RESPECT OF PAYMENT TO A RESIDENT THE SAME WILL BE RELEVANT EVEN FOR THE PURPOSE OF C ONSIDERING WHETHER THE DISCOUNT SHOULD BE TREATED AS INTEREST OR NOT. THE CBDT HAS OPINED THAT WHERE THE SUPPLIER OF GOODS MAKES OVER THE USANCE B ILL/HUNDI TO HIS BANK WHICH DISCOUNTS THE SAME AND CREDITS THE NET AMOUNT TO THE SUPPLIERS ACCOUNT STRAIGHTAWAY WITHOUT WAITING FOR REALIZATIO N OF THE BILL ON DUE DATE THE PROPERTY IN THE USANCE BILL/HUNDI PASSES ON TO THE BANK AND THE EVENTUAL COLLECTION ON DUE DATE IS A RECEIPT BY THE BANK ON ITS OWN BEHALF AND NOT ON BEHALF OF THE SUPPLIER. FOR SUCH CASES O F IMMEDIATE DISCOUNTING THE NET PAYMENT MADE BY THE BANK TO THE SUPPLIER IS IN THE NATURE OF A PRICE PAID FOR THE BILL. SUCH PAYMENT CANNOT TECHNICALLY BE HELD AS INCLUDING ANY INTEREST AND THEREFORE NO TAX NEED BE DEDUCTED AT SOURCE FROM SUCH PAYMENT BY THE BANK. THE DECISION RELIED BY THE ASS ESSING OFFICER IN THE CASE OF VIJAY SHIP BREAKING CORP. (SUPRA) HAS BEEN REVERSED BY THE HONBLE SUPREME COURT AS REPORTED IN THE CASE OF VI JAY SHIP BREAKING CORPORATION VS. CIT 219 CTR 639. THE HONBLE SUPREM E COURT HELD THAT USANCE INTEREST PAYABLE OUTSIDE INDIA BY AN UNDERTA KING ENGAGED IN THE BUSINESS OF SHIP BREAKING IS EXEMPT FROM PAYMENT OF INCOME-TAX BY VIRTUE OF EXPLANATION 2 ADDED TO SECTION 10(150(IV)(C) WIT H RETROSPECTIVE EFFECT FROM 1.4.1962 AND HENCE THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT. THE DISCOUNTIN G CHARGES ARE NOT IN THE NATURE OF INTEREST PAID BY THE ASSESSEE. RATHER AFT ER DEDUCTING DISCOUNT THE ASSESSEE RECEIVED NET AMOUNT OF THE BILL OF EXCHANG E ACCEPTED BY THE PURCHASER. CFSA NOT HAVING ANY PERMANENT ESTABLISHM ENT IN INDIA IS NOT LIABLE TO TAX IN RESPECT OF SUCH DISCOUNT EARNED BY IT AND HENCE THE ASSESSEE IS NOT UNDER OBLIGATION TO DEDUCT TAX AT SOURCE UND ER SECTION 195 OF THE ACT. ACCORDINGLY THE SAME AMOUNT CANNOT BE DISALLO WED BY INVOKING SECTION 40(A)(I) OF THE ACT. 5 6.1. THE ISSUE IN DISPUTE IS THUS COVERED BY THE A FORESAID VIEW OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2004-0 5. THE CIT(A) HAS JUST FOLLOWED THIS ORDER WHICH IS BIDING UPON HIM. THUS WE FIND NO REASON TO INTERFERE IN THE ORDER OF CIT(A). 7. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN ON 9-4-2010. SD/- SD/- (RAJPAL YADAV ) ( G.E. VEERABHADRAPP A ) JUDICIAL MEMBER VICE PRESIDENT DATED: 9 TH APRIL 2010. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR