Case Law Details
Delhi High Court in the case of DCIT Vs. Cargill Global Trading (I) (P) Limited on the issue of whether discounting charges paid to a non-resident on discounting of bills of exchange (BEs) can be characterized as ‘interest’, liable for withholding held that the discounting charges are not in the nature of ‘interest’ since they are not payable in respect of money borrowed or debt incurred by the Taxpayer.
Accordingly, the discounting charges are business income, not covered by the special source rule applicable to interest income. As the recipient non-resident does not have a permanent establishment (PE) in India, it is not liable to tax in respect of such discounting charges and, consequently, the Taxpayer is not obliged to withhold tax from such payment.
Background and facts
The Taxpayer is in the export business. On exports made by the Taxpayer on credit terms, the Taxpayer draws BEs on the buyers for the sale value, with a maturity period of about six months. The Taxpayer discounts the BEs with its non-resident associate concern, a company that is a tax resident of Singapore (SingCo), on ‘without recourse’ basis. SingCo is engaged in the business of underwriting, acquiring, owning, selling etc., of securities, negotiable instruments, commercial papers etc., and has no presence in India.
On account of discounting on ‘without recourse’, SingCo purchases BEs on its own behalf and collects payment for itself on the due date and has no right to proceed against the Taxpayer even if there is default by the foreign buyer.
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