Case Law Details
The pre-payment discount given by the taxpayer cannot be equated to quantity discount since quantity discount is reduction in sale price. The pre-payment discount was effectively in the nature of interest because it was in consideration of the taxpayer receiving advance payment and to compensate the buyer for making the payment in advance before the sale of goods. Mere nomenclature will not change its character. Section 195 of the Act required the taxpayer to deduct tax from any sum paid to a non-resident which was chargeable under the Act. The pre-payment discount allowed by the taxpayer was a ‘credit of income’ to the account of the buyer.
in the present case, the benefit allowed by the assessee to its buyers under the name of discount is in fact in the nature of interest because the same is in consideration of receiving advance payment. On receiving advance payment, one may compensate the maker of advance payment by way of allowing interest or the same benefit can be given the name of discount but merely because a different nomenclature has been given, it does not change its character. Under these facts, we are of the considered opinion that TDS was deductible u/s 195 of the Act and therefore discount amount was disallowable u/s. 40(a) (i) of the Act.
It appears that learned judge not fails to appreciate the difference between cash discount and interest. “is in the nature of interest” and “interest” per se is totally different in meaning and purport. There is no question of interpretation of any language issue as it is abundantly clear. Question of interpretation and judgement comes into place only when there is ambiguity. We are living in a civilized society driven by rule of law. Where matter is clear then there is no need to interpret “is in the nature of”. Whatever is there in the front is being ignored and whatever is not there is being highlighted by way of interpretation. This is nothing but twisting the law. CBDT should review this judgement and take proper action so that judgement delivered is respected at all level. This is my spontaneous reaction after reading above article.