Case Law Details
DCIT Vs 3i Infotech Consultancy Services Limited (ITAT Mumbai)
ITAT held that factoring charges incurred by the assessee company is not in the nature of interest and that the assessee was not under the obligation to deduct TDS as per the provisions of section 40(a)(ia) of the I.T. Act. For this, we would like to place our reliance on the decision of Hon’ble Supreme Court in the case of Bombay Steam Navigation Co. P. Ltd vs CIT (1963) 56 ITR 52 (SC) which held that interest on unpaid purchase price is not in the nature of interest on loan and for any amount which is to be categorised as “interest” it is essential that the same is payable in respect of money borrowed or debt incurred. Upon perusal of the definition of ‘interest’ as per section 2(28A) which is extracted below 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 utilised.”
From the above definition, interest pertains only to monies borrowed or debt incurred or for any credit facility. In the present case in hand, there is no such classification of money involved which attracts the said “interest”. The transaction entered into by the assessee is with M/s SBI Global Factors Ltd is only a discounted sale consideration arising out of debts purchased by M/s SBI Global Factors Ltd from the assessee. This does not extend to the nature of debt thereby establishing that discounting / factoring charges are not in the nature of “interest” as defined in section 2(28A) of the I.T. Act.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
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