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.
