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

ITA 519/DEL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4203 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-04-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 04-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: STEPHEN GEORGE
• Assessee Lawyers: MRS PREETI GOEL
• Keywords: Transfer pricing; Retrospective amendment; Permanent establishment

Judgement 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