17 March 2017
"weather the amount of interest received from buyer under MSMED Act 2006 will be subjected to income tax once again at the hands of MSME supplier? "
for convenience the Sec.22 & Sec.23 of MSMED Act 2006 is extracted herein below:
22. Requirement to specify unpaid amount with interest in the annual statement of accounts.—Where any buyer is required to get his annual accounts audited under any law for the time being in force, such buyer shall furnish the following additional information in his annual statement of accounts, namely:— (i) the principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier as at the end of each accounting year; (ii) the amount of interest paid by the buyer in terms of section 16, along with the amounts of the payment made to the supplier beyond the appointed day during each accounting year; (iii) the amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified under this Act; (iv) the amount of interest accrued and remaining unpaid at the end of each accounting year; and (v) the amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure under section 23.
Section 23 in The Micro, Small and Medium Enterprises Development Act, 2006 23. Interest not to be allowed as deduction from income.—Notwithstanding anything contained in the Income-tax Act, 1961 (43 of 1961), the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act, shall not, for the purposes of computation of income under the Income-tax Act, 1961, be allowed as deduction.
17 March 2017
As per text forwarded by you , it is written that the interest paid by the borrower will nit be allowed as deduction. However, the MSMED Act is silent on the interest received by supplier. Now, as per Income Tax Act there is no exemption or relief provided, hence the interest is chargeable to tax. By 'Once again', you mean what, please clarify?.
18 March 2017
The form of the money remained " Interest " and the "transaction" or "passage" is one. Hence for every one passage tax is liable only once. For one passage of money income tax shall be one.
In prudential practices it is duty of the suppliers to maintain balance dues and interest recoverable and pay tax year on year and when received the amount would be tax free.
Due to special statute expressly providing for the duties on the buyer when the amount is received that shall remain tax free is force my argument.
18 March 2017
Sir, you are right that the interest would be doubly taxed as it would be taxed in the hands of buyer and supplier both. But, that is the irony of our laws. Though it is specified that the interest would not be available as deduction in the hands of buyer, there is nothing mentioned about it being exempt or tax-free in the hands of supplier. And unless specifically mentioned, the tax law would not treat it as exempt or tax -free in the hands of supplier though it would not grant deduction on the same to the buyer. Your argument is reasonable Sir, and that should be the case however, the law is framed like that. So i think that the interest would be chargeable once again here.
CAclubindia
