08 March 2008
i have problem on tds u/s 194A:one of our client (steel business -listed company turnover Rs. 700 crores)is discounting purchase bills with a non-banking finance comapny i.e. the said client is submitting a post-dated-cheque with the invoice (say invoice value Rs. 100 and cheque for Rs. 105, inturn the finance co is paying off Rs. 100 which is the invoice amount to the suppliers of material of our client. during the 9 months period discounting charges paid rs. 1.234/- crores. the question is:
1.whether these discounting charges amounts to interest??? 2.if yes, whether tds u/s 194A is to be deducted on the above discounting charges??? 3. if yes, please mention the case laws supporting the above issue???
08 March 2008
We have to know the terms of contract. In any case the charges will bear a correlation to cost of funds. Therefore TDS will have to be there.
08 March 2008
No TDS need not be deducted on Discounting Charges.
In the case of ITO vs A.S. babu Sah (2003), the honorable Madras High court had decided that cheque discounting charges are different from interest payments and the provisions of Section 194A are not attracted.
Extending the above logic to the present case, the discounting charges are not to be treated as interest and hence not chargeable to Sec 194A
09 March 2008
Discounting of usance bills and hundis - Where the supplier of goods makes over the usance bill/hundi to his bank which discounts the same and credits the net amount to the supplier’s account straightaway without waiting for realisation 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 of immediate discounting the net payment made by the bank to the supplier is in the nature of a price paid for the bill. Such a payment cannot technically be held as including interest and therefore no tax need be deducted at source from such payments by the bank.
Where there is no immediate discounting and the bank merely acting as agent receives on the expiry of the period the payment for the bill from the buyer on behalf of the supplier and credits it to him accordingly, the bank receives interest on behalf of the supplier and the buyer will have to deduct the tax from the interest.—Circular: No. 65 [F. No. 275/79/ITJ], dated 2-9-1971
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