TDS on Bill discounting
This query is : Resolved
21 October 2007
sir, if i am discounting my bill thru financer and inwhich i passes my trade(property of bill) to financer and hence the financer directly collect payment from my seller. In this process, the financer cut some amount as a bill discounting and remaining amount pay to me. so, my query is wheter i should deduct tax on charged debited to my profit and loss account under the head of 'bill discount'. in recent judgement of of Kanha Vanaspati Ltd..v.Additional Commissioner of Income-tax, Range-50, New Delhi, kindly clarify considering this judgement. the main problem is how can i deduct tax as i am not directly paying anything in form of bill discounting as the financer cut the same charges and then after giving me a remaining payment
21 October 2007
DEAR SRI DHAVAL,
THE CASE IN SUMMARY IS REPRODUCED BELOW FOR THE BENEFIT OF OUR CA CLUB MEMBERS INFORMATION AND USE.
AS YOU SEE COURT HAS PASSED STRICTURES THAT IN FACT IT IS A CASE OF INTEREST PAYMENT WHICH EVEN THE DIRECTOR OF THE COMPANY ADMITTED AND THAT IGNORANCE OF LAW IS NO EXCUSE.
SO I FEEL UNTIL THIS CASE IS OVERRULED BY ANY OTHER OR A HIGHER COURT, WE ARE BOUND BY IT AND TDS IS APPLICABLE IN BILL DISCOUNTING CASES.
REGARDS,
R.V.RAO
In the case of Kanha Vanaspati Ltd..v.Additional Commissioner of Income-tax, Range-50, New Delhi, the assessee-company had borrowed money from financiers for making payment to its suppliers. He had paid financial charges to the financiers and debited same under the head ‘Discounting charges’. The Assessing Officer held that said payments were in nature of interest, which attracted the provisions of section 194A and, accordingly, levied interest under section 201(1)/201(1A) and also imposed penalty under section 271C. They further that contended, that it bona fide believed that it was paying discounting charges for discounting of the bills of suppliers and since section 194A requires deduction of tax at source only on the payment of interest, it did not deduct tax at source on payment of discounting charges.
The court however held that the story of bill discounting charges had been advocated to confuse the whole issue. A simple short-term loan arrangement with financiers had been presented as bill discounting arrangement. Even the bill discounting charges are also in nature of interest falling in the definition of interest under section 2(28A). Therefore, the transactions with the financiers were of simple loan arrangement and remained uncontroverted by the assessee. The director of the assessee-company during the course of survey, had also admitted that so called bill discounting charges were in nature of interest.
Moreover, the ignorance of the law is of no excuse. Also the words ‘reasonable cause’ would not take in its sweep an error or misconception of law. Therefore, the contention of the assessee, that there was a confusion about the nature of so-called bill discounting charges, could not be treated as reasonable cause that the assessee was under a bona fide belief that tax at source was not deductible. This could not be a reasonable cause also for non-deduction of tax at source. The provisions of section 271C do not have any requirement of mens rea to be proved before levy of penalty under this section.
THE CASE IN SUMMARY IS REPRODUCED BELOW FOR THE BENEFIT OF OUR CA CLUB MEMBERS INFORMATION AND USE.
AS YOU SEE COURT HAS PASSED STRICTURES THAT IN FACT IT IS A CASE OF INTEREST PAYMENT WHICH EVEN THE DIRECTOR OF THE COMPANY ADMITTED AND THAT IGNORANCE OF LAW IS NO EXCUSE.
SO I FEEL UNTIL THIS CASE IS OVERRULED BY ANY OTHER OR A HIGHER COURT, WE ARE BOUND BY IT AND TDS IS APPLICABLE IN BILL DISCOUNTING CASES.
REGARDS,
R.V.RAO
In the case of Kanha Vanaspati Ltd..v.Additional Commissioner of Income-tax, Range-50, New Delhi, the assessee-company had borrowed money from financiers for making payment to its suppliers. He had paid financial charges to the financiers and debited same under the head ‘Discounting charges’. The Assessing Officer held that said payments were in nature of interest, which attracted the provisions of section 194A and, accordingly, levied interest under section 201(1)/201(1A) and also imposed penalty under section 271C. They further that contended, that it bona fide believed that it was paying discounting charges for discounting of the bills of suppliers and since section 194A requires deduction of tax at source only on the payment of interest, it did not deduct tax at source on payment of discounting charges.
The court however held that the story of bill discounting charges had been advocated to confuse the whole issue. A simple short-term loan arrangement with financiers had been presented as bill discounting arrangement. Even the bill discounting charges are also in nature of interest falling in the definition of interest under section 2(28A). Therefore, the transactions with the financiers were of simple loan arrangement and remained uncontroverted by the assessee. The director of the assessee-company during the course of survey, had also admitted that so called bill discounting charges were in nature of interest.
Moreover, the ignorance of the law is of no excuse. Also the words ‘reasonable cause’ would not take in its sweep an error or misconception of law. Therefore, the contention of the assessee, that there was a confusion about the nature of so-called bill discounting charges, could not be treated as reasonable cause that the assessee was under a bona fide belief that tax at source was not deductible. This could not be a reasonable cause also for non-deduction of tax at source. The provisions of section 271C do not have any requirement of mens rea to be proved before levy of penalty under this section.
21 October 2007
sir, thanks for your resposes. sir, the difference between above case of Kanha Vanaspati Ltd..v.Additional Commissioner of Income-tax and my case is that they are paying interest for borrowing while in my case the interest(bill discount charge) is directly deducted by the financer does that make any change for applying 194 A ?
21 October 2007
Service Tax/ Vat and other Taxes Debited to Profit & Loss Account, Income Tax TDS is Balance Sheet Figure or Debited to Proprier Capital Account, Parterns Capital Account
21 October 2007
discounting of bill by financer for making immediate payment. For doing this, the finacner has charges in form of bill discounting. is this one type of interest for borrowing and is it liable to tds u/s194a
22 October 2007
SRIDHAVAL,
WHETHER YOU DEDUCT OR FINANCIER DEDUCTING MAKES NO DIFFERENCE. I FEEL YOU ARE LIABLE.
PL. TAKE A WRITTEN LEGAL OPINION. IT GIVES A CERTAINITY BEING A LEGAL MATTER AND OF USE FOR ALL FUTURE ACTIONS.
R.V.RAO
WHETHER YOU DEDUCT OR FINANCIER DEDUCTING MAKES NO DIFFERENCE. I FEEL YOU ARE LIABLE.
PL. TAKE A WRITTEN LEGAL OPINION. IT GIVES A CERTAINITY BEING A LEGAL MATTER AND OF USE FOR ALL FUTURE ACTIONS.
R.V.RAO
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23 October 2007
YEAS.TDS ON BILL DISCOUNTING. CONSIDERING OUR FORUM VIEWS AND YOUR OTHER INTERACTIONS IF ANY ON THE SUBJECT, I SUGGEST PL. GO FOR A COMPREHENSIVE LEGAL OPINION IN WRITING TO ARRIVE AT A CERTAINITY.
R.V.RAQO
R.V.RAQO
24 October 2007
the other openion for TDS on Bill Discounting is :
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
but does it make any difference if the financer is not a bank but a private party
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
but does it make any difference if the financer is not a bank but a private party
25 October 2007
yes, its different
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