Section 194A of the Income-tax Act, 1961

Last updated: 09 October 2007

Court :
IN THE ITAT DELHI BENCH ‘F’

Brief :
Section 194A of the Income-tax Act, 1961 - Deduction of tax at source - Interest other than interest on securities - Assessment years 2000-01 and 2001-02 - Whether where assessee had borrowed money from financiers for making payment to its suppliers and had paid ‘financial charges’ to financiers and debited same under head ‘Discounting charges’, said discounting charges were in nature of interest which were liable for tax deduction at source under section 194A - Held, yes Facts 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. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer. On second appeal, the assessee 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.

Citation :
Kanha Vanaspati Ltd. v. Additional Commissioner of Income-tax, Range-50, New Delhi