Law:

Section:

Section 2(28A), read with sections 40(a)(i) and 37(1), of the Income-tax Act, 1961 - Interest - Meaning of - Assessment years 2004-05 and 2005-06 - Assessee was engaged in export business - During assessment proceedings, Assessing Officer noticed that assessee had paid a sum of Rs. 3.97 crores to CFSA which was a company incorporated in Singapore on account of discounting charges for getting export sale bills discounted - Assessing Officer was of view that discounting charges were nothing but interest within ambit of section 2(28A) - Since assessee had not deducted tax at source under section 195, he invoked provisions of section 40(a)(i) and disallowed sum of Rs. 3.97 crores claimed by assessee under section 37(1) - Commissioner (Appeals) deleted addition holding that discount paid by assessee to CFSA could not be held to be interest and therefore, provisions of section 40(a)(i) would not apply and, accordingly, he allowed expenditure of Rs. 3.97 crores as claimed by assessee - Whether since discounting charges paid were not in respect of any debt incurred or money borrowed, instead, assessee had merely discounted sale consideration respectively on sale of goods, same could not be construed as interest within meaning of section 2(28A) - Held, yes - Whether therefore assessee's claim was to be allowed - Held, yes Circular and Instructions: - CBDT Circular No. 65, dated 2-9-1971; CBDT Circular No. 674, dated 22-3-1993 FACTS The assessee was engaged in export business. During the assessment proceedings, the Assessing Officer noticed that the assessee had paid a sum of Rs. 3.97 crores to CFSA which was a company incorporated in Singapore on account of discounted charges for getting the export sale bills discounted. The Assessing Officer was of the view that discounting charges were nothing but interest within ambit of section 2(28A). Since assessee had not deducted tax at source under section 195, he invoked provisions of section 40(a)(i ) and disallowed sum of Rs. 3.97 crores claimed by assessee under section 37(1). On appeal, the Commissioner (Appeals) deleted addition holding that discount paid by assessee to CFSA could not be held to be interest and therefore,…

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