Usance interest for delayed payment to holding company liable to TDS

Usance interest for delayed payment to holding company was interest u/s 2(28A) liable for TDS under section 195.

Conclusion: Usance interest paid for the delayed payment to its holding company was not any part of purchase price of goods and was interest within the definition of term ‘interest’ under section 2(28A), therefore, assessee was liable to withhold tax under section 195 from said payment.

Held: Assessee during the year had imported goods from its holding company mainly M/s. S Pvt. Ltd. but failed to make the payment on the due date. Therefore, assessee had to pay usance interest for the delayed payment to its holding company. The usance interests was incurred by assessee during the year which was paid without deducting the TDS u/s. 195 r.w.s. 40(a)(i). Assessee submitted that usance interest should be treated as part of the purchase price of the goods and the same did not fall in the definition of interest as prescribed u/s 2(28A). AO disallowed deduction on usance charges. In the case of Vijay Ship Breaking Corporation it was held usance interest paid by assessee was not any part of purchase price of goods and was interest within the definition of term ‘interest’ under section 2(28A). Thus, following the same, assessee was liable to withhold tax under section 195 from said payment.

ACIT Vs M/s. Overseas Trading and Shipping Co. Pvt. Ltd. (ITAT Rajkot)

 ITA No. 211/Rjt/2007