Sri Venkatesh Paper Agencies (Hyd.) (P.) Ltd. [ITA No.: 636 (Hyd) of 2011] (Hyderabad ITAT) Background: The assessee is engaged in the business of paper and boards. During the course of assessment proceedings, the AO found that the assessee has claimed interest payment of Rs. 3,12,600 to M/s. Sinermas Pulp & Papers Ltd. without deducting tax at source. The assessee contended that the amount of Rs. 3,12,600 was paid as interest on the overdue bills and that the payment of interest was not on a deposit or loan but on purchases. Therefore, it is not required to deduct tax at source. The AO however, did not accept the explanation of the assessee and disallowed the sum of Rs. 3,12,600 u/s. 40(a)(ia) on the reasoning that whether the assessee paid the interest in respect of delayed payment of purchases or deposits or loans it has to deduct tax at source as per the provisions of the Act. CIT(A), came to held that the definition of the term interest as given in section 2(28A) of the Act would mean interest payable in any manner in respect of any monies borrowed or debt incurred and held that the definition of interest is wide enough to take within its ambit the debt owed by the assessee on account of overdue bills.

Interest on trading liability not subject to TDS u/s 194A – Hyderabad ITAT

DIT v Credit Suisse First Boston (Cyprus) Ltd. [IT APPEAL NO. 1026 OF 2011] (Bombay HC) Issue 1: Whether Interest accrued but not due on the balance sheet date is taxable Background: The assessee is a company incorporated in and is a tax resident of Cyprus. It carries on business of banking and was, at the relevant time, registered in India with the Securities & Exchange Board of India (SEBI) as an approved sub-account of Credit Suisse First Boston, a Foreign Institutional Investor (FII). SEBI had permitted the assessee to invest in India exclusively in debt-securities, including Government securities. The assessee follows the mercantile system of accounting. The assessee filed its return of income for the assessment year 2001-2002 on 31st October, 2001, declaring a total income of Rs.5,94,28,493 comprising of interest income from securities and claimed exemption in respect of income on sale of securities. The AO held that Rs.1,21,57,517/- is required to be taxed as interest accrued though not due on securities held by the assessee as on 31st March, 2007, being the last date of the financial year. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted both the additions. The ITAT upheld the order.

Taxability on “Interest accrued but not due”; Excess amt received on sale of govt securities ...

Sheetal Drape (India) Ltd. v. Additional Commissioner of Income-tax-4(3)IT Appeal NO.1323 (MUM.) of 2012 (Mum ITAT) Proviso to section 36(1)(iii) provides that no interest paid shall be allowed as deduction in respect of capital borrowed for acquisition of an asset for extension of existing business for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which the asset was first put to use.In this provision the reference is first to the existing business and then to its extension. It does not refer to setting up an altogether different or new business. In the absence of any specific statutory meaning to the expression ‘extension of existing business’, one has to go by its meaning as understood in common parlance. Assessee shifting its business from rented office to its own Office premises acquired with borrowed funds is extension of existing business within the meaning of proviso to section 36(1)(iii) The instant case is of ‘extension of existing business’ and not that of setting up of a new business, inasmuch as by having its own premises and doing the same business, the assessee will now be in position to carry on its operation at a much wider scale in a hassle free manner. This would obviously result in extension of its existing business.

Shifting from rented to own premises is extension of business – Therefore, interest not allowable ...